Archive for April, 2010

For the Benefit Of….

April 26, 2010

Companies (more specifically corporations) are often set up for the benefit of the shareholders. This is usually defined in a legal sense of maximizing profit for the shareholders of the said company. The state of Maryland has passed legislation allowing for the creation of a new type of corporation—the Benefit Corporation. As of October 1, 2010 (when the law takes effect), these types corporations are also specifically empowered to declare that one of its “corporate purposes” is the creation of a specific public benefit.

These corporations can be explicitly for profit (ie, they have shareholders looking for a return) and provide a public benefit at the same time. Examples of “specific public benefits” included in the legislation are: preserving the environment, promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business, or the accomplishment of any other particular benefit for society and the environment.

Further, directors of these corporations shall consider the effects of their actions upon the stockholders, employees, interests of customers, and community/society as a whole. This provides legal protection from lawsuits claiming that these considerations have a negative impact upon shareholder value. Since a given company’s management acts as the agent of the directors, they must consider stockholder, employees, customers, etc in their decision making also.

An additional aspect of these corporations is a degree of transparency. Within 120 days after the close of the company’s fiscal year, a Benefit Corporation must produce an annual benefit report. This report includes the (public) benefits the company aimed to provide (as stated in its charter), how it did so, and what hindered its ability to provide this benefit. This report will need to be audited by an independent entity.

This law was non-controversial. The law passed the Maryland House by a vote of 135-5, and the Maryland Senate unanimously. Similar legislation has passed the Vermont Senate, and is pending in California. Several other states, including Pennsylvania and North Carolina, will most likely consider the issue next year.

This legislation springs from the work of the B Corporation, a Philadelphia area non-profit that created a system for measuring the social responsibility efforts of companies across the country. The idea has been to include social responsibility as part of the fabric of a business. With the passage of this law in Maryland (and potentially several other states), social responsibility can be part of a company’s reason for existence in the first place.

The legislation as signed by Gov. O’Malley is here:
http://mlis.state.md.us/2010rs/chapters_noln/Ch_98_hb1009T.pdf

Learn more about B Corporations here:
http://www.bcorporation.net/

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