Greening the Corporate Bottom Line
Companies are legally obligated to try to maximize profits. Some states are creating companies that can also factor employees, the community and the environment into financial decisions.
As this fall’s Occupy Wall Street protests showed, there’s a vocal slice of the population that’s dissatisfied with the nation’s current corporate culture. They’re tired of “corporate greed,” they say. Tired of businesses pursuing financial gain above all else.
The problem is that most corporations are actually legally bound to act in their own fiscal self-interest. If a company doesn’t seek to maximize profits, it could be subject to lawsuits from shareholders. That can make it difficult for a corporation that wants to make decisions based on, say, what’s best for the environment, rather than what’s best for their own bottom line.
That could change. A small but growing number of states have passed legislation recognizing a new type of company, known as a “benefit corporation.” Unlike traditional commercial firms, benefit corporations, or B Corps, must create a material positive impact on society. In other words, they must consider how their decisions affect employees, the community and the environment -- not just the firm’s profit margin.
That’s a vital distinction from typical corporations, says Erik Trojian, director of policy for B Lab, a Pennsylvania-based nonprofit. “A corporation has one responsibility, one purpose: to maximize profit. In order to grow this market -- what we call ‘socially conscious businesses’ -- you have to alter the current corporate law. And that’s where benefit corporations come into play.”
Trojian’s organization is looking to carve out a legislative niche for B Corps, to provide legal protection for directors and officers as they pursue nonfinancial social and environmental goals. To that end, B Lab has created model legislation for states to formally recognize B Corps, which number around 500 in the United States right now. Six states -- California, Hawaii, Maryland, New Jersey, Vermont and Virginia -- have already passed B Corps legislation based on B Lab’s model bill. And it’s being considered by legislatures in Colorado, Michigan, New York, North Carolina and Pennsylvania.
In exchange for the special designation, benefit corporations must present an annual public report that assesses their social performance against a third-party standard. For example, if a company builds a sustainable headquarters that harvests solar energy for heat and power, it can use the U.S. Green Building Council’s LEED certification as an independent standard.
What the legislation doesn’t do is provide tax benefits. So what’s in it for B Corps companies? “It provides market distinction, a way to separate yourself from other companies,” Trojian says. “The legislation isn’t saying these are better businesses. Ultimately that will be up to the marketplace. If these companies grow, their impact will grow.”