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Aug 13, 2013

Relief for the Civic-Minded Corporation

I am a strong advocate that our community needs to foster and develop social enterprises with the same intensity currently devoted to high technology start-ups.  Social enterprises are businesses that are profitable but are equally committed to a social purpose that either limits revenue, adds to cost, and/or dedicates all profits to charity.  Social enterprise is an essential “right-hand side” activity in the Linking Mission to Money Grid, which is discussed in chapters 8 and 12 of Linking Mission to Money, Second Edition about the role of profit in nonprofit sustainability.  A recent discussion of the role of this grid in nonprofit sustainability was published by the Georgia Center for Nonprofits.

Our most civic-minded corporations also want to embrace a social purpose and many do so through corporate foundations and employee volunteer programs.  This effort requires a careful balancing act because the only legally recognized objective of a corporation is profit maximization.  Thus any decision to support the local community must be tied back to benefiting the bottom line.  Specifically, the company cannot make decisions that consider both financial and non-financial interests.  Doing so could subject the company to shareholder lawsuits.

Momentum to eliminate this risk reached a critical mass recently with the adoption by the State of Delaware of legislation permitting Benefit Corporations, or B-Corps.  Now there are 19 states plus the District of Columbia in which companies can be B-Corps as well as the familiar C-Corps and S-Corps.  By incorporating as a Benefit Corporation a company provides legal protection to directors and officers of the corporation to consider the interests of its workforce, community, and the environment when making business decisions, including decisions to merge, sell, or liquidate.  In operational decision-making, choices that would not maximize profits but would result in strong profits and social benefits are not just permitted but encouraged.  In decisions to sell or liquidate the company, directors are not limited to “take the highest offer” but can choose options that also consider the impact on employees, the local economy, and the “general public benefit.”

General information on B-Corps can be found at www.Bcorporation.net.  Model legislation and answers to detailed legal questions can be found at www.benefitcorp.net.