A legal victory for B Corporations

A few weeks ago we discussed the B Corporation phenomenon which certifies firms that formally amend their corporate governing documents to incorporate stakeholder interests beyond those of shareholders.This week brings news of the first legal victory for B Corps with the signing into the Maryland legislation provisions for the legal creation of such "Benefit Corporations". According to the press release from B Lab, the outfit behind the B Corporation initiaitive: "Benefit Corporations must by law create a material positive impact on society; consider how decisions affect employees, community and the environment; and publicly report their social and environmental performance using established third-party standards. The legislation, sponsored by Senators Jamie Raskin and Brian Frosh and Delegate Brian Feldman, passed the Maryland Senate with a vote of 44 – 0 and the Assembly 135 - 5."

The press release also states that "Maryland is the first state to pass Benefit Corporation legislation, but others are quickly following Maryland’s lead.  Vermont Bill S.263, co-sponsored by Senators Hinda Miller and Peter Shumlin, has already passed the Senate and will be considered by the Vermont Assembly over the next 30 days.  Other states considering the legislation include Colorado, New York, North Carolina, Oregon, Pennsylvania, and Washington"

An interesting development for sure, though time will tell whether it has much material impact. Still, any initiative that seeks to get deep into the DNA of companies like this certainly qualifies as an exciting and ambitious experiment aimed at genuinely doing something different. The press release from B Lab puts it this way:

"The new law addresses a long time concern among entrepreneurs who need to raise growth capital but fear losing control of the social or environmental mission of their business. These entrepreneurs and other shareholders of Benefit Corporations now have additional rights to hold directors accountable for failure to create a material positive impact on society or to consider the impact of decisions on employees, community, and the environment. From a company’s point of view, the new law empowers directors of Benefit Corporations to consider employees, community and the environment in addition to shareholder value when they make operating and liquidity decisions. And, it offers them legal protection for those considerations."

Critics will for sure be concerned that this represents a weakening of the economic incentive at the heart of capitalism  ... and one that may compromise economic value creation. But surely the time is ripe for efforts like this to balance value creation for all in a systematic way. So congrats to B Lab for getting this going.  The road ahead will be long, but this could be an important bridge that has just been crossed.