About those (Ahem!) “Benefit” Corporations

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May 5, 2014; National Law Review

In the National Law Review, Keith Paul Bishop writes about California’s Benefit Corporation Law, one requirement of which is that the corporation provide an annual report to each shareholder that, among other things, includes an

“assessment of the overall social and environmental performance of the benefit corporation, prepared in accordance with a third-party standard applied consistently with any application of that standard in prior benefit reports or accompanied by an explanation of the reasons for any inconsistent application. The assessment does not need to be audited or certified by a third party.” Cal. Corp. Code § 14630. (phew) 

As an example of the tight requirements thereby fulfilled, Bishop points to an annual report published by Cape Commons Brewing Co. of New York.

The benefit to society and the environment?

“Considering the overall purpose of CCBC is to in fact brew beer, something we did so little of in 2013, it’s difficult to assess what general public benefit we created other than saying, ‘we benefited society simply by trying to exist as a company.’ Which is pretty lame way of putting it, but when your daily grind consists of starting up a company, this is the best you can do.”

Rick Cohen recently penned a report on these and other types of social enterprises, and the Nonprofit Quarterly is at the printer this week with the latest edition of its print journal, which takes on the issue of so-called hybrids. One of the most glaring concerns we voice in both has to do with accountability.—Ruth McCambridge

  • erik

    I am the Director of Policy for B Lab, a nonprofit that has advocated for the passage of benefit corporation legislation. Keith Paul Bishop’s very short article on a particular company did not really state much and was very poorly written. He tries to make a point that a NY benefit corp issued its annual report that said they did not do much and then goes into a strange comment on hops in beer. I am not sure the point he was trying to make.

    But more to your comment, yes the company in his article did not do much, but we all know this by their report. We can now use this knowledge to determine whether to buy their product or not. So, one could say the disclosure requirement worked in this case.

    As for your comment that benefit corporations are hybrids, this is a complete misunderstanding of the law. They are not hybrids, they are for-profit companies that have a moral or a mission. They are not intended to replace nonprofit by any means. In fact they donate much more than the market average to nonprofits, so their success is the nonprofit communities’ success in getting more donations. Nothing can replace the role of nonprofits since they are focused often on duties that for-profits can not do and are attracting a different source of revenue.

    The important thing to understand about benefit corporation laws is that it removes the prohibition of corporations from considering anything other than the maximization of profit. This can include donating more to nonprofits without the need to show how that donation increased profitability, buying supplies to build your product locally rather than going overseas to get the part, paying workers a living wage and other things that are not nonprofit issues but good corporate citizen issues.

    Benefit corporations often work hand and glove with nonprofits to help ensure their success. Also, nonprofits can use the benefit corporation model to operate their for-profit ventures. They can allocate that a percentage of the revenue goes back to the nonprofit, while still having investors involved in the company, something not allowed under traditional corporations.

    I think a better understanding of benefit corporations is needed by the public before criticism is laid. A good source of information can be obtained from benefitcorp.net