Story:
Benefit Corporations and the Association Community
We believe the “benefit corporation” concept has the greatest promise for the creation of capitalism that is more principled, patient and socially accountable. Benefit corporations are a new class of corporation specifically designed to allow profit to co-exist with an intentional dedication to wider social and environmental benefit. A nation-wide legislative movement enabling benefit corporations, spearheaded by B-Lab, a Pennsylvania 501(c)(3) entity, is currently underway. The Benefit Corporation Standards Institute (BCSI) innovation on the benefit corporation movement is to purposefully involve the “third sector” (nonprofit trade and professional associations) in the development and promotion of benefit corporations.
We realize the "Story" section of the challenge was asking for a particular change or innovation inside a singular organization and what we describe in here is more "global" in scope. However, we believe the implications of the innovation around benefit corporations are so compelling that we took the chance on this submission.
For-profit entities traditionally have been required under corporate law to achieve one main goal: maximize shareholder value and profits. Pursuit of additional social or environmental objectives exposes Directors to the risk of lawsuits from shareholders interested in profits alone. Despite the historic successes of this traditional corporate model, it focuses shareholders on short-term profitability, minimizes attention to external social and environmental costs and leads to ongoing legislative and regulatory action to correct abuses. Some business scholars, such as Umair Haque (“The New Capitalist Manifesto” Harvard Business Review Press, 2011), argue the time has come for business and industry to adopt a different mindset. Benefit corporations are an important way to address these concerns.
Based in part on the community interest companies (CICs) introduced in the United Kingdom in 2005, benefit corporation legislation is sweeping through the states to create the legal framework to support these enterprises by adjusting existing corporation statutes. As of May 2012, seven states (California, Hawaii, Maryland, New York, New Jersey, Vermont and Virginia) have authorized this new class of corporate enterprise known as the benefit corporation. Similar legislation is moving forward in Illinois, Louisiana, Michigan, Minnesota, North Carolina, Oregon, Pennsylvania, South Carolina, District of Columbia and Wisconsin. (Also, there are similar movements in the international community to legally define social entrepreneurship in countries such as the United Kingdom and Canada, just to name a few.)
We applaud the work that B-Lab ((501(c)(3) out of Pennsylvania) has done in securing a state-by-state legal framework for benefit corporations. Our non-profit, the Benefit Corporation Standards Institute, Inc. (BCSI) formed in January of 2012 intends to build upon that legal framework by engaging many of the approximately 98,000 non-profit trade and professional associations in the United States and inviting them to participate in a collaborative platform to develop social and environmental standards for their respective industries and professions.
A key provision in these benefit corporation statutes is the requirement that prospective benefit corporations meet independent, third-party social and environmental standards. Information regarding how such standards are met is provided by benefit corporations in an annual report filed with their respective secretaries of state and posted on their website detailing for the public performance relative to those standards. In this manner, the broader consumer marketplace, investors and shareholders will be able to assess on their own the results of benefit corporation social and environmental initiatives. No particular third-party standard is specified in the statutes, nor is certification to those standards a requirement. In large measure, these standards are designed to be (1) non-regulatory, (2) “values-aligned” with consumers seeking to do business with socially and environmentally conscious corporations and (3) market-competitive such that the benefit corporation branding builds market share and profitability.
We believe the growth of benefit corporations can be accelerated by securing the active participation of the association community in setting appropriate standards, endorsing standards and promoting such standards to their respective memberships.
Standards set in an International Organization for Standardization (ISO)/American National Standards Institute (ANSI) compliant environment with the credibility, trustworthiness and specificity that can be brought to the process, will be a significant step forward in establishing public confidence in their legitimacy. In this way, associations - the third sector - can take an active and collaborative role in defining the success of benefit corporations. In many cases, these corporations may be their own members.
The first legislative trigger is largely underway or in place. The adoption of the legal statutes authorizing benefit corporations is gaining increasing momentum across the United States. Passage of benefit corporation legislation has been overwhelmingly bi-partisan, an increasingly rare circumstance in recent years in state legislatures.
A second trigger, the international sustainability movement, is also ongoing and provides the context within which benefit corporations will form and thrive. The growing international interest in benefit corporation structure, including CICs in the United Kingdom and “community contribution companies” in British Columbia, demonstrate that the international business community has a vested interest in securing this marketing, branding and social entrepreneurship advantage worldwide. We believe trade and professional associations can be key influencers in this international sphere as well.
The advent of benefit corporations is primarily innovation within the broader sustainability movement and being driven, in large part, by Jay Coen Gilbert and others at B-Lab. The second innovation is what BCSI is doing: leveraging the power of the trade and professional association community to support the development of benefit corporations through a better understanding of their purpose and to participate in a meaningful way in industry-specific standards setting.
Although we cannot predict the absolute timeline since the passage of state benefit corporation legislation is evolving rather quickly, we predict additional innovation will happen in three stages. First -will be raising the awareness of trade and professional executives regarding this unique national policy leadership opportunity. Second - will be inviting local, state, national and international associations to participate in developing meaningful, measurable and transparent standards for their industries, professions, clients and consumers. Third - will be to promote standards adoption within the industries and professions that the associations represent.
One of the biggest challenges will be resistance within the national association community. Some associations have chosen to take an early defensive posture towards the formation of benefit corporations largely out of fear that the benefit corporations are going to be direct competitors. Because most benefit corporation statutes (1) prevent standards development by any party that would have a material financial interest in their adoption, and (2) specify that no more than one-third of a standards setting governing body can be composed of association members, some association leaders feel purposefully cut out of the standards-setting process when associations themselves hold an enormous amount of standard-setting expertise.
This initial perspective may change however as corporations and associations actually begin to engage in standard-setting dialogue and the industry-based expertise they have accumulated is systematically brought into those discussions. This initial perspective may change, too, if association leaders resist industry-standards setting and their individual member corporations take it upon themselves to develop independent third party standards on their own, without the assistance of their trade association.
The last major challenge is the slow decision-making culture and cumbersome governance models within associations that can lead to delays in drafting and implementation of new ideas. These governance challenges can be overcome with enthusiastic staff and volunteer leadership “champions” combined with a clear and compelling call to action.
The consequence of functioning benefit corporations should be to make more private capital available to address global social and environmental challenges. Secondary benefits include (1) an expanded number of socially responsible investment alternatives for stock mutual fund and venture capital investors; (2) a greater amount of investment capital for social entrepreneurs; (3) an increase in the “cause” partnership between existing nonprofit charities and benefit corporations; and (4) favorable differentiation of benefit corporations over traditional business structures, resulting in a competitive advantage for benefit corporations.
For-profit enterprises that conform to benefit corporation law now have access to a legal structure that helps protect Directors from shareholder lawsuits based on pursuit of social and environmental objectives in addition to maximizing profit.
Metrics will be (1) the number of for-profit enterprises that choose to form benefit corporations; (2) the number of local, state, national and international associations participating in the standards setting process; (3) total revenues invested in social and environmental initiatives from benefit corporations; (4) consumer response to benefit corporation promotion and branding; (5) the number of reliable third party standards that are promulgated for different types of businesses; and (6) the number of additional countries and sub-governmental units adopting similar benefit corporation structures.
There will be many lessons to learn along the way. We suggest that for-profit corporate enterprises consider changing their structure to become benefit corporations and to actively work to promote that status. Where possible, benefit corporations should engage with third-party standards setters that best reflect their overall commitment to social and environmental benefits and choose standards that are meaningful and transparent.
The biggest lesson inherent in this movement is that we cannot afford to lay the burden of creating of a new global economy at the feet of any one sector – public, private or associations. It will take all sectors collaborating in concert to develop a capitalism that meets the criteria set by the challenge – principled, patient and socially accountable.
The Board of Directors of BCSI and our legal counsel, plus tons of other people who have been trailblazing through the social entreprenuership world for many years laying the groundwork for these opportunities -
Mark Alcorn, JD., MBA
Shelly Alcorn, CAE
John Dane, CAE
Charles Eley, FAIA, PE
Stanley (Rob) Gustafson, CAE, CSI
Curt Robinson, PhD
B-Lab - http://www.bcorporation.net
Umair Haque, The New Capitalist Manifesto, Harvard Business Review Press, January 2011
Umair Haque, Betterness - Economics for Humans, Harvard Business Review Press, December 2011
TedxPhilly (from YouTube) - Jay Coen Gilbert - On Better Business
Benefit Corporation Standards Institute, Inc. - www.bcorpinstitute.org
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