In the past four years, 24 states and the District of Columbia have changed their incorporation laws to help companies that aim to deliver social and environmental benefits, not just profits.
The move to allow businesses to register and operate as “benefit corporations” reflects the ethos of a rising generation of entrepreneurs and investors who are rebelling against the “profit-is-king” framework of corporate America.
The states that have taken action, starting with Maryland in 2010, have protected benefit corporations from laws that require corporations to maximize profits, letting them pursue social, environmental and economic goals without fear of shareholders suing them for not squeezing out every penny.
Companies can choose what social responsibilities they seek to assume. While the laws protect the companies from investor lawsuits for not maximizing earnings, they aren’t protected if they don’t live up to their social or environmental objectives.
“There are (investors) who’d rather put their money in a corporation that’s not going to embarrass them down the line,” said state Sen. Jeff Clemens, sponsor of the legislation enabling benefit corporations to register in Florida starting this year. “And there’s a new generation of entrepreneurs who embrace the idea of making money while doing good.”
Benefit corporations attract “socially responsible” investment and create jobs, said Clemens, a Democrat. They pay taxes, don’t pollute or otherwise degrade the state’s environment and pledge themselves to paying living wages and other social causes or community works of their choice.
“It’s a free economic development tool (for the states),” said Erik Trojian, policy director of B Lab, a nonprofit group in Wayne, Pa., whose founders devised the idea of benefit corporations about a decade ago.
In Maryland, B Lab worked with state Sen. Jamie Raskin to give legal recognition to socially conscious companies and to spell out the protections and responsibilities of this new breed of corporation.
“This is creating an effective counterculture in the broader world of free-market capitalism,” said Raskin, a Democrat. “It has sped like wildfire across the country.”
The number of states with rules for benefit corporations will grow to 26 on Jan. 1, by B Lab’s count. That’s when Minnesota and New Hampshire laws hit the books. The District of Columbia allowed for them last year. More states are expected to take up enabling legislation next year, B Lab’s Trojian said.
Twelve hundred to 1,400 benefit corporations across about 60 industries have sprung up or taken on benefit corporation status across the country, according to B Lab, which tracks them and assesses how well the companies live up to the social responsibilities they’ve pledged to fulfill.
Among them: Patagonia, the outdoor outfitter; Etsy, the e-commerce website for handmade goods; Warby Parker, the seller of hipster eyewear; and New Belgium Brewing Co., maker of Fat Tire, Ranger IPA and other specialty beers.
Patagonia donates money and its employees donate time to various environmental projects in and outside California, where the company is registered. Etsy provides entrepreneurial education to underserved populations, among other causes. Warby Parker donates eyeglasses to the underprivileged. New Belgium Brewing is an employee-owned company that’s committed to water and energy savings in its brewing.
The amount of socially responsible capital looking for investment opportunities has exploded. This year, there’s nearly $6.6 trillion of socially conscious investment in the U.S., according to the US SIF Foundation, which tracks the investment. That’s about double the amount from two years ago.