While capitalism remains the most favored market system in the developed world, many individuals still believe the free market model incentivizes bad behavior. These beliefs typically target the traditional corporate model that prioritizes profits over people, and the interests of shareholders over social responsibility. While real world corporations do not typically behave so immorally, their by-laws inevitably set priorities in this very order. In other words, in a traditional corporation, the officers, CEO, CFO etc. are both obligated and compensated to maximize profits for the shareholders by any and all legal means, without any other consideration to outside interests.
So the risk for excess and abuse of free market participants, to be a burden rather than a benefit on society, is both real and enticing for many corporate boards. And while typical non-profits are an option for those seeking to serve a purely beneficial purpose, Massachusetts now has a hybrid that can incorporate the best of both worlds – a goal to make a profit through serving a public benefit.
Old Assumptions Find a New School in the Benefit Corporation
This hybrid takes a more holistic corporate model that many business schools acknowledge can result in a stronger, more stable and ultimately valuable enterprise. These schools teach that to be successful, a business must please not just its shareholders, but a great number of additional stakeholders.
To be sure profits are one indicator of success, but no business would even exist without suppliers, communities, governments, employees and customers. And a business can still be profitable, possibly more than a traditional corporation, by incorporating the interests of these other stakeholders into its corporate by-laws. This is accomplished by writing a beneficial purpose into the by-laws under what is called a Massachusetts “benefit corporation.”
Including a beneficial purpose as part of the company’s foundation in this way means that a benefit corporation not only guarantees it will provide a benefit, but also often reinforces its relationships with the lifeblood of its operations: its employees, customers, host communities, suppliers etc. This creates a more integrated and symbiotic business model, one with stronger and more regular ties to the surrounding world, than those of its traditional corporate model competitors.
The Benefit Corporation’s 21st Century Communications Style
Most medium to large sized businesses devote tremendous energy into the development of, and spending on, the promotion and placement of their goods and services. The focus for these businesses is frequently on creating a unique brand with a lasting impression, again, for the goal of increased sales and therefore greater profits. We’ve seen this marketing style result in all kinds of otherwise useless phenomena: catchy jingles, viral hashtags, easy to remember snack names ending in “os.” But what if instead businesses were remembered for their inextricable work to provide a public benefit? What if, for example, Frito Lay focused part of its model on creating snack foods that help curb malnutrition?
In a benefit corporation, the business brand and promotion strategy can largely be tied to its purpose. The business simply expresses to the world the public benefit is trying to serve, and word of mouth assists in spreading those expressions. From a public relations perspective too, the company doesn’t need to find outside charitable partnerships or civic sponsorships to demonstrate its benevolence to society. The brand, marketing strategy and civic engagement opportunities can all be identical to the purpose of the corporation itself. This is all the more crucial in an age of social media, when a business can experience unprecedented backlash from the public at the slightest controversy. A corporation that could explain its actions as part of some beneficial purpose, beyond maximizing shareholder value, would be at a natural advantage under these circumstances.
How the Massachusetts Benefit Corporation is Different
As stated earlier, the benefit corporation still has shareholders, and still operates for a profit. Likewise, it still pays taxes like an ordinary corporation. The primary difference is that at a minimum, the corporation must state at least one “general public benefit” that it will provide, and may also include a “specific public benefit.” Some specific requirements of any Massachusetts benefit corporation include:
- The board of directors must consider the effects of the company’s actions on:
- Shareholders of the corporation;
- Employees and workforce of the corporation, its subsidiaries and suppliers
- Interests of Customers or clients
- Community & societal factors
- Local, regional and global environment;
- Short term and long term interests of corporation
- Ability of the benefit corporation to accomplish its beneficial purposes;
- And further may consider such actions on the effects on the state, regional or country economy, or other pertinent factors or group interests.
- The corporation must appoint an independent “benefits director” who sees to & reports on the company’s progress in providing its stated benefit.
- The corporation must file an annual “benefits report” with the state describing the company’s progress in providing its stated benefit.
A Change in Business Philosophy is Not a Change in Business Success
Again, in a benefit corporation the officers are in no way sacrificing profit for the public benefit. The idea is simply to change the focus, from “profit first” to “profit through benevolence.” This model may not be attractive to some, but at a time when corporate profits and motives are constantly being scrutinized, questioned and even vilified by a skeptical public, this form of business in Massachusetts should not be overlooked by forward looking entrepreneurs. Set up a consultation today with a Massachusetts benefit corporation attorney at our office on Cape Cod.