New Corporate Form for Socially Minded Companies Gain Traction

by Annearf for CFO Zone, April 23, 2010

For-profit businesses with social and environmental goals, often called “triple-bottom-line” companies, because their environmental and social missions are as important as their financial goals, face a perennial problem when it comes to growth.  Call it the “Ben & Jerry’s” effect. When that socially minded company went public in 1984, it ended up being bought by much less socially minded Unilever 15 or so years later, thereby diluting its original socially minded mission. In other cases, similar businesses could sell controlling shares to investors with big pockets, only to find their non-financial objectives severely watered down by the new owners.

One solution is to pass a law creating a new corporate form requiring that companies take into consideration the interests of non-financial stakeholders and, in effect, ensure their missions can’t be touched.  Last week, Maryland became the first state to pass such a law, establishing a corporate form called a “benefit corporation.”  As such, these “B corporations” will legally be able to consider the interests of employees, the environment, and the larger community in their decision making–and directors can’t be sued if they take actions deemed to be damaging to shareholder financial interests. 

In addition, these companies would have to provide yearly reports about just how they’re contributing to whatever larger goal it is they’re focused on and they would be audited by a third party. 

The concept reflects a theory of corporate governance that says managers should not put shareholders’ interests ahead of those of other stakeholders’ interests even at C corporations. As Margaret Blair, a law professor at Vanderbilt University has written , the theory was once widely accepted but in recent decades has lost traction in US courts….(continue reading)

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