For-profit businesses with social and environmental goals, often called "triple-bottom-line" companies, because their environmental and social missions are as important as their financial goals, face a perennial problem when it comes to growth. Call it the "Ben & Jerry's" effect. When that socially minded company went public in 1984, it ended up being bought by much less socially minded Unilever 15 or so years later, thereby diluting its original socially minded mission. In other cases, similar businesses could sell controlling shares to investors with big pockets, only to find their non-financial objectives severely watered down by the new owners.
One solution is to pass a law creating a new corporate form requiring that companies take into consideration the interests of non-financial stakeholders and, in effect, ensure their missions can't be touched. Last week, Maryland became the first state to pass such a law, establishing a corporate form called a "benefit corporation." As such, these "B corporations" will legally be able to consider the interests of employees, the environment, and the larger community in their decision making--and directors can't be sued if they take actions deemed to be damaging to shareholder financial interests.
In addition, these companies would have to provide yearly reports about just how they're contributing to whatever larger goal it is they're focused on and they would be audited by a third party.
The concept reflects a theory of corporate governance that says managers should not put shareholders' interests ahead of those of other stakeholders' interests even at C corporations. As Margaret Blair, a law professor at Vanderbilt University has written , the theory was once widely accepted but in recent decades has lost traction in US courts.
The Maryland bill was modeled on proposed legislation created by B Lab , a Berwyn, Pa., nonprofit that certifies triple-bottom-line companies. The group was also instrumental in getting the Philadelphia legislature in December to introduce tax credits for investing in socially responsible companies.
The Vermont legislature is expected to vote on a similar bill soon. And a handful of other states, including California, are considering their own versions. Also, Russell Sullivan, staff director for the Senate Finance Committee, recently was quoted in the Chronicle of Philanthropy as predicting that eventually we'll see an addition to the national tax structure, "something that is in-between a private taxable company that's under our rules of C corporations or S corporations and partnerships, but also not under our rules having to do with charities."
He emphasized he was talking for himself, not on behalf of the finance committee. Still, even to suggest such a move indicates a significant change in attitude toward the whole triple-bottom-line thing. What once might have appeared to be a fad, or an out-of-date theory of governance, really seems to have legs.