Certified B Corporation

Corporate Values

March 15th, 2010

Will Vermont become the first non-Delaware? If so, will the designation inspire progress and economic development? Or will it just convince more people that Vermont is kind of weird? Having no seacoast and plenty of mountains, Vermont is enough un-like Delaware without taking further steps. The further step under consideration by the Legislature has nothing to do with nature and everything to do with corporate law. Delaware’s, according to Delaware’s Division of Corporations, offer “a complete package of incorporations services.” Because its laws protect corporate directors and corporate discretion more than most other states, Delaware is a “corporate haven,” where more than half of all publically held corporations, and 63 percent of the Fortune 500 companies, are chartered. As in every other state (including Vermont), but more so, Delaware law assumes that corporations exist to earn profit and enrich shareholders. That’s it. Nothing else. Individual corporate executives and officers may have all sorts of other values – social, economic, environmental, or charitable. But they are to pursue those on their own time. At work, their only job is to maximize profit and raise the price of their company’s stock. Senate Bill 263, which was approved Friday by the Committee on Economic Development, Housing and General Affairs would make an exception, and by so doing might just disrupt hundreds of years of corporate law and corporate culture. The law would empower domestic corporations to charter themselves as “for benefit” corporations. They, too, would exist to earn profits and enrich shareholders. But that would not be it. There could be something else. These corporations would be empowered to put right into their charters that among their purposes – just as central to their existence as profit – was…something else: the prosperity of the company’s home town; sustainable, organically grown agriculture; reducing greenhouse gasses; protecting the health of employees, or, more ambitiously, of the whole world. According to Vermont Businesses for Social Responsibility, the driving force behind the bill, writing this option into law could have extensive consequences. It would mean, said the organization, that the “fiduciary duties” of corporate directors could “include non-financial interests.” Translated into English, that means that if a big corporation wanted to buy out a smaller, profitable, company that was pursuing some social mission as well as profit, the directors of the smaller company could refuse on the grounds that the big boys wouldn’t keep faith with the social mission. They can’t do that now. If Big Boy Corp. offers a stock price substantially higher than Nice Guy Corp. shares are now getting on the market, the Nice Guy directors have to sell. Otherwise, shareholders could sue. After all, to them the shares are just…shares, worth what they are worth as money. Nothing more. But if S. 263 becomes law, said Will Patten, the executive director of Vermont Businesses for Social Responsibility, a “board of directors could say, it is our position that selling is not in the best interest of employers in our town, or family farms” or whatever public benefit was specified in the corporation’s charter, and shareholder suits would be much less likely. The company could stay independent, local, and active in the causes it has chosen. Could it be, then, that if such a law had been in place 10 years ago, Ben & Jerry’s might still be an independent company, possibly even run by Ben Cohen and Jerry Greenfield, instead of a wholly owned subsidiary of the Dutch-based corporate giant Unilever? Yes, according to Patten, who was a high-ranking executive at Ben & Jerry’s, and even more authoritatively, according to Cohen, who was interviewed by National Public Radio last week.?“The laws required the board of directors of Ben & Jerry’s to take an offer, to sell the company despite the fact that they did not want to sell the company,” Cohen told NPR. “But the laws required them to sell the company to an entity that was offering an amount of money far in excess of what the stock was currently trading at.” Had the directors resisted, Cohen said, individual board members could have been sued, and they worried that they could end up being personally responsible for the legal fees. Patten acknowledged that the bill could not totally prevent outside takeovers of “for benefit corporations. Some kind of “shareholder revolt” would still be possible, he said, but “the beauty of this bill is that…the corporate charter puts it right out front that you need to know what our values are. This will screen those investors. They’ll know the purpose of the corporation from the start.” Under the bill, no company would have to become a “for benefit” corporation, and probably most would not. It wouldn’t be all that easy. A company would have to appoint one director to monitor its compliance with the terms of its charter, and operate with more transparency than conventional firms. So far, nobody seems to be opposed to the bill, and several Vermont companies – including King Arthur Flour, Gardener’s Supply, Seventh Generation, and Main Street Landing — support it, according to the VBSR. Vermont is not the only state considering the “for benefit’ corporation idea. The NPR program was about the effort in California, and Patten said Delaware’s neighbor, Maryland, was also in the running. But Patten was hopeful Vermont would win the race. “This is the state where it belongs,” he said. There’s nothing new about socially conscious businesspeople, or neither Carnegie Libraries nor the Ford Foundation would exist. There isn’t even anything all that new about the socially conscious company. It’s just that until now nobody seems to have thought of a legal mechanism to try to keep those companies socially conscious if a bigger, more conventional firm wants to absorb them. But it was probably just a matter of time, especially in a society that (despite the temporary interruption of the Recession) keeps getting richer. As wealth becomes more customary, wealth alone becomes less satisfying. The businesspeople behind S. 263 are all in favor of making money. In fact, Patten said, he and his allies want to “prove you make more money by investing in social and natural capital. We’re not saying, ‘follow us and put up with less money.’” The message seems to be, ‘follow us for more money, but also more than money.” Their hope is that the result will be more businesses and more jobs. As it may be. Or it may be more ridicule. Or both.