13 Dec 2018 - by A4ID Team

Guest post: Economic and Societal Impacts of Benefit Corporations

Kevin Simmons, Villanova University, looks at the benefits of Benefit Corporations, a new form of corporate entity rising in the US.

 

Economic and Societal Impacts of Benefit Corporations

Kevin Simmons

 

Competition is the heart of capitalism. As a market becomes more competitive, firms in the market are forced to look at every option available in order to maximize profits and long-term shareholder value. For this reason, the United States, and many countries around the world, have seen immense growth both economically and technologically. Unfortunately, competition has also resulted in the exploitation of things like our environment and the working conditions of low cost laborers. It seems that society has always had to choose between wealth and innovation that results from business ventures, or the health and well-being of society in general. This can be dangerous as returns to shareholders are usually the driving force behind most business decisions. The Volkswagen scandal of 2015 is a great example of this. The company installed defeat devices in many of the cars being sold in the US. This was designed to circumvent emissions tests and produce results that were more environmentally-friendly than the data actually produced by the car. VW went on to lie about this scandal, as their research revealed it would be more profitable to shareholders to withhold the truth at the expense of the environment [1]. Luckily, lawmakers and business owners have come up with new innovative ways for businesses to positively impact both their shareholders and society.

Through the introduction of benefit corporations, the law has provided socially-conscious entrepreneurs with protection from “shareholder claims when corporate decisions reflect the non-financial interest of a company’s workforce, community and environment at the expense of financial returns to shareholders” [2]. Usually in corporate law and culture, the directors of a company are focused on how their decisions affect the shareholders of the company. There is nothing wrong with this strategy, as shareholders are the ones who took the risk by investing their own money in the venture. But with the introduction of benefit corporations, many stake holders from the shareholders to the employees to the customers to the environment are considered when the directors of a company make decisions. Some of American consumers’ favorite companies are benefit corporations. For example, New Belgium Brewing Company, brewer of Fat Tire Belgian Style Ale, has been a certified B Corp since 2013. The company prides itself on acting to protect the environment, and highlights this on their website stating that “by reducing our water use and donating money to the research and repair of the Colorado River, we are increasing the likelihood that we’ll have clean and abundant water for many generations” [3].

The main advantage of benefit corporation legislation from an economic perspective is that it plays a quiet hand in the markets. There are no major financial incentives provided to benefit corporations like a tax break, as benefit corporations are still taxed as a C or S corporation. According to the official website of benefit corporations, “benefit corporation status only affects requirements of corporate purpose, accountability, and transparency; everything else regarding corporation laws and tax law remains the same” [4]. The only advantage to benefit corporations is the legal protection to support a socially mindful mission, ensuring companies that decide to become benefit corporations are doing so for the right reasons.

Most states around the country have taken note of the many positive effects that can result from benefit corporations. In 2010, Maryland became the first to pass legislation allowing the operation of benefit corporations in the state [5]. Since then, all but nine states have either enacted or are considering enacting legislation, according to the Social Enterprise Law Tracker [6].

Legislation that doesn’t affect the underlying basis of well-established institutions – in this instance the competition that drives our economic markets – but does improve the health and well-being of our society are positive and should be used as a model. Not every new piece of legislation must be groundbreaking. Sometimes small tweaks in institutional culture is all that is necessary to produce the most fair and just laws for businesses and citizens alike.

*The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of A4ID

[1] https://www.bbc.com/news/business-34324772

[2] https://www.triplepundit.com/2014/03/emerging-legal-forms-allow-social-entrepreneurs-blend-mission-profits/

[3] https://www.newbelgium.com/sustainability/community/bcorp/

[4] http://benefitcorp.net/faq

[5] http://benefitcorp.net/policymakers/state-by-state-status?state=maryland

[6] https://www.socentlawtracker.org/#/bcorps

 

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