Wednesday, June 20, 2012

A Response to Glenn Tecker on Benefit Corporations

Guest Post
John Dane, CAE, Vice Chair, Benefit Corporation Standards Institute (BCSI)

Thanks to Glenn Tecker for his June 14, 2012  blog post “Thoughts About Benefit Corporations” wherein he reflects upon Shelly and Mark Alcorn’s article “A New Formula for Social Change” appearing the June 2012 issue of the American Society of Association Executives (ASAE) magazine Associations Now.

Mr. Tecker is correct that benefit corporations are new on the American corporate legal landscape. To date ten states and the province of British Columbia have enacted essentially similar laws permitting corporations to pursue specific social and environmental initiatives in addition to their traditional imperative to maximize shareholder value.

Rather than perceiving some disingenuous motive or tax avoidance scheme as he suggests, however, I see the rise of benefit corporations as a positive response to three key international trends.

First, benefit corporations are a legal, commercial and social entrepreneurial-based outgrowth of a broader global sustainability movement. Specifically, benefit corporations have their roots in the “community interest corporation” legislation first passed in the United Kingdom in 2005. With shareholder approval, benefit corporations are now able to allocate a portion of their earnings to social and environmental purposes with lessened risk of shareholder lawsuits.  As the Alcorn’s article points out, the ability to deeply embed social and environmental benefit concepts into the for-profit corporate DNA has tremendous potential for creative partnerships between non-profits, associations and those benefit corporations seeking to devote funds to ongoing social and environmental programs.  These intentional actions have the potential to enhance the global sustainability movement through the infusion of new capital, purpose and private sector energy.

Second, benefit corporations allow firms to more closely align with values-based consumer and socially conscious investment funds. Every day these consumers and fund managers make values-based purchase and investment decisions in the private marketplace based upon a corporation’s social and environmental performance. Under these new state laws, benefit corporations are required to meet third-party standards for specific social and environmental practices. Values-based consumers and investors will “vote with their feet” turning away from those firms that lag in their commitments to these agreed upon standards. This emphasis on values alignment as a substitute for rigid regulatory guidelines has made benefit corporations popular with the political left and right and has permitted swift state legislative passage of benefit corporations with large bi-partisan majorities – a rare occurrence in recent years.

Third, corporate social entrepreneurs such as Yvon Chouinard, founder of Patagonia, have sought ways to take their corporate asset base and apply some portion of it to address international social and environment problems at a scale and with a directedness that has been harder to achieve in the past. The benefit corporation designation permits the realization of this broad social impact vision.

The advent of benefit corporations is pre-dated by the creation of B Lab, a Philadelphia-based 501(c)(3) socially entrepreneurial venture launched by three Stanford graduates. Their pioneering “B Corporation” certification” process has certified over 530 companies in 60 industries accounting for $3.1 billion in annual revenues since its founding. With financial support from The Rockefeller Foundation, The Prudential Foundation, the Robert Wood Johnson Foundation, the Annie E. Casey Foundation and The United States Agency for International Development to name several benefactors, B Lab has played a key role in building their “B Corporation” brand and in expanding the concept to include fundamental changes to state laws through passage of benefit corporation legislation.  In other words - the movement is strong, well funded and well underway.

It is true we believe there is additional room to set credible, meaningful standards for benefit corporations that are different than those currently offered by B-Lab and, contrary to popular belief, obtaining B-Lab's "B Corporation" certification is not a requirement to be a benefit corporation.  We believe associations should rapidly engage in standard setting activities on behalf of their industries and professions.  As more and more companies see the advantages to switching to a benefit corporation structure, associations who want to remain relevant need to be able to build resources and provide assistance to members making the transition. Associations also need to position themselves as a resource to younger members, many of whom are starting new businesses and choosing the benefit corporation designation right from the start. Pretending this movement is going to go away is probably not the best strategy for associations to adopt.

Our Sacramento-based Benefit Corporation Standards Institute (BCSI) is designed to work with international, national and state associations to assist them in establishing social and environmental standards for their respective industries and professions. Developing this expertise builds upon the well-grounded standard setting role associations have played historically, provides associations today with cutting edge relevance, and  permits associations to play a leading role in defining social and environmental values for those member firms choosing to become benefit corporations.

Will some misuse of the benefit corporation movement happen?  Of course.  But the same could be said of many for-profit and non-profits currently in operation today.  We cannot predict with certainty which unintended consequences may arise in the future. However, weighing those concerns against the positive potential of seeing benefit corporations trigger major gains for society and the environment seems worth the risk.  We believe association energy spent on trying to oppose the creation of benefit corporations would be better spent on setting meaningful standards and helping those members who pursue the benefit corporation designation live up to their potential and become forces for good on the national and international stage.

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