WASHINGTON – Maryland today becomes the first state in the country to recognize a new type of socially responsible corporation that can consider the public good as well as its shareholder obligations in business decisions.
Until now, for-profit corporations in Maryland were not allowed to consider anything but shareholder interests, except in change-of-control situations, said William H. Clark Jr., a Philadelphia lawyer who wrote the Maryland legislation. Now businesses that become “benefit corporations” may consider factors like employee interests, the environment and promoting arts and sciences, as well as shareholder interest.
The law “provides a way for corporations to participate in activity that’s good for the community that may not reflect 100 percent on the bottom line,” said state Delegate Brian Feldman, D-Montgomery, who introduced the legislation in the Maryland House. “Corporations can engage in that activity without fear of being sued by their shareholders.”
“Ben & Jerry’s is sort of the iconic example” of the need for this law, said Jay Coen Gilbert, co-founder of B Lab, the think tank responsible for developing the benefit corporation concept.
The Vermont ice cream company, known for its involvement with humanitarian causes, natural ingredients and fair treatment of employees, was sold, despite fears that the new owners wouldn’t maintain the founders’ ideals. “(The founders of Ben & Jerry’s have) said they felt forced to sell when they didn’t want to,” Gilbert said.
State Sen. Jamie Raskin, D-Montgomery, who co-sponsored the bill, said he heard from many small business constituents who wanted to do business differently.
“Maryland is showing other Americans the way to promote a different kind of business model,” Raskin said. “This model unifies the bottom line of business with social good.”
One of Raskin’s constituents, Tebabu Assefa said he’ll be the first in line to file his incorporation paperwork today.
His business would import and roast coffee from an Ethiopian coffee growers’ cooperative and operate a coffee shop in Takoma Park. Assefa hopes Blessed Coffee will become a community center in Takoma Park and will bring some of the culture of the Ethiopian coffee growers to Maryland. The business will give 50 percent of profits to community organizations in Takoma Park and Silver Spring.
While Assefa acknowledges “it’s a very socially aggressive concept,” he insists that he’s done the research and the venture will work and will attract investment from the community.
And being a benefit corporation “provides the legal protection so that down the line the founding principles won’t be high-jacked.”
Lateral Line Inc., a fishing apparel shop in Easton, is also becoming a benefit corporation under the new law, although Brandon White, co-owner and chief angler, said it’s been doing business this way since the beginning. The company donates 2 percent of profits to conserve, protect and enhance fisheries. They use local vendors and recycle.
“Our work in conservation and being socially responsible goes all the way back,” White said. “We’ve been living the mission.” But in addition to being the right thing to do, it’s good business. “Consumers want to do business with companies that are socially responsible.”
A similar law was passed in Vermont, but it has not taken effect. While laws in other states allow corporations a greater degree of flexibility than Maryland’s old legislation, no other state has the full set of provisions now available here.
Recently a case in Delaware, where many businesses are incorporated, reinforced the idea that “the maximization of shareholder value is the only game in town,” Gilbert said, so Maryland’s legislation says “that may be true for corporations, but we’re going to create a different kind of corporation.”
“We’ve seen these incredible crises coming out of business,” Raskin said, mentioning the BP oil spill, the West Virginia mining disaster and the collapse of Wall Street. “All of those businesses were acting rationally within a model that tells them to seek exclusively profit.”
“I’m determined to see Maryland become the Delaware of benefit corporations. In the same way a lot of big businesses want to incorporate in Delaware, I want to see the green businesses and the progressive businesses coming up in Maryland,” Raskin said.
Businesses can become a benefit corporation by amending their charter. The director is then legally protected to make decisions that consider the effects on shareholders, employees, customers, the community and the environment.
While there are already more than 300 corporations nationwide that Gilbert’s B Lab certifies as benefit corporations, none of them have the legal protection Maryland now offers. Lateral Line was the first to be certified by B Lab in Maryland.
“Most importantly for an individual business leader, (the law) gives the protection to run the business in the way they choose,” Gilbert said.
This protection is also important when businesses are going through life cycle changes. It ensures that ideals are upheld by the next steward of the business, which “builds these businesses to last,” Gilbert said.
The law also states that benefit corporations must report the ways the corporation pursued a general public benefit, increasing their credibility. The main reason for this, Clark said, is to prevent what he calls “green washing.”
There is a concern that businesses would call themselves benefit corporations and not actually behave that way. Unlike corporate social responsibility reports, which are self-regulated, the law requires businesses to be measured by a third-party standard to be a benefit corporation.
While benefit corporations are concerned with social and environmental impacts, they should not be confused with non-profits.
“Make no mistake, benefit corps make money,” Gilbert said. But “they also recognize that making money by any means necessary is no longer good for business or the environment. Investors are increasingly interested in investing in companies that recognize this.”