Origins and Rapid Growth of Benefit Corporations

The movement for such a new legal form began in the United States under the leadership of a U.S. nonprofit called B Lab, which developed model legislation with the pro-bono help of William H. Clark, Jr., a Pennsylvania lawyer who specializes in corporate and business law, and other lawyers. The state of Maryland was the first to enact such a law, in 2010, which was

Table 19–1. U.S. Movement for Benefit Corporation Laws

approved by lawmakers with strong bipartisan support, as it generally has been in other states.

The benefit corporation movement continues to advance most rapidly in the United States: by November 2013, 18 states and Washington, D.C. had signed such legislation into law. (See Table 19–1.) A similar statute was adopted in Delaware, the state of incorporation for more than a million businesses, including many of the largest U.S. companies. Delaware in 2013 enacted a revision to its corporate code that creates a new corporate structure called a “public benefit corporation,” whose requirements for transparency and public accountability are less rigorous than the version that other states are passing. (See Box 19–1.) Additional benefit corporation proposals were being discussed or had been officially introduced in another 13 states.

Because some states do not keep records on how many companies elect to become benefit corporations, it is impossible to report the current total accurately. B Lab, however, compiles whatever information it can find, including that which states do make available. Based on its data, there were at least 344 benefit corporations in the United States (not counting Delaware's PBCs) by mid-October 2013. Most benefit corporations are either small or medium-sized businesses. But they do include a few larger companies that are privately held, such as the outdoor apparel and accessory firm Patagonia, Inc., which reportedly had annual sales of $540 million for the year ending April 2012, and King Arthur Flour, an employee-owned, 223-year-old company with reported sales of $84 million in 2010.

In Delaware, another 44 companies had filed as “public benefit corporations” (PBCs) by mid-October 2013, according to B Lab's records. One of the first to register in the state was Method, a green cleaning supplies company that had merged not long before that with one of its main competitors, the Belgian company Ecover. The merger produced a privately held company with more than $200 million in annual sales. So while Ecover is privately held, it represents new European engagement in the PBC and benefit corporation community.

Outside the United States, B Lab has partnered with an organization in

Box 19–1. Public Benefit Corporations in Delaware

Delaware's requirements for public benefi corporations (PBCs) differ from other states' typical requirements for benefi corporations in several ways. For example, PBCs do not have to formally commit to a general purpose of having a positive social and environmental impact.

Instead, a PBC must identify in its certifie of incorporation one or more specifi public benefi that the company is intended to produce. Delaware's statute also states that PBCs are intended “to operate in a responsible and sustainable manner.”

Boards of directors of PBCs, however, are required in the company's certificate of incorporation to “manage or direct the business and affairs of the public benefit corporation in a manner that balances the pecuniary interests of the stockholders, the best interests of those materially affected by the corporation's conduct, and the specific public benefit or public benefits.”The requirement to balance earnings with the “best” interests of those affected by the company is arguably a higher standard than what is required of directors under other states' statutes.

Yet Delaware's PBCs, unlike benefi corporations in other states, are not required to make available to the general public reports of their overall impact on all stakeholders. Instead, they must report at least every two years to their stockholders with self-assessments of how well they are doing in promoting the specifi public benefi they have identify and “the best interests of those materially affected by the corporation's conduct.” Their self-assessment does not need to be based on a third-party assessment tool.

There is no mention of the environment as a stakeholder, nor of trying to have a positive environmental impact as a necessary goal. The only reference to “environment” is inclusion of an “environmental” benefit in a list of examples of the kind of specific public benefits a PBC can choose to pursue. Only stockholders who own at least $2 million in market value or at least 2 percent of shares are allowed to challenge directors if they feel that the company is failing to pursue its special obligations as a PBC. In other states, any shareholder concerned that direc tors are not fulfilling their obligations to pursue positive social and environmental impacts can bring action against them. (In neither case can non-shareholders sue directors on such grounds, nor can directors be held financially liable for damages on such grounds.)

B Lab offi consider the Delaware law a signifi advance and include it in their count of benefi corporation statutes. But they and other proponents of the benefi corporation movement also say they hope the Delaware law over time will be strengthened, especially in terms of transparency and reporting requirements. Some note, however, that Delaware generally designs corporate statutes with publicly traded companies in mind, since so many companies incorporate there, and that for those corporations the requirement to report to stockholders is essentially one to report to the general public. Such information would have to be publicly available, for example, if the company's stock were traded on the New York Stock Exchange.

The words “responsible and sustainable” as an intended goal seem ambiguous, and over time this could be interpreted as meaning financially sustainable, not environmentally responsible, given the absence of an environmental mandate in the law. Overall, given the differences between Delaware's PBCs and Delaware's dominance as the state of incorporation for so many corporations, it will be important for public interest advocates to monitor how the movement develops in that state and to support efforts to strengthen the statute there.

Source: See endnote 6.

Chile, Sistema B, to expand the movement to South America. Sistema B has worked in Argentina, Brazil, Chile, and Colombia, exploring with local partners whether the legal infrastructure is in place to allow companies to write or amend their articles of incorporation and bylaws to stipulate that they require themselves to consider the interests of all their stakeholders in making decisions. Jay Coen Gilbert, one of the three co-founders of B Lab, reported in 2013 that a national legislative proposal to provide that option was moving forward in Chile.

B Lab is exploring additional regional partnerships to help expand its scope. That includes assistance in researching and developing, where needed, proposals to provide the legal infrastructure to protect companies seeking to establish a fiduciary responsibility for directors and officers to consider the interests of a broad range of stakeholders.

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