New York Approves Benefit Corporations: A Message for Nonprofits?

December 14, 2011; Source: MetroFocus  | New York State is now the seventh state that officially recognizes “benefit corporations,” one of the increasingly popular “hybrid” alternatives to nonprofits and for-profits. A benefit corporation makes profits like a typical corporation, but is permitted to pursue socially minded activities that do less than maximize profits. In other words, the mission of a benefit corporation is both profits and societal improvement.

Actually, the benefit corporation designation gives shareholders the right to sue for inadequate societal benefit. For example, if a benefit corporation establishes a specific societal benefit goal, such as environmental protection, and then, under the leadership of the CEO, does not sufficiently pursue that goal, shareholders can sue, or the benefit corporation designation can be revoked.

So what? Don’t most corporations issue social responsibility reports that read or sound like the reports required of benefit corporations? Don’t we always read the promotional materials of corporate trade associations, such as those of the U.S. Chamber of Commerce and the National Association of Manufacturers, that describe corporate activity and the free (or free-ish) market as in and of themselves good for society and likely to lead to positive outcomes for workers and communities?

The benefit corporation is a partial assault on that image of capitalism in the sense that a typical for-profit corporation that chooses to make profits while undermining the environment is doing what a profitable corporation can do without approbation. But what does it say about nonprofits? Are the states that are authorizing benefit corporations and L3Cs (low-profit limited liability corporations) making some sort of statement about nonprofits? Should nonprofits be concerned that the increasing popularity of hybrids implies questions and concerns that government entities have about the utility of nonprofits?—Rick Cohen