With the increasing coverage of benefit corporations in the news, and the recent passing of the Minnesota Public Benefit Corporation Act legislation, here is a round-up of some basic benefit corporation information you need to know now.
A benefit corporation is defined as one with a stated social mission to have a positive impact on society and the environment in addition to its legally defined goals. Fulfilling this mandate is seen as more important than shareholder interests – the opposite of the way corporations generally operate. The mission of a benefit corporation can include providing special benefits or profits to its employees, customers, the health and well-being of the community or the environment. Many benefit corporations donate profits, specific items, like eyeglasses or shoes, or use only fair trade supplies in their products. For example, over the past 23 years, Give Something Back Office Supplies donated more than $6 million in profits back to communities they serve, with their customers deciding which nonprofits receive the money.
In January 2015, Minnesota joined two dozen other states in offering a specific designation for businesses that are for-profit but socially conscious. So far, at least 29 benefit corporations have registered in Minnesota. Benefitcorp.net lists more than 1,550 registered benefit corporations throughout the United States, although thousands more may self-identify as benefit corporations with a socially-responsible mission without having that specific legal designation.
The rise of the benefit corporation signals an important change in the U.S. economy. When it started, Give Something Back Inc. was one of a small number of true benefit corporations around, but that’s changing rapidly. Michael Hannigan identified a fourth sector developing in the American economy, what he refers to as the “social enterprise” sector. It’s comprised of benefit corporations run by people who are trained in business but who have a mandate to do what’s good for the community. “It used to be that people who thought primarily about creating wealth on behalf of a community or sharing profits didn’t go into the business world,” he said. “They went to work for nonprofits or entered academia. I might have been a sociology professor in a different time. But now that’s changing.” Additionally, 93% of consumers surveyed for a 2013 global study of consumers (pdf) conducted by Cone Communications said they want to see more of the products, services and retailers they use support worthy social or environmental issues.
It’s a misconception that benefit corporations don’t have their customers’ best interests in mind when it comes to competitive pricing and quality of products and services. Hannigan pointed out that if they didn’t meet or exceed the standards being set in their industry by competitors and take care of customers first, they wouldn't survive. Particularly in a business-to-business model like that of Give Something Back Office Supplies, buyers for large entities like universities, often can’t have the donation of company profits as their primary concern – they need the best deal they can get with the highest quality products. If benefit corporations didn't care about this, they would no longer be around.
A challenge facing benefit corporations is access to capital through traditional channels. The advent of the specific benefit corporation status has made it possible for these corporations to begin to collaborate with nonprofits and foundations to unlock trillions of dollars in endowments that could be invested in benefit corporations which would then, in turn, re-invest in the communities and causes these nonprofits and foundations serve. This legal status also helps to provide stabilization for benefit corporations, ensuring stability and adherence to mission even when leadership changes hands.
On Thursday, April 23, the Opus College of Business hosted its 22nd Annual Stakeholder Dialogue – Are Benefit Corporations Truly Beneficial? – featuring speakers Michael Hannigan, founder and president of the benefit corporation Give Something Back Inc., and Patricia Werhane, Ph.D., professor and Wicklander Chair Emeritus of business ethics at DePaul University.