by ZACH YEAGER
Nevada State Assemblyman David Bobzien of the 24th District announced on his website that he will submit legislation authorizing the creation of benefit corporations in Nevada. If passed, Nevada will join 12 other states and the District of Columbia as jurisdictions that allow benefit corporations. This new legal structure is enticing to businesses with an environmental or social mission, such as high-end outdoor clothing company Patagonia Inc. However, the added responsibility could become a burden in an era when simply making a profit is hard enough.
A preliminary draft of the bill would establish a new legal entity known as a benefit corporation. A benefit corporation falls somewhere between a non-profit and a traditional corporation. Whereas non-profits are dedicated to specific causes without a financial objective and traditional corporations are legally required to maximize profit, benefit corporations pursue social, environmental and economic objectives.
This legislation appeals to the growing popularity of corporate social responsibility in the business community. Companies such as Ben and Jerry’s, Patagonia, and The Body Shop have spawned many followers by having financial success while also supporting environmental or social causes. This marks a change from a not-so-distant era when nearly all businesses operated according to Milton Friedman’s idea that “the social responsibility of business is to increase its profits.”
Twelve states and the District of Columbia have already passed similar legislation. On the first day that California’s legislation went into effect, 12 companies registered as benefit corporations at the California Secretary of State’s office in Sacramento. One of those companies was Patagonia, which has a distribution center in Reno and its headquarters in Ventura, California.
For Patagonia, being a benefit corporation allows it to pursue its environmental objectives and partake in programs such as 1% for the Planet without having to worry about shareholders suing for diluted earnings.
For shareholders who want to invest in corporations with environmental or social objectives and still make a return, investing in benefit corporations gives them legal recourse if the company doesn’t fulfill its environmental or social objectives.
The assemblyman who introduced the bill is David Bobzien from the 24th district. Bobzien describes the bill as “one more tool in the toolbox” to encourage economic development in Nevada. He hopes that the ability to incorporate as a benefit corporation will attract a new generation of social entrepreneurs to the state.
When asked about the bill’s prospects, Bobzien stated: “We’ve gone looking for opposition and haven’t found it.”
This is in line with the experience of the other jurisdictions in which similar legislation has passed. B-Lab, a non-profit assisting with the legislation, says on its website: “Legislation has enjoyed overwhelming bi-partisan support–including 12 unanimous votes.”
One reason for the lack of opposition is that both parties see something positive in the bill. Those on the right tend to see it as a way to give businesses more choice in their objectives. Those on the left tend to see it as enabling businesses to finally take on greater social and environmental responsibility.
Since becoming a benefit corporation is completely voluntary, traditional corporations will not be affected by this legislation. Furthermore, benefit corporations are subject to the same taxes and laws that apply to traditional corporations, so there is no loss of revenue for the state. The only significant differences are that benefit corporations have as their purpose “creating general public benefit” and must issue an annual benefit report to the public that assesses their performance against a third-party standard, such as ISO 26000, The Global Reporting Initiative, or B-Lab’s own B Impact Assessment.
While benefit corporations may strike traditionalists as unnecessary or misguided, the cost of letting some corporations voluntarily choose to pursue social or environmental goals in addition to financial goals is minimal. And with 12 states that have already approved benefit corporations and 14 more with legislation in the works, states that don’t allow benefit corporations could soon be at a disadvantage.This article was also published by the Reno Gazette-Journal on 02.16.13