Will Benefit Corporations Change the Way NYC Does Big Business?

A worker presses wood skate decks at Comet Skateboards in Ithaca, N.Y. Comet's mission statement expresses commitment to workers' rights and environmental responsibility. The company plans to attain benefit corporation certification as soon as possible. Photo courtesy of Tez Mercer Photography.

Gov. Andrew Cuomo signed a law Monday night that fundamentally alters the nature of what constitutes big business in New York State by creating benefit corporations.

A benefit corporation, in the simplest terms, is legally obligated to create benefits for both society and its shareholders. The new law, created by Assembly Speaker Sheldon Silver and State Sen. Daniel Squadron, makes New York the seventh state to pass a law recognizing benefit corporations since Maryland passed its law in 2010. California, Hawaii, Vermont, Virginia and New Jersey followed suit. New York’s law will go into effect in 60 days.

“By offering this opportunity to entrepreneurs and investors, New York will bring new businesses into the state, new investors into the market and a new socially-minded approach for our entrepreneurs,” Squadron said in a statement.

What distinguishes a benefit corporation from a regular corporation?

“It allows founders of companies and CEOs to do things with a company that help society, even if they don’t maximize profits. Under the old law, if a corporation did something that didn’t maximize profits, the company’s shareholders could sue the company for that money back,” said Andrew Greenblatt, an assistant to B Lab, a nonprofit that certifies benefit corporations and helped draft the original law that’s been replicated in seven states. “This says, ‘no, we’re going to be a corporation that actually cares about society.'”

Greenblatt said that this new class of business means a company can become a corporation without being forced by shareholders interested only in profit to make decisions that might be bad for the environment, workers and communities.

That’s not true of regular corporations. In 2000, shareholders of the famously progressive ice cream company Ben & Jerry’s forced co-founder Ben Cohen to sell the company to Unilever, a food conglomerate.

With the rise of industrial capitalism, that corporate mission of public service deteriorated in favor of the bottom line.

The second distinguishing feature of a benefit corporation is  that it allows shareholders and entrepreneurs to hold a CEO accountable for favoring maximum profits over socially beneficial choices. In other words, if a benefit corporation promises in its mission statement to always pursue the most environmentally sustainable production techniques, but then goes back on that promise, shareholders can sue and the company’s certification can be taken away.

The interior of the IceStone durable surfaces manufacturing plant in Brooklyn. The mission statement of the company, which makes goods from recycled glass, includes a pledge to sustainability and the achievement of a healthy balance between employees' work and social lives. Photo courtesy of Ice Stone.

In order for a company to become a benefit corporation, it must apply through the state, and publish an annual public report that shows its performance in social and environmental areas against a third-party standard. A benefit corporation can also become a certified benefit corporation, by agreeing to work in within the parameters set up by a third party non-profit like the Philadelphia-based B Lab, which makes regular visits to the company to ensure standards are maintained.

This might sound deeply original, given the corporate world’s less than sparkling track record on human and environmental rights since the United States became an industrialized nation, but it’s actually based on early notions of American corporatism.

“When America began, the states chartered corporations for public purposes, like building bridges. They could earn profits, but their legitimacy flowed from their delegated mission,” Jamie Raskin wrote in The Nation this summer. With the rise of industrial capitalism, that corporate mission of public service deteriorated in favor of the bottom line.

In some ways, the benefit corporation seems to be the logical extension of the limited liability company (LLC) structure.

Since the 1970s, smaller businesses have become limited liability companies to afford themselves protections similar to benefit corporations, but on a smaller scale.

“Small companies can write their missions into a statement, but when they need significant investment this [protection of their mission] becomes really important. You’re going to see bigger and bigger companies going this route,” said Greenblatt.

Workers display the product at Greyston Bakery in Yonkers, N.Y. Greyston plans to become a benefit corporation once the new law goes into effect in 60 days. Photo courtesy of Greyston Bakery.

What kinds of companies can we expect to become benefit corporations?

David Bolotsky, founder of sustainability-minded online market place UncommonGoods, hopes to make his company New York’s first benefit corporation. New York City clothing design company Eileen Fisher, Ithaca-based Comet Skateboards, Brooklyn-based sustainable surface manufacturer IceStone and Greyston Bakery in Yonkers are also committed to getting benefit corporation certification.

Benefit corporations also make it easier for companies to remain worker-owned as they grow, like King Arthur Flour in Vermont, which employees about 200 people.

As the benefit corporation laws are likely adopted in other states, long-standing industrial giants, such as BP and Chevron, aren’t likely to embrace them, but that doesn’t mean other companies won’t.

A 2010 Hope Consulting study of wealthy investors found over $120 billion in potential investments in mission-driven companies, the likes of which are candidates for benefit corporation status.

“It’s going to take time for that to get organized,” said Greenblatt. “But 10 to 20 years from now this will be the standard way of doing business. And if you’re not a benefit corporation people are going to ask why not. We saw this happen with LLCs when they first came around. Now, 30 years later, they’re the dominant business form.”