New Law Allows Companies to Put Social Benefits Before Profit

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It's been four years since Muhammad Yunus used his Nobel Lecture to advocate for social businesses, companies that balance the pursuit of profit with responsible and sustainable management practices. Now several states are considering legislation that would make it easier to operate a business that chooses not to maximize shareholder value.

Pennsylvania-based B Lab has been one of the leading proponents of "B corporations." Since it was founded in 2006, B Lab has certified 287 companies based on their accountability and transparency, environmental impact, community involvement, consumer-friendliness, and employment practices. The B corporations are also required to include a statement of social responsibility in their governance documents.

Among the businesses certified by B Lab are two booksellers, Busboys & Poets and Better World Books. Both use their revenues to fund literacy-related ventures.

Busboys & Poets, in Washington, D.C., is a physical bookstore and restaurant operated by Teaching for Change, an educational nonprofit. Better World Books is an online used-book retailer based in Mishawaka, Indiana.

At this point, B corporation certification has no legal status -- although, as a Forbes article points out, some private organizations offer discounts to B-certified companies and their employees. But B Lab and independent business alliances around the country are trying to make socially responsible status an official designation.

Maryland was the first state to pass B corporation legislation, which will be signed into law later this month. A similar bill is making progress in Vermont, and North Carolina, Pennsylvania, and California are also pursuing benefit corporation laws.

"Vermont is really a leader in terms of socially responsible business," said Will Patten, executive director of Vermont Businesses for Social Responsibility (VBSR). The Vermont legislature is currently considering legislation that creates "Vermont benefit corporations," the state's term for social businesses.

Publisher Chelsea Green is among the companies supporting the Vermont law. "If publishers and booksellers want to build loyal user communities, then they are going to have to go beyond a bottom line mentality and embrace triple bottom line approaches that include all the stakeholders," said Margo Baldwin, Chelsea Green's president and publisher. "We’ve found that publishing with a mission enhances all aspects of our program, including partnering with authors, hiring the best, most dedicated employees, and connecting with our community of readers and activists. Companies that operate in that fashion should be recognized and rewarded and the benefit corporation legislation is a step in that direction."

Vermont had previously passed a law allowing companies to incorporate as L3Cs, or low-income limited liability corporations. The law was intended to give L3Cs easier access to capital through nonprofit grants and investments, but the IRS found that the tax advantages were less than expected. "The expectations were high," Patten said, but L3Cs didn't fit into existing legal structures.

Patten has higher hopes for benefit corporations because the intent of the new legislation is different: It allows companies to formalize their commitment to non-financial values, and gives them a new way to market themselves as local and unique. "I believe the benefit corporation is vital to keeping businesses independent and locally-owned," he said. --Sarah Rettger