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Benefit Corporation Legislation Continues to Expand

B Lab and ASBC are excited to celebrate new benefit corporation legislation. Since the beginning of 2017, benefit corporation legislation has been signed into law in Kentucky, Kansas and Texas. In Kentucky and Kansas, legislation became effective on July 1, 2017 and will go into effect in Texas on September 1, 2017. With these three states, a total of 35 jurisdictions around the world have benefit corp. statutes. Other states that are moving forward include Alaska, Wisconsin and Ohio. A number of countries are also pursuing benefit corporation legislation, with bills in process in Australia, Brazil, Chile, Colombia, Peru, Portugal, and Taiwan.

Over 5,000 companies are taking advantage of this new legal tool. While traditional corporations are expected to use profit maximization as the primary lens in decision-making, many now see this as a hurdle in creating long-term value for all stakeholders, including shareholders themselves. Benefit corporations reject this myopic model. Benefit corporation directors are required to consider all stakeholders in their decision-making process. This approach gives them the flexibility to create long-term value for all stakeholders, including through capital raises, management changes and exit transactions such as IPOs and acquisitions.           

                                                      

Reassuring to business leaders, a benefit corporation is built on the structure of a traditional corporation. The company opts into modified obligations committing it to higher standards of purpose, accountability and transparency, as follows:                                                               

  • Purpose: Benefit corporations commit to creating public benefit and sustainable value in addition to generating profit. This sustainability is an integral part of their value proposition.
  • Accountability: Benefit corporations commit to considering the company’s impact on society and the environment, to create long-term sustainable value for all stakeholders.
  • Transparency: Benefit corporations commit to regularly reporting to shareholders on how the company is balancing these interests.                                                                                                    

Benefit corporations, now widely accepted in the private markets, are beginning to make their presence felt in the public markets as well.  In March 2017, Data.world announced that it had secured an additional $19M in venture capital funding. Lemonade, a peer-to-peer personal insurance startup, raised $34M in its Series B round, bringing its total raised to $60M. Lemonade's investors include Sequoia, Thrive Capital and General Catalyst. Ripple Foods, a non-dairy milk products company co-founded by the founder of Method Products, recently raised $30M from investors that include GV, Prelude Ventures, Tao Capital Partners, Khosla Ventures, and others.

Laureate Education Inc., a $4B-revenue, for-profit education company backed by KKR, raised $400 million in its IPO on February 1, 2017. Laureate, the first benefit corporation to go public, has since been trading at 25% above its IPO price. Danone recently acquired Whitewave Foods and combined that entity with its North American operations into DanoneWave. In April 2017, the firm announced that this new entity would be incorporated as a benefit corporation and representing roughly a quarter of Danone’s global business and making it the largest benefit corporation in the world.

More and more companies, investors and attorneys around the world are learning about benefit corporations, supporting both passage of legislation and the reincorporation of companies using this new legal tool. By changing corporate governance to better respect the needs of all stakeholders, these firms help ensure a more sustainable future for our global economy, society and environment.

Holly Ensign-Barstow is the Manager of the Mission Alignment and Policy Team for B Lab.