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  • The Benefits of Being a B-Corp

    Published on Monday, February 6, 2012

    A flurry of attention has been paid recently to the announcement that more states are enacting legislation allowing corporations to register as ‘For-Benefit’ entities. This designation provides an organization’s governing board the specific ability to consider social or environmental objectives, along with profit objectives, in its decision-making. The practice became law in California on January 1 with New York following on Feb 10th. Other states are already on board.

    What’s the big deal? For some business owners and investors the ability to raise up social and environmental concerns to the same level as profit maximizing concerns is a breath of fresh air. The new laws will provide them with protection from potential lawsuits from investors who might otherwise challenge a governing board's decision if they are not seen as solely seeking to wring the greatest profit from every action.

    For others the new law is seen as a scam that directs attention away from the only goal of a business – to make money for shareholders. Yet that oft repeated phrase, ‘the only business of a corporation is to maximize shareholder returns’, attributed to many different people, should not be in conflict with the goals and results of well run For-Benefit corporations.

    In order for a for-profit business to make money, it needs to have a great product or service that people want to buy and use, it needs a great market strategy to sell and distribute the product or service efficiently, and it needs a positive reputation as an employer to attract and retain the best talent, create loyal customers and be well regarded in its communities. All of this can be accomplished within the B-Corporation structure.

    Rather than questioning the value of the new B-Corp laws going into effect, as a recent Wall St Journal article did (With New Law, Profits Take Back Seat) we should be looking at all of the entities incorporated under current laws that are not living up to their charter.

    Every year, along with the release of the 100 Best Companies to Work For list in Fortune magazine, the Russell Investment Group provides the Great Place to Work Institute with information on the long-term financial performance of the 100 Best Companies relative to the S&P 500 and the Russell 3000. Since 1998, the publicly traded 100 Best Companies, as a group and over time, have outperformed the market significantly. From 1998-2011 the 100 Best have provided a 295.47% cumulative return compared with 73.72% for the Russell 3000 and 66.49% for the S&P 500.

    Many of the public companies on the 100 Best list could easily reincorporate themselves as B-Corporations and continue running their businesses as they do right now. Their governing boards already consider social and environmental factors in their decision-making. These companies have created unique workplace environments where people want to come to work and where customers want to shop. And many community leaders are knocking on their doors asking them to set up shop in their hometowns. Why – because they are great companies that are successful. They make money, they care for people, they integrate environmental and social considerations into their business decisions – and they do all of these things at the same time.

    So what is the big concern with B-Corp legislation? Who are the people most concerned about it? Perhaps it’s the people who still don’t understand that taking care of people, taking care of the environment, looking at the long-term impact of your decisions on the health and well being of the communities in which you operate IS GOOD FOR BUSINESS.

    I am hopeful that B-Corp legislation will encourage more business owners to include environmental and social factors in their decision-making. I’m hopeful that more entrepreneurs will be encouraged to create and sustain great companies where people want to work. Certainly there are lots of examples to follow among the 100 Best and Best Small and Medium Companies to Work For.

     If you’d like further evidence on the financial benefits that come to great workplaces please look at the articles and research reports in the Resources section.

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