Unlike the case with financials where there are accountants to verify the books, no standards exist for the variety of do-good purposes that nonprofits engage in or that social entrepreneurs or companies may conjure up. "We want to rely on best practices, which are evolving and a company can choose," Johnson says. "We don't want to legislate morality. We think it's best to let the market and shareholders decide."
On February 8, California state senator Mark DeSaulnier sponsored legislation, SB 201, proposing the Flexible Corp. in California.
Then, on February 28, California assemblyman Jared Huffman suddenly sponsored "spot" bill AB 361-in effect a blind or empty legislative shell. The final bill, proposing a Benefit Corporation, was posted in mid-March.
Like the Flexible Corp. the Benefit Corp. allows a company to engage in a special do-good purpose for which there must be transparency. But its distinguishing characteristic is a holistic "material" beneficial impact upon society (workers, products, consumers, supply chain, community, governance) and the environment-something that must be measured by an independent third-party standard. The Benefit Corp. is designed for small private companies with a sustainability focus or social conscience. Think Ben & Jerry's.
"The Benefit Corp. is focused on companies that want to be held to a higher [corporate social responsibility] standard," says Andrew Kassoy, co-founder of B Lab, the Berwyn, Pa.-based nonprofit that is promoting Benefit Corps (and special tax treatment for them) in several states. (Maryland, Vermont and New Jersey already have adopted various iterations.) "The Benefit Corp. will actually be fairly prescriptive in what needs to happen in order to qualify and how you need to maintain the status," Huffman adds. "It's going to be rigorous and specific. [Folks in my district] are looking for the gold standard in social responsibility."
Problem: when it comes to standards for corporate social responsibility, there is only game in town: the "B Corporation" certification developed by B Lab, the same group promoting Benefit Corps. Huffman concedes that questions have been raised about a potential conflict of interest for B Lab --one akin to that of the rating agencies who were paid by the issuers of the mortgage-backed securities and derivatives that blew up the financial system in 200--especially if a standard is legislated. "That's not going to happen," he says.
But an attorney that is helping to write the Benefit Corp. legislation in California compares the situation to that for LEED, the green building standard that can be downloaded for free. "Benefit Corps have to apply a third-party standard," says Donald Simon, a partner at Wendel, Rosen, Black & Dean. "But they don't have to pay for it unless they want to be certified."
Of course, most companies, if they choose to bother with the standard at all, would no doubt choose to be certified-for marketing purposes. Even so, as highly regarded as B Corporation certification is, it is self-reported and only occasionally audited. This may be current best practice for corporate social responsibility, but it hardly qualifies as a gold standard.
In fact, the impetus for the two types of new corporations was entirely different and is reflected in their respective forms-and how they deal with fiduciary duty.
Ultimately, the purpose of the Benefit Corp. is to hold directors accountable to the high level of corporate social responsibility they promise. As such, the legislation includes a right of action, which allows certain shareholders the right to sue companies and directors if they do not meet their socially beneficial obligations.