July 17, 2013 was a historic day, one that B Lab’s co-founders call “a tipping point in the evolution of capitalism” and the “coming home” of capitalism to its proper role of creating shared and durable prosperity. It was on this day that Governor Jack Markell of Delaware – a state home to 1 million businesses, including 50% of all publicly-traded companies and 64% of the Fortune 500 – signed Senate Bill 47, legislation that enables the formation of public benefit corporations (PBCs) in Delaware. In brief, this legislation allows PBCs to be managed for the benefit not only of stockholders, but also for public interest and those affected by the corporation’s activities.
I represented SustainAbility (a Certified B Corporation – see our profile) at a celebratory event at the World Economic Forum (WEF) in New York City, where I caught up with Bart Houlahan, a co-founder of B Lab.
Michael Sadowski: I was at the WEF event, and thus felt the importance of Governor Markell’s signing the legislation. Can you describe how you and team are feeling one week on, and the significance of this legislation for the sustainability agenda?
Bart Houlahan: The team, I think, is mostly inspired. The Delaware legislation is a wonderful example of collective impact. It was the result of a multi-year collaboration between government, investors and entrepreneurs to fundamentally rewrite corporate law. This legislation wouldn’t have passed without the tireless work of a dedicated team of attorneys and public officials, the clear demand of hundreds of investors, and, most importantly, the overwhelming support from thousands of entrepreneurs who want to use business as a force for good. The team, however, is clear-eyed that this legislation is only an enabling platform. Its significance to the sustainability agenda will be determined largely by the degree to which it is accepted by investors and adopted by business – that’s the next great challenge for this community.
I’ve heard some debate about whether PBCs are needed – that the current corporate form allows companies to address environmental and social issues. Can you explain why we need PBCs?
It is true that traditional corporations have a degree of flexibility to consider environmental and social issues in their operations under current corporate law so long as those considerations are linked to eventual shareholder value; nothing in this legislation alters that freedom. The market need for Benefit Corporations stems from three issues: clarity, accountability and mission preservation. For those who opt in, the legislation shifts corporate consideration of social and environmental issues from an option to a requirement, providing clarity and mission alignment for directors, executives and investors. Simultaneously, investors who care about social and environmental issues can now hold directors and executives accountable for creating both a financial return and a social return. Finally, the legislation allows entrepreneurs to maintain the mission of the organization, even if there is a change of ownership. Under current corporate law, directors do not have any flexibility to consider other interests in a change of control situation; they are required to maximize shareholder value, often making mission preservation impossible. The Benefit Corporation law changes that dynamic in a sale.
According to your website, PBCs are the same as traditional corporations save three “little” things: higher standards of purpose, accountability and transparency. Many of SustainAbility’s clients are doing these things – so what are the implications for these companies in considering a change in corporate form? What are the benefits and hurdles?
There are several important considerations for businesses investigating Benefit Corporation status, including the interest level of your existing investor base and your current corporate form (LLC’s can already build this into their governance structure). Potential hurdles include the requirement of a super-majority vote to elect Benefit Corporation status (90% in the case of Delaware) and the liquidation rights of dissenting shareholders. You should certainly consult with your corporate counsel regarding these issues – additional resources are also available at www.benefitcorp.net.
With regards to benefits, beyond the preservation of mission mentioned above, perhaps most importantly, this structure offers entrepreneurs the opportunity to run their business with a long-term focus. Benefit Corporation legislation is a market-based solution to short-termism. The legislation allows executives to make decisions based on what’s in the long-term interests of the company and its stakeholders. It allows corporations to return to their roots as place-based businesses, working toward a shared and enduring prosperity for the owners and the community.
B Lab has tremendous momentum, with 20 US states with legislation and nearly 800 Certified B Corporations across 27 countries. How can companies support the effort even if they’re not yet ready to become PBCs?
There are several ways to engage with the B Corp movement. Beyond this legislation, our non-profit, B Lab, has created a corporate certification (Certified B Corporations) to shine a light on those companies that are using business as a force for good. There are now almost 800 Certified B Corporations in 60 different industries. You might consider patronizing Benefit Corporations and Certified B Corporations through a supply chain initiative; several organizations have implemented procurement preferences for B Corporations. If your entire corporation isn’t ready to become a Benefit Corporation, perhaps the certification or new corporate form is more appropriate for a subsidiary of your organization – several B Corps like Ben and Jerry’s, Method and Plum Organics are subsidiaries of multi-national corporations. For your own business, we offer a free, confidential tool to measure your impact called the B Impact Assessment. Over 11,000 companies have used this web-enabled assessment as an internal management tool to improve their social and environmental performance and measure what matters. And lastly, simply help spread the word about this movement – tell your friends and peers about the thousands of inspiring entrepreneurs who are making money and making a difference.
SustainAbility is building on its Certified B Corp status by committing to register its US subsidiary as a Delaware Benefit Corporation when the legislation goes into effect tomorrow, August 1, 2013.