This is a memo I wrote for my Business Associations class this semester.  We don’t cover b or benefit corps in our curriculum…

I. ISSUE: Profit In Dollars For a Few Over Everything and Everyone Else  

 In corporation law, the conduct of corporations is governed by fiduciary duties that officers of a company owe to their shareholders. Traditionally, these duties revolve around maximizing monetary profit for shareholders and monetary profit for shareholders alone. Considerations of societal impact and/or environmental impact are not deemed reasonable factors in the decision-making of a company if monetary profit for shareholders will lessen, even a little bit. The problem with this is that legally, corporations must put profits for a few over the interests of the rest of society, and the planet.

Concepts such as a “triple bottom line” under this paradigm must remain a dream because officers of corporations may be found guilty of violating their fiduciary duties should they try to engage in business practices that value the interests of society or the environment at even minimal cost to their profit margins.

II. ANALYSIS: Alternatives to Traditional Corporation Filing Status as a Solution to Profit for a Few Over the Rest

  1. B Corps & FPCs – What Are They and How Can They Help?

B Corps are business entities that are certified by third parties specializing in evaluating whether or not companies meet various standards. These standards hinge on social and environmental performance, accountability, and transparency.[1] Currently, more than 950 b corps exist in 32 countries and 60 industries.[2]

One issue that’s come up in the realm of b corps is that of ‘greenwashing,’ something that has happened in the whole foods industry. Greenwashing occurs when third parties, such as those responsible for certifying fair trade or organic business practices, create markets within markets whereby the integrity of their certifications become compromised due to overuse of their certifications for a profit. The irony of greenwashing in a b corp certification industry seems clear; this practice directly contradicts the purpose of corporations gaining a b status in the first place.[3]

There are, however, alternatives to the b corp alternative that exist. These include flexible purpose corporations, which is a filing status available to corporations based in California. The difference between an FPC and a traditional corporation is that the business can elect to give weight to factors such as societal and environmental impact when officers of an FPC are fulfilling their fiduciary duties.[4] The difference between an FPC and a b corp, however, is that with a b corp these considerations must shape the decisions of an organization.

The benefits to society and the planet are obvious in regard to these types of business entities. The benefits to the organizations themselves, however, are less obvious.

Tax breaks, which one might presume are available to these corporations, are not (at least currently). Instead, there is an element of community to this movement, and resources in terms of information and business support are provided to organizations that take these designations and certifications. The idea is that these businesses will be contributing in a sustainable way to the marketplace at large, and in so doing, will build and preserve sustainability for their enterprises as well. [5]

There is also an ideological underpinning to businesses deciding to join this movement. They are committing resources to a model of progress that runs counter to many of the principles that have traditionally undergirded the American financial market, and at this juncture in time, the global market as well.

Another option that serves many businesses even better than either the b corp or FPC models is the benefit corporation.

  1. Benefit Corporations – What Are They and How Do They Help?

Benefit Corporations accomplish what b corps do in terms of re-defining fiduciary duty and allowing for more social responsibility in corporate culture. However, these organizations are different because in the states where they are permitted, these businesses are required by law to uphold a duty of care beyond their bottom line. They are in essence compelled to respect a triple bottom line, and their officers are thus protected from liability should their profits fall below the maximum level they might otherwise reach.[6] (In contrast, b corps receive certification provided they function this way, but they are not legally bound to this new form of fiduciary duty.)

Currently, statutes in seven states permit benefit corporations, with legislation pending or in the process of being introduced in 11 states (North Carolina being one).[7] Companies such as Patagonia and Fast Co are examples of businesses that have taken advantage of this option.[8] To qualify, these firms must:

… have an explicit social or environmental mission, and a legally binding fiduciary responsibility to take into account the interests of workers, the community and the environment as well as [their] shareholders. [They] must also publish independently verified reports on its social and environmental impact alongside its financial results. Other than that, [they] can go about business as usual.[9]

III. CONCLUSION:

Benefit Corporations are gaining popularity in the marketplace because they both promote social responsibility and offer legal protection for companies that seek to act as stewards of our economy. B corps offer similar opportunities and protection, albeit not the same level. And flexible business corporations offer something along these lines as well.   Ultimately, these models offer alternatives to a concept of fiduciary duty that promotes recklessness and exploitation, and much to the surprise of the mainstream business community, they are rapidly picking up steam.

[1] http://www.bcorporation.net/what-are-b-corps

[2] Id.

[3] See http://www.benefitcorp.net/storage/documents/Benecit_Corporation_White_Paper_1_18_2013.pdf.

[4] http://www.hunton-law.com/journal/2012/11/30/contrasting-the-flexible-purpose-corporation.html

[5] Ben & Jerry’s, particularly to off-set the potential harm that may arise due to being bought out by Unilever, has acquired b-corp status in order to maintain some degree of control over its social and environmental impact . See http://www.forbes.com/sites/annefield/2012/10/22/ben-jerrys-poster-child-for-the-b-corp-movement-becomes-a-b-corp/.

[6] See http://benefitcorp.net/what-makes-benefit-corp-different/benefit-corp-vs-certified-b-corp.

[7] See http://www.bcorporation.net/become-a-b-corp/how-to-become-a-b-corp/legal-roadmap/corporation-legal-roadmap.

[8] See http://www.bloomberg.com/news/2012-01-04/patagonia-road-tests-new-sustainability-legal-status.html and http://www.fastcoexist.com/3024770/world-changing-ideas/a-public-company-will-become-a-benefit-corporation.

[9] http://www.economist.com/node/21542432

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