Companies Increasingly ‘Pursue Triple Bottom Line’
Echoing the growth in corporate social responsibility reporting, a growing number of mostly small- and medium-sized companies are taking environmental and social stewardship further and becoming benefit corporations — companies that are legally bound to have a positive effect on society — according to a report by Worldwatch Institute.
There are currently about 200 benefit corporations — none of which are publicly traded companies at this point — in the US, according to More Businesses Pursue Triple Bottom Line for a Sustainable Economy. The total gross revenues for all certified benefit corporations are about $6 billion annually, and together these businesses employ about 30,000 people, the report says.
Signs indicate that interest in becoming a benefit corporation is growing. The number of companies annually using benefit corporation nonprofit advocate B Lab’s online assessment tool, which is a marker for broader interest in eventual certification, grew from 280 in 2007 to 2,406 in 2012. By the end of the first quarter of 2013, some 8,000 individual companies had used the tool, according to the report.
Most benefit corporations to date are either small or medium-sized businesses. But they include a few larger companies that are privately held, such as the outdoor apparel and accessory firm Patagonia, which became a benefit corporation in early 2012 and posted annual sales of about $540 million for the fiscal year ending April 2012.
King Arthur Flour is another large benefit corporation. The employee-owned, 223-year-old company reported sales of about $84 million in 2010, the report says.
Proponents of this new corporate form say it “bakes a triple bottom line into a company’s DNA” that frees companies from the fear of shareholder lawsuits if their decisions fail to maximize shareholder value because of some competing interest of other stakeholders, such as workers. Under current corporate case law in the US, for example, corporate directors are generally assumed to be liable in such suits.
Benefit corporation status is intended to establish the directors’ fiduciary responsibility to consider the interests of all stakeholders. Formalizing a company’s social and environmental purposes under a legal framework also makes it more likely that its good intentions will survive the departure of its founders or any major growth spurts. Additionally, it means that company directors will have the legal backbone to fend off buyout offers from conventional corporations that do not have the same commitments.
Last November, legal experts at a National Association of State Charity Officials conference raised concerns over benefit corporations. The new corporations need more oversight by state regulators in California as flexibility built in to the registration process in that state could allow bad actors to mislead the public and the benefit corporation model could give investors a false sense of security, the legal experts said.
Do you work for a benefit corporation? Or is your company considering becoming one? Please let us know in the comments section below.
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