Several states across the nation have considered or approved the creation of a “benefit corporation,” a class of corporation that gives special status to companies like King Arthur Flour, ensuring that their corporate values can be protected in the event of sales or mergers. But classification may not necessarily be good for business, consumers or even democracy, warns Rae André, professor of organizational behavior and theory at D'Amore-McKim School of Businesswho wrote on the subject in a paper published this year in the Journal of Business Ethics.
What is a benefits company? Why would a company choose to incorporate as one?
A benefit corporation is a new form of business corporation dedicated to improving corporate social responsibility. Most are private companies without shareholders. Although they are a separate corporate classification, they must obey all the same laws as traditional corporations.
The way this works is that benefit companies are certified by an independent third-party assessor, in many cases the not-for-profit organization B Lab, which is the impetus behind most of the benefit corporation legislation passed in the United States. Benefit companies pay a fee to B Lab and, in return, are given a questionnaire that reflects certain values of those organizations and how they are certified. They are often asked complex questions such as: “Is your supply chain designed to address issues of poverty alleviation and job creation for underserved populations?” and companies simply answer yes or no.
I guess these companies think that becoming a benefits company provides some benefit legally. I don't see it that way, though, and it hasn't been tested in court. I see them more as a PR effort and a way to network with other companies that share their values.
Describe the companies that benefit as businesses that fall into a new “grey area.” What do you mean by that?
As citizens, we must always consider questions such as “Who is certifying us?” We need to understand who is making the regulation and why, and we need to stay on top of these companies and organizations. Groups like B Lab, which benefit companies that pay on a sliding scale for certification, fall into what I call a gray area, and that's hard to track.
Traditionally, the organizational universe consists of businesses, nonprofits, and governments — three very distinct sectors. But certifiers like B Lab fall somewhere between business and non-profit, and are actually acting on behalf of the government, serving in place of our representative government. It is very difficult for citizens to keep track of these organizations and what they are actually doing. I don't like to see citizens lose control of the organizations in their society.
We assume that something called a benefit corporation will be something for the benefit of society. But what if the organization that does the evaluation of the company's benefits is diametrically opposed to the goals of the society? What if it's not green, for example? As a citizen I have no control over the “independent third party provider” that lawmakers have mandated to certify benefit companies. there are no specific criteria for those involved in this legislation.
What are the risks of blurring the lines between government and private groups, such as those that certify benefit companies?
The way one might think of benefit corporations and their relationship with B Lab is that it's a trade association, and that's fine. Trade associations often keep businesses on a straight path, which is good for institutional marketing. But the question is: Why do we need the government to do this? In my mind, we don't. Benefit corporate law outsources citizens' values to an unelected third party.
When B Lab, which is the main evaluator involved in this right now, gives their questionnaire, they are essentially replacing their own values with society's values. We passed legislation covering these issues, or at least the lawmakers behind them. We as citizens, however, do not get a vote with these organizations. They disrespect the citizens.
This should not be something the government is involved in. Part of my concern is that the companies that benefit in the future will get tax breaks because, after all, they are supposed to be doing some wider good. But why should my tax dollars go to members of this organization that we as citizens did not certify and did not choose? And why should benefit corporations have a tax preference over traditional corporations?
This would completely change the playing field. What is also important is that this separate classification also suggests that other companies are not doing well and that is simply not true. Traditional companies give to charities, create foundations and support jobs, and creating a separate category of benefits creates a distinction where I don't think it really exists.
