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Benefit Corporation Governance is a Best Practice for Sustainability Leaders

Submitted by: Frederick H. Alexander

Posted: Oct 07, 2015 – 06:00 AM EST

Series: Corporate Governance and Business Ethics

Tags: benefit corporation, governance, business

 
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This is the most recent article in our series "Corporate Governance and Business Ethics". For more articles, go to http://www.csrwire.com/blog/series/87-corporate-governance-and-business-ethics/posts

Sustainability performance is critical for 21st Century businesses.  Employees and customers throughout the supply chain demand it.  Investors do as well, and with good reason—one recent survey that looks at 200 academic studies found that 88% of sources found that “robust sustainable practices . . . translate into cash flows.”  However, full integration of “robust sustainable practices” may require a governance change to endure over time, especially in the context of the public markets.

While a governance change may sound intimidating, most states in the US have recently adopted benefit corporation legislation, which makes the transition straightforward.  Adopting a benefit corporation structure aligns a firm’s governance with its sustainability goals, and can be accomplished with a simple amendment to the articles.  This legal change can improve and sustain best in class social and environmental performance.

What Is A Benefit Corporation?

A benefit corporation is a traditional corporation that has modified its governance structure to require directors to consider the impact of its decisions on workers, the community, and the environment.  In contrast, traditional corporate governance mandates that stockholder value be the sole bottom line; while traditional corporations can be socially responsible, that responsibility is always secondary to share value.  Benefit corporations must also make periodic reports on their efforts to protect and to create value for all stakeholders.  It is this combination of increased accountability and transparency that makes the benefit corporation such a powerful tool to build trust and value.

Why Is Governance Structure Important?

Traditional corporate law focuses on share value.  This myopic perspective is an obstacle to fully integrating responsible practices, and interferes with the development of trust between a company and its stakeholders.  Even for corporations with respected sustainability programs, aligning governance structure with mission is a powerful tool for accelerating performance.  The reason is simple:  while a corporation’s performance shows where it has been, only an expanded governance model can demonstrate commitment to where it is going.  And this legal commitment provides clarity in the boardroom and the C-suite, and to customers, workers, and communities that the corporation’s sustainability performance will be lasting—even for a public company with a constantly changing shareholder base.

The clarity created by a mission-aligned structure like benefit corporation status creates new opportunities to build long-term, durable value for all constituencies, including stockholders.  Benefit corporation structure makes sustainability programs stickier, and provides the legal foundation upon which sustainability professionals and aligned executives can build the internal and external stakeholder trust necessary to successfully invest in long-term or high impact initiatives.

The Growing Presence of Benefit Corporations

Public officials recognize the importance of benefit corporation legislation, as they seek to foster private sector innovation that creates high quality jobs and increased quality of life:  benefit corporation legislation has now been adopted in thirty-one U.S. jurisdictions.  The market is moving in the same directions:  already, over 3,000 benefit corporations have been formed, including companies such as Kickstarter, Patagonia, Method, King Arthur Flour, Plum Organics and AltSchool, and over $100 million in venture capital financing has been raised by benefit corporations.

Benefit Corporation Adoption Creates Value for All Market Participants

Aligned corporate governance is, in and of itself, a positive commitment that builds trust with employees, customers and communities.  Moreover, the increasing visibility of benefit corporations that credibly report on their performance will create pressure on other businesses to demonstrate their responsibility.  As Larry Fink, CEO of Blackrock, has observed, this kind of market evolution will benefit all investors in the long run, as companies find they can no longer “create value” for a few stockholders in the short term by imposing systemic costs on everyone.

Businesses need a way to align their interests with the interests of society.  Becoming a benefit corporation provides such a path, and allows a business to demonstrate real leadership by making a true commitment to social responsibility, to communicate that commitment to its stakeholders, and to influence the rest of the market to follow a more responsible path.

To learn more about becoming a benefit corporation, visit benefitcorp.net.

This is the most recent article in our series "Corporate Governance and Business Ethics". For more articles, go to http://www.csrwire.com/blog/series/87-corporate-governance-and-business-ethics/posts

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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