A dozen companies committed to maximizing social good while turning a profit have filed papers with the state to become California's first "benefit corporations." It was the first business day they could register under a recently approved state law that gives companies a way to legally structure their businesses to consider social and environmental efforts as part of their missions.The Rise of Benefit Corporations
While that may sound like marketing hype, it's important from a legal standpoint because it helps shield benefit corporations from lawsuits brought by shareholders who say that company do-gooding has diluted the value of their stock.
California becomes the seventh state to adopt this relatively new corporate structure. Until now, California corporate law mandated that shareholders' interests trump those of all other parties. Entrepreneurs who wanted to incorporate green initiatives or social causes into their businesses were often forced to become nonprofits, limiting their ability to raise venture capital.
California's new category allows corporations to officially adopt policies "that create a material positive impact on society and the environment" as an integral part their legal charter. The Huffman legislation also expands the fiduciary duty of executives and board members to include the interests of workers and the community.
When America began, the states chartered corporations for public purposes, like building bridges. They could earn profits, but their legitimacy flowed from their delegated mission.
Today, corporations are chartered without any public purposes at all. They are legally bound to pursue a single private purpose: profit maximization. Thus, far from advancing the common good, many for-profit corporations have come to defy the law, corrupt the officials charged with enforcing it and inflict harm on the public with impunity. The consequences are visible in the wreckage left by BP, Massey Energy, Enron, AIG, Lehman Brothers, Blackwater and Exxon Mobil, to name a few recent wrongdoers. Profits rule; anything goes.
We need a new business model inspired by the old one. Corporations should again come to bolster democratic purposes, not thwart them. To be sure, there will be no return to the legislative short leash, especially now that the Supreme Court has invited corporations to spend treasury funds electing pliant and obsequious lawmakers. But socially minded businesses should at least have the right to operate outside the straitjacket legal requirements of Delaware Code profit maximization. [...]
This is an important shift in law. The fear of shareholder litigation has driven many public-spirited businesses, most famously Ben & Jerry's, to take the high bid rather than the high road in a corporate takeover fight. Becoming a Benefit Corporation declares legal independence from the profits-ber-alles model. [...]
It may take a while to displace the rent-seeking leviathans that get rich off lobbying, power plays, pyramid schemes and defense contracts. Then again, a lot of those companies have relocated their operations abroad in search of cheaper labor, while the Benefit Corporations are taking root and blossoming right here in America, restoring the bonds of community while doing honest commerce. This is what economic recovery looks like.