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Benefit Corporations: A new ally?
Benefit Corporations are defined as a new class of corporation that 1) creates a material positive impact on society and the environment; 2) expands corporate fiduciary duty to require consideration of non-financial interests when making decisions; and 3) reports on its overall social and environmental performance using recognized third party standards.
In April 2010, Maryland became the first state to pass legislation that legally recognizes benefit corporations (B corps). Today seven states recognize benefit corporations: California, New York, Vermont, New Jersey, Virginia, Maryland and Hawaii with legislation pending in Pennsylvania, North Carolina and Michigan. B corps are still unknown to a large number of community developers. The simplest way to describe them is that they exist somewhere between non-profits and traditional corporations, leaning closer to traditional corporations in their operations. An example of a B corp would be Atayne which transforms trash into athletic wear or App-X that specializes in web based Alternative Asset Fund Managing for non-profit organizations. As part of their mission of being a B corporation, App-X even distributes some of their online products for free. To become a Certified B corp an organization is evaluated through the ‘B Impact Assessment’ that provides a ‘B Impact Report’ taking into consideration a company’s governance, workers rights, as well as environmental and community impact.
In a January 2012 article of The Economist, B corp proponents cite their financial flexibility as a critical asset, , “Non-profit firms and charities are needlessly restricted in their ability to raise capital when they need to grow.” Benefit corporations do create profits. This allows them to act economically independent from government programs and grants.
However, b-corps have skeptics. They claim the line between b-corps and traditional for-profit corporations is too thin. Other opponents believe the standards for evaluating benefit corporations are not clearly defined. Despite these criticisms, it seems that benefit corporations are growing in popularity and purpose. As their popularity and numbers increase, we must ask ourselves, ‘What potential relationship can these businesses have with community development work?’
One issue that is a constant worry for non-profits and community development corporations are finances. It appears as though traditional public sources of funding for CDCs are becoming increasingly scarce. CDCs must begin to look for new and innovative funding mechanisms. Formal partnerships between benefit corporations and community development corporations may have mutual benefit. One question that came into my mind, ‘Can the mission of a benefit corporation help fund non profits? If so, how? If not, why not?
In certain states, it may even be possible for a benefit corporation to actively involve themselves in community development work. There is potential for local businesses, B corps, and CDCs to create strong bonds actively shaping their local community. As a for profit entity, Benefit Corporations may have the ability to accomplish more than traditional non profits. They are not strapped to traditional nonprofit funding streams. Benefit corporations are a relatively new phenomenon in America. A lot remains to be discovered. What is clear, is that benefit corporations and their formation demonstrate a conscious effort to positively contribute to the world community. As community developers, we must stay abreast of B corps and other movements to positively change communities. Hopefully, this blog post is first of several conversations about benefit corporations and their role in community development.
To learn more about benefit corporations, please review these links below: