California has passed legislation authorizing the creation of benefit corporations, also known as B Corps, a new class of corporations which are created to benefit society as well as shareholders. Unlike traditional corporations which are accountable only to their shareholders, these corporations must consider the impact their business decisions have on the community, environment, and employees as well.
In addition to maximizing profits for shareholders, benefit corporations must have a “material positive impact on the environment and community,” according to California Assemblyman Jared Huffman (D-San Rafael), who authored the bill. The benefit for these companies is that they obtain legal protection from shareholder suits for pursuing their social or environmental goals, which may not always be in line with shareholder financial interests. Another benefit is the potential access to capital these companies get because of their socially responsible mission. Benefit corporations must file a public benefit report each year assessing their social and environmental performance using objective third-party standards.
According to Jay Coen Gilbert, a B corporation advocate and co-founder of B Lab in Philadelphia, the California law provides these companies “with legal protection to pursue what some people perceive as a triple bottom line — creating financial profit as well as social and environmental impact.”
The California law goes into effect on January 1st. There are five other states that currently have similar benefit corporation laws–Hawaii, Maryland, New Jersey, Vermont, and Virginia. There is legislation underway to create benefit corporations in New York, North Carolina, Pennyslvania, and Michigan.