Beginning this January, Minnesota entrepreneurs and investors will be able to go into business as Public Benefit Corporations. These benefit corporations will be accountable to their owners or shareholders, like all other businesses, but they will also be committing to serve other stakeholders in their business – including employees, customers, the health and well-being of the community and the environment – as well.
After a decade of pushing for this alternative business structure, I was pleased to see the legislation pass with strong bipartisan support last session.
Many business people want to look out for the public interest, but they are concerned that under traditional corporate law, their fiduciary responsibility to stockholders precludes them from paying better wages or protecting the environment if profit margins are affected. Some of those businesses hire attorneys to draft customized legal documents to allow them to commit company resources to meeting a social purpose, but this legal work can be expensive and risky. Additionally, it can be challenging for companies who do create a customized legal frameworks to educate consumers, vendors and investors on how their social purpose fits into their business model.
Recognizing that there was a need for this new corporate structure a team of top lawyers from the corporate law section of the Bar Association volunteered their time to re-draft and refine this legislation. They created a system that is simple enough that a small start-up business should be able to form a benefit corporation on their own, without hiring a lawyer. With this carefully crafted legislation, and strong support from many business owners and entrepreneurs, Minnesota joined the growing number of states that enable formation of benefit corporations.
The new law gives businesses the option of incorporating under the traditional corporate structure or under this alternative Public Benefit Corporation (PBC) model that acknowledges their responsibility to other stakeholders as well as shareholders. Those who choose to become PBCs will spell out, in their charter, their corporate mission. They will either commit to a general benefit, where the corporate mission will aim to serve the broader community, or to a specific social purpose.
These benefit corporations will file an annual benefit report describing how the company pursued and created public benefits each year. The state will not evaluate the social value of PBCs; the market will. Because these reports will be publicly available, investors, consumers, and the broader public will have the information to evaluate the good these businesses perform, and can reward companies accordingly.
Business owners recognize that it is a very real asset to have a positive reputation and public trust. It creates loyal customers. Similarly, many employers recognize that good compensation for their employees results in happier, more productive workers.
Benefit corporations move beyond philanthropic and government financial support and tap into the resources of the private sector to make a positive impact.
Many business people have always understood the importance of protecting the environment, ensuring public health and safety, and treating workers fairly. The Minnesota Public Benefit Corporation Act is not a miracle cure to our society’s problems, but it is another tool to help those businesses accomplish that mission.
In these days when corporate scandals and corporate greed regularly make headlines, benefit corporations are a step in the right direction.