A new type of business is born in the United States. With the rise of social enterprises trying to balance the double bottom line, profit and social cause, benefit corporations are a type of corporation that allows companies to raise growth capital without losing their focus to achieve social goals.
There are currently seven states in America who have legally adopted this new structure: California, Hawaii, Maryland, New Jersey, Vermont, Virginia, and most recently New York. Traditional corporations would have to place shareholder interest above all others as required by law. But with benefit corporations, investors know from the start that the company’s fiduciary duties will include that of social benefits. In fact, to create social benefit is their priority above all other goals. In the new framework, companies registered under a benefit corporation have the legal protection and freedom to achieve the double bottom line.
On January 3, 2012, the first company to become a benefit corporation in California was Patagonia. The company is in the apparel business that makes clothing and gear for outdoor adventures. As a benefit corporation, the company is expected to ensure safe and working conditions for their employees in an industry where sweatshops are an associated term. They are also pledging 1% of their sales to preserving and restoring the natural environment. Their mission statement is to “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis”.
The new framework also means Patagonia is legally required to do three things: 1) create material positive impact on society, 2) consider the interests of stakeholders including community, customers, employees, environment, and workers, and 3) publish an annual Public Benefit report outlining social and environmental performance in accordance to third party standards. Benefit corporations are paving the way for profit-making companies with a social purpose as other states are beginning to embrace the legislation in their legal framework.
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