Can Firms Aim to Do Good if It Hurts Profit?

Angus Loten, The Wall Street Journal, April 10th 2013

Investors Could Sue, Citing Corporate Governance Laws, but Some States Are Providing Cover Via Benefit Corporations.

Blake Jones of Boulder, Colo., is one of the many modern entrepreneurs who say their goals extend beyond increasing the bottom line to such pursuits as reducing child poverty or protecting the environment. But he worries that embracing a mission other than maximizing profits could open the door to shareholder lawsuits because of decades-old corporate governance laws.

A co-founder and chief executive of Namaste Solar, Mr. Jones says his eight-year-old company gives 20% of its annual after-tax profits to local projects, such as a nearby children’s museum and a bicycle-recycling program. It also offers up to $30,000 in solar-system installation grants to schools and other nonprofits. But “according to state law,” he says, “we don’t have any legal protection for doing business the way we do” even though such practices attract customers who also “want to do good.”

A dozen states in the past three years, including New York and California, have adjusted their incorporation laws—the same laws that set the “Inc.” or the “Co.” after a company name—to create a new corporate structure known as a benefit corporation. These structures seek to provide some legal cover for entrepreneurs such as Mr. Jones to consider the local community or the environment in corporate decisions, rather than just their shareholders Continue reading…