Two More B-Corps States Brings Total To 19

July 16, 2013       Mark Hrywna      

Delaware and Rhode Island this week are expected to become the latest states to enact legislation creating Public Benefit Corporation (PBC).

Delaware Gov. Jack Markell is expected to sign a bill into law on that would take effect Aug. 1.

Rhode Island Gov. Lincoln Chafee has until today to sign or veto a bill that was adopted last week by the state Senate. It would bring to 19 the number of states that have enacted B-corporation legislation, starting with Maryland in 2010.

“This is critical for scaling social enterprise,” said Andrew Kassoy, co-founder of Wayne, Pa.-based B Lab, which certifies benefit corporations. Half of all corporations and two-thirds of Fortune 500 companies are incorporated in Delaware, he said, making Delaware a “linchpin state for corporations seeking capital markets.”

B-Corporation legislation is under consideration in at least another dozen states, most of which will be on the docket for 2014, Kassoy said.

The purpose of benefit corporations must be to create social impact, in addition to finance value to shareholders. They are required to report on social and environmental impacts while holding shareholders accountable to the mission. Directors of public benefit corporations are required to balance the interests of stockholders with the benefits identified by the corporation.

The Delaware measure is a little more flexible than provisions in other states in that it leaves up to the company and directors to determine whether to establish its own standards or report against third-party standards. Delaware also requires disclosures to shareholders rather than release impact reporting to the general public.

“For a public company, in the end, reporting to shareholders is public, to the extent that it’s a public company,” Kassoy said.

Most states require social impact reporting against other states and disclosures to the general public, he said.

A benefit corporation would be required to send stockholders a statement with respect to promotion of the public benefit identified in its charter, at least once every two years, as well as promotion of the interests “of those materially affected by the corporation’s conduct.”

Model legislation calls for a report of the corporation’s social and environmental impact be made available to the public but Delaware also requires that the impact be reported to shareholders. Other states require the use of a third part to certify impact where as Delaware does not.

Senate Bill 47 was introduced with bipartisan support in the Delaware General Assembly on April 18 and passed 20-0 before going to the House of Representatives on June 13, where it also passed unanimously, 40-0.

In Rhode Island, the House introduced a measure in February that was passed in July and quickly sailed through the Senate early this month. Bill 5720 was sent on July 11 to Gov. Lincoln Chafee, who has until today to sign or veto it or it would become law without his signature.

Directors and officers of a company are obligated to maximize value to shareholders, whatever the consequences for stakeholders, Kassoy said, and so that “prevents mission-driven companies and investors from scaling companies with third-party capital that have a mission beyond maximizing shareholder value.” These companies are different because they exist to make a difference, he added, which they could not do before at scale.

Phil Buchanan is skeptical not about whether legislation should be passed but about the “happy talk” and the hype that surrounds it. “My skepticism comes from that sense that benefit corporations often get hailed as some sort of secret sauce that will help us solve our social problems,” said Buchanan, executive director of the Center for Effective Philanthropy in Cambridge, Mass.

“It’s wonderful for companies to pay more attention to their effects beyond the bottom line,” Buchanan said. “If this helps sort out the ones who really do versus the pretenders, that’s great. If it creates more confusion about which ones are concerned about making a difference as well as making profit, then that’s not good,” he said.

“There are a lot of problems that markets can’t solve and a fair number of problems that market failures have contributed to. Saying that doesn’t make you a socialist, it makes you a realistic. I’m a huge believer in free market economy but we’re deluding ourselves if we think there will be a win-win, market-based solutions to everything.”