Why aren't there benefit corporations everywhere?

Today we have a guest post from Hans Rawhouser and Michael Cummings, both from the University of Nevada, Las Vegas. Hans and Michael have been working with Andrew on research about benefit corporation legislation in the US, and their paper has just been published in a special issue of the California Management Review about hybrid organizations. The short video above is from the special issue editors at CMR and provides a good introduction to some of the main issues and debates around hybrid organizations.

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Social hybrid organizations mix characteristics of non-profit and for-profit organizations, and are receiving increased attention from management scholars and practitioners.

A hybrid organization can be identified informally, based on an assessment of the organization’s practices, or it can be recognized more formally such as through third-party certification (e.g., B-Corps) or legal incorporation (e.g., Social Purpose Corporations, Benefit Corporations). Both certifications and legal forms are interesting in that they help to delineate a unique space for organizations that exhibit social hybrid characteristics. 

Because corporations in the United States are enabled by state law, the passage of social hybrid legislation provides an interesting multijurisdictional setting in which to study the spread of hybrid legal forms. Our new article [authors’ copy free to download here], coauthored with Andrew Crane, was just published as part of a fascinating special issue at California Management Review focused on Hybrid Organizations. In “Benefit Corporation Legislation and the Emergence of a Social Hybrid Category”, we investigate the drivers of the passage of social hybrid (specifically benefit corporation) legal forms and the process by which these legal forms create space for social hybrid organizations more broadly. As described in the abstract:

Previous research highlights tensions that social hybrids face by spanning categories. This article explores the emergence of legislation to support a new category for social hybrids, focusing on Benefit Corporation legislation in the United States. It presents quantitative analysis of state-level factors that make a state suitable for a social hybrid category (attractiveness for for-profit business and nonprofits, existing social hybrid organizations, legislative intensity, and political leanings) followed by qualitative analysis of the arguments marshaled for the creation of the Benefit Corporation legal form. These findings raise important insights for research on social hybrids and suggest a range of practical implications.

Our regression results show an increased likelihood of state adoption of the hybrid form is associated quite strongly with the degree of Democratic influence in the legislature. Quite simply, blue states are more likely to pass benefit corporation legislation than red ones. But our results also suggested that other factors play a significant role, including the strength of existing hybrid organizations and potential opposition from nonprofit organizations. So, states with more nonprofits are actually less likely to pass benefit corporation legislation (probably because of concerns that they will threaten their resources) while states with a lot of social mission companies already are, as expected, more likely to pass legislation.

We also report from interviews, public documents, and legislative transcripts to analyze the conversation surrounding the adoption of benefit corporation laws and identify the main themes (Legal, Impact, Identity, and Demand) as well as the tensions between opponents and proponents of the new hybrid legal form. These themes and tensions can be helpful in shaping future conversation about hybridity.

The public awareness and utilization of hybrid forms like benefit corporations is increasing, with some publicly-traded companies pursuing “hybrid” missions (e.g. Plum Organics, wholly owned by Campbell’s Soup) and several additional U.S. jurisdictions currently considering hybrid legislation. Our research study helps both to highlight enthusiasm and trepidation; there are some good reasons why some places are reluctant or slower to embrace legislation permitting hybrids and there are several challenges that have not yet been fully resolved. However, many are hopeful about the future of hybrid legal forms, and there is clearly a lot of momentum in the legal sphere. We encourage your comments, questions, and feedback!