B Corps: What's the Use?

About three years ago a new form of corporation -- a B Corp or Benefit Corporation -- came into being for those companies that wanted to make prominent their social or environmental mission while still being a for-profit enterprise. The new legal form, it was felt, was needed because "regular" corporations and their boards of directors have a fiduciary responsibility to maximize shareholder returns. Indeed, in eBay Domestic Holdings, Inc. v. Newmark, the Delaware Chancery Court, in ruling on one provision the board of craigslist, inc. had passed to prevent eBay Domestic Holdings, a 28 percent shareholder, from using its board position to learn the operations of craigslist in order to take that information to the competitive service set up by eBay, noted that the role of a corporation is to promote stockholder value. This ruling has been held to mean that corporations must be focused on stockholder value first, middle, and last. This, then, leads one to believe that a social or environmental mission is incompatible with corporate charters.

And so Maryland was the first state to pass a law in 2010 allowing for B corporations, followed by 12 others. A B Corp has the legal framework to remain true to their social mission while still earning a profit. There are no tax benefits to this form of business, but there are a few additional responsibilities; for instance, it must take into account the interests of its employees, as well as publish an annual report on its social and environmental impact along with its financial results.

Some well-known companies have taken on B Corp status, such as Patagonia and Seventh Generation. Many smaller companies have also assumed this status. B Lab, a non-profit based in Pennsylvania, certifies B corporations, although this is not a required certification above and beyond the state charter. According to the MaRS Centre for Impact Investing, there are over 550 B corporations in 60 industries.

So, given all this, it sounds great, right? Well, yes it does. It's nice that so many companies want to give back. In reading through a feature on area B Corps in Philadelphia SmartCEO, the enthusiasm and sincerity come through loud and clear. It is very heartening to see that capitalism does not mean we have to forget about our communities.

My question is this: Why do we need a new legal form for having a solid mission of giving back? Does maximizing shareholder value, the chief tenet of other for-profits, really mean that there can be no prominent social mission? Wouldn't, for instance, enhancing the reputation of a corporation through giving back to the community be considered maximizing shareholder value? After all, most of us want to spend our money with companies that aren't rapacious hogs; consumers generally want to feel good about their purchases and tend to be loyal to those companies that show they do have at least a little bit of a human side. In addition, we know that companies that take care of their employees tend to do very well in the market place, so we shouldn't need a separate legal form to ensure that employees are treated well.

But perhaps we do in these days of corporate layoffs, slashed budgets, pay cuts, etc. Isn't that a shame? We have moved so far into the notion of every man for himself that we have to add complexity to our business law to ensure that there are at least a few companies that have figured out how to be good citizens as well as profitable.