Socially responsible investing benefits our future
The return to corporate charters requiring social benefit is marked by Vermont's ratification of the nation's first low-profit limited liability corporation (L3C) in 2008. Today, a total of 9 states have passed L3C legislation; while L3Cs are a great start, the inherited LLC framework does little to attract the investment capital necessary to scale a business. Enter the Benefit Corporation.
In 2010, Maryland was the first state to establish a charter for a Benefit Corporation as its own legal entity. Today, there are seven states with Benefit Corporation legislation on their books and four more with legislation pending. Out of these seven states, California is the only state to ratify two new types of corporate structures - the Benefit Corporation and Flexible Purpose Corporation.
The push to pass legislation establishing Benefit Corporations was largely fueled by B Lab, a non-profit 501(c)(3) established in 2006 that advocated for companies to take the environment, community, employees and suppliers into account in their decision making. B Lab created a certification and auditing scheme that companies could follow to become a certified B Corporation. In the eyes of the law, however, this designation was meaningless. Shareholders could still sue corporate directors for failing to put shareholder returns above all else. Early B Lab adopters would go through the arduous process of amending their corporate charters to include these additional stakeholders in an attempt to shield corporate directors from lawsuits, but it wasn't until Social Benefit Corporations were ratified under law that directors truly received the protections they sought. The pioneering efforts from B Lab provided the model legislation states used to create Social Benefit legislation, so there are many similarities between states. In addition to directors being required to take the environment, community, employees and suppliers into account when making decisions, Social Benefit Corporations are also required to publicly publish a report assessing their performance against a third party standard. B Lab is currently the only firm offering this third party assessment and becoming a B Lab certified company can cost $500 to $25,000 annually.
California Flexible Purpose Corporations are similar and allow founders to choose a specific mission to pursue in addition to profits. This special purpose can be anything that generally benefits society and becomes part of the corporate charter and broadens the duties of its board of directors, from solely maximizing shareholder value to also pursuing an additional purpose. FPCs must also outline goals to achieve their purpose and publish an annual report disclosing progress on achieving those goals.
These new corporate structures provide a wave of opportunity for the private sector to create as much meaningful social impact in the next century as they did profits over the past century. If we can realize only a fraction of that promise, then our society will be much closer to the utopia our founding fathers envisioned — and create profitable, sustainable companies in the process.
At Spud Flower, we're thrilled to have so much passion supporting our work. After all, the most frequently cited reason for people going out of their way to help us is because they would like to use Spud Flower to help their kids save for college.
Steven Tiell is co-founder and CEO of Spud Flower. Prior to starting Spud Flower, he served as Social Entrepreneur in Residence at Olazul, an ecological aquaculture NGO and spent the previous three years consulting with governments and corporations to help make cities more sustainable.
image: The U.S. Army via Flickr cc (some rights reserved)