Isn’t simply turning a profit hard enough in this economy? Sure, but it’s apparently not enough for some greener-than-thou entrepreneurs. They want to spend what otherwise might be dividend payouts on social and environmental goals unrelated to their business.
Soon they’ll be able to do that without risking shareholder lawsuits, thanks to House Bill 1138. It was signed into law last week by Gov. John Hickenlooper.
The bill authorizes “benefit corporations” starting in April 2014. They’re the hot new trend, recently having been made legal in more than a dozen states, and under consideration in a dozen more.
Corporations have had a fiduciary duty to maximize returns to their shareholders since the 19th century. That’s a good thing. Profit is a measure of how well you’re providing goods or services to your customers.
But some companies think they can and should do more for the world. H.B. 1138 would permit them to spend money on “public benefits” of an “artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.” But those with social and environmental goals are those mainly behind the movement.
Under the bill, a firm would have to clearly state it wants to become a “public benefit corporation” and identify the specific benefits in the articles of incorporation, which would have to be approved by at least two-thirds of the shareholders. Periodic reports are required which must be evaluated by a third party such as B Lab, a nonprofit that has established performance standards.
B Lab piously proclaims that “Benefit corporations give business leaders legal protection to pursue a higher purpose than profit, and they offer investors and the public greater transparency to protect against pretenders.”
The bill passed on straight party-line votes in each chamber. Minority Republicans argued that the bill wasn’t so much evil as unnecessary. During debate Sen. David Balmer, R-Centennial, dismissed the conceit that “profit is not a noble enough value” since without it “we’d have no schools, no roads.” It is also possible that the GOP was motivated by the fact that the bill’s sponsor, Rep. Pete Lee of Colorado Springs, is a Democrat in what the GOP thinks is its county.
Corporations already go out of their way to boast about their public spiritedness. You can’t pick up a company’s glossy annual report without reading about its good works and how environmentally minded it is, or thinks it is. Such spending may hurt profits in the short run, but help over time.
It’s already possible to create a nonprofit corporation, if you find profits uncomfortable or unnecessary.
What’s more, many successful entrepreneurs set up their own foundations or give to charities from their own pockets, instead of using stockholder money.
Both left and right already manage to use regular corporations for purposes other than just shareholder value.
Consider Newman’s Own, a for-profit corporation founded by actor Paul Newman in 1982. It began as a manufacturer of salad dressing but has branched out into drinks, sauces, snacks et al. The company turns over all profits after taxes to various charitable and educational organizations of Newman’s choosing. It continues to thrive despite the actor’s death in 2008. It is privately held, and can do whatever it wants with the money it makes.
Ben & Jerry’s ice cream has dabbled in good liberal deeds too, even after selling out to a multinational in 2000.
On the right there are such firms as Hobby Lobby, the Oklahoma City-based chain selling arts and crafts, and Chick-fil-A of Atlanta, a fast food chain. Both were funded and run by evangelical Christians, and both refuse to do business on Sunday.
Clearly they are not maximizing profits, and they are not B-corps, as benefit corporations are called. Could shareholders sue? Possibly, but the companies are closely held and not traded on stock exchanges. That’s the secret. What few shareholders there are know what they are getting into.
Stockholder suits are rare. There are plenty of reasons companies lose money, and it’s not necessarily because their officers are greedy and their strategy faulty. Public tastes change. Usually when there’s mismanagement the directors take steps to change it before suits are filed.
Future B-corps are also likely to be small and privately held. One of the prospective models is said to be New Belgium Brewery of Fort Collins. Chief executive Kim Jordan is a former social worker who says things like, “I feel connected to the magic of the planet, the magic of spirituality.” But by all accounts she is also hard-headed entrepreneur whose Fat Tire ale has done well enough to justify building a new plant in North Carolina.
The new law seems to grant stockholders the right to sue if they believe the company isn’t pursuing its alternate goals strongly enough. It’s no wonder that the Colorado Bar Association, which helped draft the new law, is a strong supporter of B-corps. They could mean more work for lawyers.
If there is really no need for B-corps, one wonders if they aren’t mainly a marketing ploy designed to appeal to the millions who distrust all corporations and buy organic foods. Calling your firm a benefit corporation might bring you the same cachet as, say, advertising on — oops, better call it “underwriting” — public radio.
Longtime Rocky Mountain News political columnist Peter Blake now writes Thursdays for CompleteColorado.com. Contact him at firstname.lastname@example.org You may re-publish his work at no charge and without further permission; please give full credit to Peter Blake and www.CompleteColorado.com
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