Benefiting the public can be good business

By Todd Cohen

A growing number of businesses are expanding how they gauge their bottom line, counting not just profits but also their social and environmental impact.

And a small but growing number of states are changing their laws to make it easier for those kinds of companies to incorporate.

Laws that let for-profit companies that have the dual goals of maximizing shareholder value and making a positive social impact incorporate as “benefit corporations,” or “B corps,” have been enacted in Maryland, Virginia, New Jersey, Vermont and Hawaii, and are in the works in New York, California and North Carolina.

Under traditional state laws, boards of directors of companies that do not focus only on maximizing profits put themselves at risk of challenges from shareholders.

The new B-corporation laws, however, let boards set social goals in addition to maximizing profits, and require B corporations to prepare an annual report spelling how they carry out their public-benefit purposes.

The laws also would require the board of a B corporation to include an independent director who would have to certify annually that the company acted according to its public-benefit purposes.

In North Carolina, where the state Senate this year unanimously passed a bill to let B corporations incorporate in the state, the state House is expected to take up the bill in its short session that begins next May.

The bill is based on model legislation promoted by Pennsylvania-based B Lab, a nonprofit that receives significant support from the Rockefeller Foundation.

The measure was introduced by Republic and Democratic leaders in the N.C. Senate, and has been endorsed by a broad range of companies and organizations, including the Chapel Hill-Carrboro Chamber of Commerce and the N.C. Center for Nonprofits.

Kevin Trapani, president and CEO of The Redwoods Group, a North Carolina-based insurance provider that focuses on YMCAs, Jewish community centers and nonprofit resident camps, says the proposed legislation would provide an important protection for companies that make it part of their business to provide a public benefit.

B corporations, he says, provide a “competitive but more sustainable return to investors” than do traditional companies motivated by having to produce short-term financial results.

B corporations also provide a return to the community by providing a “more stable employment environment,” he says.

People who run those kinds of companies “are not going to want capital that will require them to run their businesses in a way that conflicts with their values,” Trapani says. “This bill enables us to attract capital and recognize multiple stakeholders.”

A company that is “built to recognize a balance of interests between multiple stakeholders – including shareholders but also customers, employees, the environment, the community – puts itself at risk when it makes balanced decisions,” he says.

By removing that risk and requiring that B corporations pursue a public benefit into addition to maximizing shareholder value, Trapani says, the bill would help create jobs because it would “allow community-focused companies to grow by giving them access to capital that aligns with their mission.”

Finally, he says, B corporations provide a return to the public “by passing on fewer costs to the community at large.”

Traditional companies “have learned how to private profits while socializing costs,” Trapani says.

Large companies, for example, typically provide health benefits “to as few as possible of their employees in order to maximize profits, thereby passing on the costs for adequate access to health care for their employees to the taxpaying public,” he says. “Socially-conscious companies don’t do that. We simply look at it in a more balanced ways.”

Rather than passing on those costs to taxpayers, he says, a socially-responsible companies that wants to provide its employees with adequate access to health care needs to bear the costs of that health insurance.

In the turbulent and troubled economy, nonprofits are looking for ways to be more business-like and entrepreneurial, and businesses are looking for ways to be more socially responsible.

The Committee Encouraging Corporate Responsibility, for example, is promoting a social-enterprise strategy known as “sustainable value creation.”

By applying their business thinking to their philanthropy, and using their philanthropy to address social problems underlying their business problems, the group says, companies can be more effective in their business and their philanthropy.

The growing interest in B corporations reflects the growing convergence of nonprofit organizations with an entrepreneurial focus and for-profit companies with a public-benefit focus.

Allowing the incorporation of this new kind of social enterprise should be good for business and good for our communities.