Before I take you into the specific nature of the growing love between some investors and others and the class of business entity called a benefit corporation, let’s start at the beginning: What is a benefit corporation?
According to Wikipedia, a benefit corporation is “a type of for-profit corporate entity authorized by 30 U.S. states and the District of Columbia that includes positive impact on society and the environment in addition to profit as its legally defined goals. Benefit corporations differ from traditional C corporations in purpose, accountability and transparency, but not in taxation.”
In short, benefit corps are purpose-driven, committed to long-term value creation and focused on sustainability. They are out to accomplish something much bigger than simply making a profit.
What’s especially interesting is that, with a benefit corporation, these factors are calculated into the bottom line. This is, in fact, the triple bottom line made accountable – a bottom line that considers positive results related to profit, the planet and people.
So why are some investors and others going crazy for benefit corporations? If you have questions after reading the article, just ask! And I’d also love to hear about your own experience with B corporations.
Investors: There are multiple reasons why some investors love benefit corporations. From an ROI standpoint, studies have shown that sustainability practices improve operational performance. Additionally, benefit corporations can set long-term value creation goals because they are protected against short-term focused shareholders who might want to extract value too soon. In a sale or liquidity situation, benefit corporations are also able to count sustainability and social innovation as a competitive advantage, boosting the selling price or liquidation value. Finally, many of today’s investors are seeking alignment with their own values and are, therefore, more and more interested in being part of ventures involving a larger purpose and making a positive impact.
CEOs & Owners: The long-held idea that corporations exist for the single purpose of making a profit for shareholders greatly informs how corporations operate. Unfortunately, the profit mandate puts leadership in handcuffs, giving them far less choice with regard to the decisions they make. Leading a benefit corporation frees leadership to pursue initiatives that may not result in traditional profit, especially short-term profit, but rather in social or environmental change. It’s a much more holistic view of the world and how they fit in it.
Entrepreneurs: For the entrepreneur, forming a benefit corporation legally protects the social goals that are increasingly at the heart of new business ventures. In fact, if you were present for a series of funding pitches by various entrepreneurs, it’s likely that at some point you’d hear the speaker seeking funding say she is out to “make the world a better place.” Sure, it may sound trite – and perhaps those same entrepreneurs’ advisors are cautioning them against overusing it – but the reality is that making the world better is exactly what today’s entrepreneurs want to do. To them, it’s not a trite phrase, it’s the whole goal and they believe that if they can make the world better, they’ll make a profit too. In other words, it’s their “WHY” – the larger purpose behind their business.
Talent: With the entrance of the millennials into the workforce, the conversation around purpose-based companies has exploded. According to a 2014 Deloitte Millennial Survey, 77% of millennials stated that their “company’s purpose was part of the reason they chose to work there.” It is doubtful that any generation to come is going to willingly reverse the desire for meaningful work. Having a well-defined societal purpose, true transparency, and ongoing sustainability initiatives have become the cost of entry for any company seeking the best talent.
Consumers & Customers: Increasingly, consumers and B2B customers want to put their money where their values are. The benefit corporation designation tells potential customers that the company they are considering doing business with has corporate accountability at its core.
Society: There was a time when we as a society very much needed to focus on creating technological innovation and, fortunately, traditional capitalism was good at facilitating it. Today, the need for technological breakthrough pales in comparison to the need for social innovation. By their very nature, benefit corporations are ideal for innovating solutions to society’s biggest problems, including healthcare, education, the environment and poverty. Benefit corporations are mission bound to solve these very issues and might just be our country’s best chance at real societal change.
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