May 10, 2012
Benefit Corporations: "General Public Benefit"
Posted by Haskell Murray

A benefit corporation must "have a purpose of creating general public benefit” and must "pursue or create" a "general public benefit."  The model benefit corporation legislation defines "general public benefit" as:

  • "material, positive impact on society and the environment, taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation." 

Some states use that exact wording; some have relatively minor variations.  Each benefit corporation may adopt one or more "specific public benefit purposes" by amending its articles, but "[t]he identification of a specific public benefit does not limit the obligation to create a general public benefit."

Should the "general public benefit" be mandatory or would it be better to simply expressly allow more flexibility in corporate purpose?  California evidently could not agree on the answer, as it passed both a benefit corporation statute and a "flexible purpose corporation" statute. 

I understand the argument of the proponents of the benefit corporation statutes and its "general public purpose" mandate to be roughly:

  • We want companies that are pursuing "good" in all areas (or that are at least "good" companies if taken as a whole).  For example, we don’t want companies that are treating their employees well, but trashing the environment.

I am sympathetic to that argument as it applies to certifications, but not as it applies to corporate statutes.  If B Lab only wants to certify “good” companies, fine: create your criteria, evaluate the companies and don’t certify any companies that aren’t "good" - taken as a whole.

But what if a corporation’s focus is narrower?  What if the managers and shareholders of the corporation care about shareholder wealth and the homeless, but not the environment?  Personally, I would prefer a corporation that thinks seriously about shareholder wealth and [insert social or environmental benefit], to the corporation that focuses only on shareholder wealth.

Again, I appreciate all of the excellent comments from this post that noted that focusing beyond shareholder wealth can already (often) be done in the corporate context and in the LLC context.  But in practice, I think many of our corporations myopically focus on shareholder wealth maximization. 

In any event, the question from this current post is simply:  Should we mandate a "general public benefit" or just expressly allow more flexibility in our statutes?  Personally, I am leaning in favor of express flexibility.  I would save mandates of this type for brands like B Lab’s certification.  These brands might become powerful enough to shift to the new paradigm the benefit corporation legislation is driving at and that is addressed here

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