What is a Benefit Corporation?
A recent NPR article talked about Benefit Corporations and B Corps as a growing trend, with many states adopting the use of this new legal structure. For those that are new to it, a benefit corporation status basically means that a company considers environmental and social concerns, in addition to financial, as part of their decision making and operations. Benefit Corporation is a legal structure, an alternative to an S-Corp or an LLC. There is a difference between a Benefit Corporation and a B Corp. B Corp is a stamp of approval, provided by the non-profit B Labs, and Benefit Corporation is a legal structure. You can be both a Benefit Corporation and a B Corp, or just one or the other. Confusing, I know.
Benefit corporations are important because they represent the way that all companies should actually be structured. Every organization should consider the social and environmental impacts of their operations. In addition, investors should be able to pressure the leadership of the organization if they are causing harm in order to make a profit.
Social and environmental impacts are difficult to measure, much harder than measuring profit, but ignoring them is simply bad economics. Free market capitalism created a designation for “externalities.” These are the negative repercussions of a business, whether it is increased pollution, disruption of local populations, or social unrest directly or indirectly caused by something a company does to make its profit. Externalities don’t have to go on the balance sheet, and are therefore are not adequately measured and can be easily obscured or ignored all together.
Externalities can be big or small, local or global, and vary in their impact. The most egregious are often those that are difficult to point back to the individual offenders, but instead are the results of a myraid of players. Our global economy is structured this way, with millions of organizations being legally allowed to maximize profit at the expense of our planetary stability. No one player is to blame, but in aggregate it causes huge issues. Climate Change is an obvious example, as well as many wars and regional conflicts that stem from corporate interests and fighting over resources. A myriad of other issues also result such as slavery, income inequality, poverty, environmental degradatiion, and more.
A long-term look
We are seeing the impacts of decades and centuries of economic theory that does not take into account the long-term impacts of people and companies pursuing their own interests without any regard for how it affects the world around them. It has enabled individuals and companies to make considerable sums of money, validating their actions, but it is simply not good economics. The flaws are now readily evident, and many people are searching for a new approach that leads to long-term success for individuals and society. Benefit corporations are a big piece of that picture because they represent a more sound economic framework.
Anything we can do to help support this movement is vitally important. Here are a few things you can do to help:
- Register your company as a benefit corporation
- If you are thinking of starting a non-profit, consider if benefit corporation is a viable alternative
- Go through the B Corp certification process with B Labs
- Discuss benefit corporations and B Corp with the leadership of your organization
- Push for preferential tax treatment of benefit corporations, similar non-profits preferential tax treatment. This doesn’t exist yet in any state, but it would be a huge leverage point for change.
This guest blog is by Evan Steiner. Read more about Evan on our contributors page.