Original post date: September 23, 2014
Article by: Matt Kelly
On July 20th, 2014, Rick Scott signed SB 654 into law, creating two new types of business entities. These benefit corporations or “B-Corps” are designed to encourage corporations to pursue charitable purposes, attempting to combine the strengths of both for-profits and nonprofits, while discarding each’s weaknesses. Such hybrid businesses could allow social entrepreneurs in Florida to harness the power of a market economy to solve pressing social problems.
In previous blog posts on The Charity Defense Council, we discussed the challenges faced by nonprofit charities. For-profit companies can also face disincentives when trying to “do good.” While nonprofit donors often withhold gifts if a charity is incurring risk, shareholders of a for-profit company can similarly divest their holdings if they perceive it as shirking profit maximization. In fact, if a corporation is eleemosynary at the expense of profits, shareholders have a right to file lawsuits. These countervailing preferences can make it difficult for social entrepreneurs in either sector to create innovative solutions to social problems such as homelessness or debilitating diseases. SB 654 could change all that.
Florida is the 25th state to enact such legislation. Though half the country now has some form of B-Corp legislation, Florida is one of just three states to create two distinct legal entities for this purpose. A “benefit corporation” can have a broadly defined purpose to create “general public benefit,” whereas a “social purpose corporation” must specify a particular social mission in its bylaws. These businesses have new fiduciary duties to their shareholders requiring them to balance profit maximization with a social purpose like alleviating poverty, protecting the environment, or increasing access to healthcare.
This movement to create a more socially-minded business environment was pioneered by B Lab, a nonprofit organization that has created a community of over 900 Certified Benefit Corporations. This certification signals a company’s social purpose to consumers, allowing them to make more informed purchasing decisions. The two legal entities created by SB 654 will not necessarily be B Lab-certified, and will undergo an evaluation by the state. However, it is worth pointing out the origins of this movement were from outside the public sector. It started as a private effort to create higher standards of corporate purpose, accountability, transparency, and performance.
The hope is that the benefit corporation law will make Florida a hub for social enterprise. Companies are already registering to take advantage of this status. Sequil Systems Inc., a B Lab-certified architectural consultancy in Delray Beach that specializes in environmentally-conscious construction, would become the first benefit corporation in Florida. Sequil’s CEO Jef Conley has commented on the powerful signal that B Lab certification sends to consumers, saying B Lab certification, “Helps emphasize who we already are.”
Though most reports on the B-Corp legislation are glowingly positive, the bill does have its detractors. Some think that a corporation’s legal responsibility to its shareholders ought not be excused, while others maintain altruism cannot be served within the for-profit sector. In future blogs on B-Corps, we will address these detractions and discuss the potential incentives the legislation creates.