Can a Corporation Be a Philanthropist? California's Benefit Corporations Pursue Both Profit and Purpose
What do Patagonia, Give Something Back Office Supplies, and Thinkshift Communications all have in common? They are California "benefit corporations" -- a new type of for profit corporation that is allowed -- or, more precisely, required -- to put society and the environment at the center of how the company does business. Six other states have enacted similar legislation.
Even though California's benefit corporation law is less than three months old, mission-driven corporations are not new. Numerous for profit companies measure their success not only by their profits but also by their social and environmental impact. The new form of legal entity offers companies an alternative model of corporate governance, and greater freedom to pursue their social and enviromental goals. Sandra Stewart of Thinkshift Communications writes:
'I hope that five years from now, ten years from now, we’ll look back and say this was the start of the revolution. The existing paradigm isn’t working anymore—this is the future.' Those were Patagonia founder and CEO Yvon Chouinard’s closing words as he led a parade of companies up the steps of the Secretary of State’s office . . . to become California’s first benefit corporations. . . . For Thinkshift, and I think for the other newly minted benefit corporations as well . . . , it felt like we took a significant first step in support of the kind of business culture that can build a sustainable, responsible and vibrant economy.
Proponents of the benefit corporation say this new form of legal entity will allow socially responsible companies to thrive. Susan Carpenter writes in a Los Angeles Times blog post titled California's new B Corp law eyes social, environmental interplay:
Incorporating under [the benefit corporation law] allows companies greater access to social impact and venture capital investments; legal protection for directors and officers as they consider non-financial social and environmental goals; and validation of their social and environmental responsibility claims since their annual benefit report must assess their performance against a third-party standard.
The benefit corporation differs from traditional stock corporations in significant ways.
A traditional corporation can (with some exceptions) engage in any lawful business activity. But, if a company is organized as a benefit corporation, its purpose must be to create a material positive impact on society and the environment.
A director of a traditional corporation must perform his or her duties "in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders" under California law (Section 206 of the Corporations Code). Directors of benefit corporations, on the other hand, are given explicit legal authority to consider a broader group of stakeholders and the company's social or environmental mission when performing their duties as directors. The new law requires directors of California benefit corporations to consider:
- Customers (as beneficiaries of the public benefit purposes of the corporation)
- Community and society
- The local and global environment
- The interests of the benefit corporation, including the possibility that long-term interests of the company may best be served by retaining control of the corporation (rather than selling or transferring control to another entity)
- Ability of the benefit corporation to accomplish its public benefit purposes
A philanthropist is anyone who gives anything—time, money, experience, skills, and networks—in any amount to create a better world.
I like this definition and I think it gets down to the roots of what philanthropy is all about.
Philanthropists are kids who get involved through organizations like dosomething.org and the Jane Goodall Institute's Roots and Shoots program, individuals who aggregate their gifts with others by donating to organizations like the Jolkona Foundation and the Acumen Fund, families who make grants through the operation of their private family foundations and donor advised funds, and people who leave portions of their estates to nonprofit organizations in their wills and trusts.
And sometimes a philanthropist is a for profit corporation on a mission to use the funding and power of business to materially benefit humanity and the environment.