Benefit corporations, which embrace social good as well as profit, don’t achieve those goals automatically, an attorney from the Kauffman Foundation of Kansas City, Missouri, said Thursday.
Rather, said John Tyler, chief ethics officer for the entrepreneur-focused foundation, the owners and executives of benefit corporations must act on their social principles and make sure those actions are communicated to their shareholders and other stakeholders.
Unlike nonprofit corporations, he said, benefit corporations registered under state statutes don’t get income tax exemptions but can consider their social causes in their decision-making and must issue annual “benefit reports.” Shareholders can use that information to hold management accountable for keeping the company’s principles in mind.
Tyler told about 120 people at a meeting of the Omaha Business Ethics Alliance, held at the Holland Center, that standard corporations can be socially responsible, too, doing things that profitably enhance their brands.
But those corporations may face legal disputes if shareholders believe business decisions did not lead to maximum profits, he said. The courts have said shareholder profits remain the top priority for standard corporations, meaning that companies can be at risk legally if they are perceived as “overvaluing” their employees or communities at the expense of shareholder profit.
Starting nearly a decade ago, he said, a group of T-shirt designers from Pennsylvania wanted to consider other factors, such as the wages and working conditions at their Asian shirt manufacturers, besides profit. The result was the benefit corporation structure, since then allowed by laws adopted in Nebraska and 33 other states.
Nonprofit groups can act on social principles but, under U.S. law, can’t have owners, issue dividends or be bought and sold. Standard corporations must act to maximize shareholder profits.
Benefit corporations are in between, allowing ownership and profits but also permitting decisions based on social factors such as environmental impact and the well-being of employees and communities.
Because shareholders know in advance that B corporations consider things other than profit, Tyler said, they can avoid some legal liability if they don’t maximize profits for shareholders.
Firespring, a marketing company with offices in Lincoln and Omaha, became the state’s first benefit corporation in 2014, soon after the state law went into effect.
These days, Tyler said, some younger people are drawn to socially responsible corporations, including benefit corporations, a business advantage as long as those social goals are advanced.
On the other hand, he said, alternative corporate structures can be subject to “hypocrisy, fraud and abuse” if they gain unfair advantages over standard corporations without carrying out their social missions. And benefit corporations can change their principles if they have the support of 51 percent of their shareholders.