Traditional corporate law defines a manager’s duty as providing value to shareholders. Period. A revolutionary corporate structure — benefit corporations — broadens that definition so managers can operate their businesses to benefit employees, communities and the environment, as well as shareholders.
Because benefit corps are established under state law and require changes in corporate bylaws, the structure can protect a mission-driven company’s values, even through management changes, a sale, or an initial public offering. So far, more than 3,500 benefit corps are registered in the United States, and mainstream investors, including Andreessen Horowitz and Founders Fund, are investing hundreds of millions of dollars in these companies. This year, Italy became the first country outside of the U.S. to adopt benefit corporation legislation, and five other countries are working to legalize the framework.
A number of benefit corps will be sold or go public in coming months, including Laureate Education — a for-profit higher education company with revenues exceeding $4.4 billion and investments from Kohlberg Kravis Roberts. Such IPOs will test this corporate structure’s ability to perform in the marketplace, and will help prove whether the structure can protect a company’s mission and values as intended.
Though sometimes confused, Certified B Corporations are not the same as benefit corporations. B Corporations, rather, are certified when they achieve a high enough score on the B Impact Assessment, which is reviewed by the independent nonprofit called B Lab. The B Impact Assessment gauges such factors as the company’s transparency, sustainability and employee treatment. B Lab does require that every B Corporation assert its values by registering as a benefit corporation, if available in the state in which the business is incorporated.
Thirty-one states have passed benefit corporation legislation, and seven more states have laws in the works. Rick Alexander, head of legal policy at B Lab, says, “Mission-aligned governance is a way of giving businesses tools to solve societal problems that everyone acknowledges we have.” That kind of principled framework has wide appeal. “To date, the success we’ve had in passing legislation has largely been bipartisan. People on both sides of the aisle support it,” Alexander says. What’s the challenge, then, to getting this legislation on the books? According to Alexander, the main obstacle is often the state’s bar association. “We have to convince the bar associations that the legislation is important, and that’s because lawyers want to understand all the potential implications,” he says.
Meanwhile, some people are still suspicious of any suggestion that business might have responsibilities beyond making money. Shark Tank’s Kevin O’Leary has called the idea of running a business to benefit society or the environment “simply un-American.” Judging by the support of benefit corporations in more than 30 states, a lot of people consider the concept American enough.
This article originally appeared as part of the Trending department for the Summer 2016 issue of B Magazine.