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Yesterday, New York became the 7th state to pass into law legislation that allows the formation of a new and different type of corporation, one that is required to create benefit for society as well as shareholders: The Benefit Corporation. I heard about this from my friend Barb, whose husband's company will apply immediately to be one of NY's first benefit corporations.


What is a benefit corporation?

Benefit Corporations are a new class of corporation that
1) creates a material positive impact on society and the environment
2) expands fiduciary duty to require consideration of non-financial interests when making decisions
3) reports on its overall social and environmental performance using recognized third party standards.

Benefit corporation momentum has slowly been building for years, with legislation passed in California, Hawaii, Virginia, Maryland, Vermont, New Jersey, and now New York, and pending in North Carolina, Pennsylvania, Michigan, and Washington, D.C..

I have to admit that I didn't know about these new entities until last week, when a friend told me that there was a call for a huge turnout on January 3rd at California Secretary of State Debra Bowen's office at 1500 11th Street in Sacramento, when companies in our state can start filing articles of incorporation under the Benefit Corporation designation, or existing companies can begin the process of transferring to a Benefit Corporation. (AB 361)

I was thinking to myself, "wouldn't this be a nice occasion for the Occupy movement to celebrate and cheer on the corporations lining up to change their status that day?"


2011-bicycle-music-festival_36I don't know about you, but as much as I'm in support of the Occupy movement, I'm someone who gets easily exhausted and burned out from too much protest and saying "no." Perhaps it's the artist in me, but in order to be an effective and authentic advocate for something, I need to be inspired and motivated by positive creations at least as much if not more so than by what's wrong in the world. Sometimes these creations may seem small and insignificant in the grand scheme, but for example, when I advocate for bicycle power in the face of climate change, it is as much to feed my own spirit so I can stay motivated to spread small positive seeds as it is to get big polluters to stop polluting or expect a big breakthrough in climate negotiations.

This is why these new benefit corporation laws are so exciting to me. While it's voluntary at this point and I don't expect Goldman Sachs or BP to be filing for benefit corporation status any time soon, it's a way for many other corporations to show that a different way of doing business is not only possible, but better for the earth, people, and ultimately, for business.

Think about it: If your success as a business depends on the health and sustainability of certain resources, both natural and human, your current obligation to put quarterly short-term profit above all other considerations is actually harmful to your corporation's long-term viability. In other words, if you need clean water to run your operation you'd be crazy to poison the well; if you need wood to build your product, you'd be crazy to chop down the whole forest; if you need motivated and healthy workers to provide a high quality service, you'd be crazy to exploit them. And on a larger, global scale that often removes multinational corporations from their point of impact, if you need a planet on which it is possible for humans and other species to live, you'd be crazy to pump more CO2 into the atmosphere for a short-term profit.


According to Kyle Westaway, a lawyer who studies corporate forms and represented Launcht, the first company to file and officially become a Benefit Corporation in Vermont, this new class of corporation is a milestone for two reasons:  

The law, he says, "broadens the goals of the corporation from [just] profit to: profit, people and planet. Secondly, the Benefit Corporation increases transparency and accountability, by using an independent third party to verify that a business is acting in a socially and environmentally conscious fashion."

Another big reason why a Benefit Corporation designation makes a huge difference is that it allows its owners to weigh factors other than just money, should it later be sold.

Jonathan Storper, a corporate lawyer with SF firm HansonBridgett and one of the architects of the California law, explains the fundamental shift:

Today, if a C Corporation is sold, the law makes clear that it must be sold to the highest bidder, no matter what that high bidder plans to do with the company. If they don’t sell to the highest bidder, a minority shareholder could sue the board.

For example, had the benefit corporation designation existed in Vermont 11 years ago, Ben Cohen and Jerry Greenfield might not have had to sell their ice cream company, or at least not to Unilever, just because they were the highest bidder.

What I often hear and what I think causes a tremendous amount of frustration is the notion that so many good people are stuck in a bad system. How often have we seen people with great intentions go into politics or business just to find that there are mechanisms in place that keep them from creating positive change?


From environmental exploitation and social injustices to unprecedented concentrations of wealth and power and pay-to-play politics, so many of our problems can be traced to the pursuit of profit without regard for the consequences (called "externalities" in current corporate speak). Thus, the idea of a corporation whose mode of operation is based on a triple bottom line is at the core of addressing so many of the problems we face and creating fundamental and meaningful long-term change.

The creation of Benefit Corporations in seven states and growing may not be the sexiest, most outrageous and soundbyte-inducing piece of news, but to me it signifies a huge part of the solution that everyone seems to be clamoring for. While we spend an inordinate amount of time bemoaning what's wrong we often walk right by the things that are right and that need attention and support.

Who knows, there may be business owners reading this, unfamiliar with the Benefit Corporation designation, who will be in line at Debra Bowen's office on January 3rd.

See you there!

[UPDATE] from liberated spaces (who I first found out about this from) in the comments:

I'm thrilled to report that the seats were filled last week at the San Francisco Bay Area Green Chamber of Commerce's sponsored presentation "How to Become a Benefit Corporation." The enthusiasm in the room was palpable as Donald Simon, one of the three Bay Area attorneys who led this effort and co-wrote AB 361, walked attendees through some much amazing detail about this bill. Simon proudly pointed out that this is a piece of legislation that is written in English and not legalese!


Photos by Sven Eberlein
Crossposted at A World of Words

Quick snapshot

Benefit Corp vs. Certified B Corp

Benefit corporations and Certified B Corporations are often, and understandably, confused. Both are sometimes called B Corps by mistake or as shorthand. They share much in common and have a few important differences.

1) Certified B Corporation is a certification conferred by the nonprofit B Lab. Benefit corporation is a legal status administered by the state. Benefit corporations do NOT need to be certified.

2) Certified B Corporations have been certified as having met a high standard of overall social and environmental performance, and as a result have access to a portfolio of services and support that benefit corporations do not.

Originally posted to Ecomusings by Sven Eberlein on Wed Dec 14, 2011 at 10:07 AM PST.

Also republished by J Town, Dream Menders, and SFKossacks.

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