B Lab: State benefit corporation bill flawed

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One question about benefit corporations is whether employees helping build a Habitat for Humanity house would matter.

One question about benefit corporations is whether employees helping build a Habitat for Humanity house would matter.

Proposed legislation in Colorado to create the legal framework for benefit corporations is opposed by the nonprofit originally responsible for the idea.

A benefit corporation — as defined by the 13 other jurisdictions that provide for them — is a business that puts the environment and society ahead of the bottom line. In Colorado’s version, that distinction isn’t made — House Bill 1138 only says a benefit corporation is one that benefits society in some way.

It’s the selling point that bill sponsor Rep. Pete Lee, a Democrat from Colorado Springs, emphasizes.

“It can be anything,” Lee said. “Give employees the day off to build a Habitat house, let them volunteer. Build a park. This legislation lets companies do that without fear of legal problems.”

Traditional corporations are responsible to their shareholders, and must make the profit margin their main priority. Companies who want to focus on other issues — environment, community, social issues — face lawsuits if the activities can be proven to reduce profits. The legal framework, outlined in legislation, is necessary to allow businesses — and investors — to put both the environment and society ahead of profits.

“Colorado’s is just too watered down,” said Erik Trojian, director of policy at B Lab, the nonprofit that created benefit corporation certification and leads companies through the legal process (www.bcorporation.net).

“Investors won’t normally invest in LLC (limited liability corporations),” he explained. “So companies have to become legal corporations, and that leaves them vulnerable to lawsuits if shareholders think they are sacrificing profits for other concerns. But there are investors out there who are interested in being part of companies that are protecting the environment and enhancing society as a whole.”

Strict requirements

Benefit corporations in other states and the District of Columbia not only are required to create a positive impact on society and the environment, but also are supposed to consider their decisions in that framework. They have to have an annual benefit report that assesses their social and environmental structure against a third-party standard.

But Colorado’s law doesn’t provide the necessary legal information to assist investors in choosing socially responsible companies. There’s no third-party standard to judge the company by, he said. Written mostly by the Colorado Bar Association, it simply doesn’t create a strict framework.

“This isn’t what 150 companies in Colorado asked for,” Trojian said. “And we’ve tried discussing it with Rep. Lee, but no one is budging.”

B Lab wants Lee to change the legislation, providing language necessary for a proven benefits corporation and one for a “special purpose corporation” that would cover the other activities. But, he says, Lee won’t change it.

“We need a bifurcation,” Trojian said. “Or else investors aren’t going to bother with Colorado. When there are 13 other states with the same benefit corporation legislation — they’re not going to go with the watered-down version, checking articles of incorporation to see if a company is a true benefit corporation. They won’t waste their time.”

They won’t have to. Studies show that more than 600,000 businesses nationwide are interested in becoming B corporations, and about 1.2 million consumers are interested in purchasing goods and services from socially responsible companies.

“There are plenty of other companies, from states with better, more stringent laws, out there to invest in,” Trojian said. “Benefit corporations make sense. They don’t cost the state anything to implement, but they are a great economic development tool. Both those reasons make them doubly attractive.”

Lee says his legislation will serve the correct purpose and allow companies to become more socially and community conscious.

“This is cutting-edge,” he said. “This bill allows philanthropic activities, environmental responsibility. It lets companies do things that might not maximize profits but are good for the community as a whole. It removes the fear of legal sanctions.”

Under Lee’s bill, companies can adopt a school, or develop a project to clean Fountain Creek — and be considered a benefit corporation.

“It lets them work on something bigger than themselves,” he said, “things that aren’t related to the bottom line directly, but things that engage people and create a robust community.”

Shareholders in charge

The bill allows shareholders to decide the nature of the benefit sought — either something with a material impact on society or something that has an impact on specific things.

“For example, supporting the sustainability of the Arkansas River Basin, the economic development of a depressed neighborhood, a religious mission, the advancement of arts and sciences, and supporting a local school district would all be specific public benefit,” Lee said.

And that’s not a bad thing, says Trojian. But Lee’s bill doesn’t go far enough, he says, and it doesn’t provide enough framework for investors and businesses.

The legislation has been approved by the business committee in the House of Representatives, and is currently being considered by the Appropriations Committee.

Even if the bill passes in its current form, investors might have another option. B Lab certifies socially responsible companies — calling them B Corps — though an intensive process to make sure their goal is to benefit society and the environment.

New Belgium Brewery in Colorado is certified by B Lab, but isn’t yet a legally recognized benefit corporation. New Belgium has long held both environmental responsibility and community value as dual goals. According to its website, the company gives millions to community projects and is focused on conserving water and electricity — regardless of how it affects their bottom line.

“And if the legislation passes, New Belgium could become a benefit corporation,” Trojian said.

“But it won’t mean the same thing as it means in other states.”