William A. White

 

New Mexico could be next in line to join the handful of states that have passed legislation allowing private companies to incorporate as Benefit Corporations. Eleven other states, including Maryland, California, New York and Hawaii, have passed similar laws, which enable entrepreneurs to pursue broader societal or environmental goals beyond the profit-centered focus of traditional business.

 

Until recently, entrepreneurs pursuing the triple-bottom-line of social, environmental and financial returns had one of two choices: 1) Incorporate as a nonprofit and compete relentlessly for grant funding and reliable donors, or

2) Incorporate as a traditional for-profit and run the risk of sacrificing social impacts for profits.

 

State Rep. Tim Blank of Albuquerque hopes to provide a new option for New Mexico’s social entrepreneurs by introducing legislation that would allow them to incorporate their businesses as Benefit Corporations or “B Corps.” These new corporations would be required by law to publish an annual report on their social or environmental impact in addition to their financial performance.

 

Doubting Business

Though the first B Corp legislation was passed in 2010 in Maryland, the idea is not exactly new. B Lab, a nonprofit organization, has been providing third-party certification for social ventures for a number of years.

 

Companies interested in being certified apply to B Lab, which assesses the organization’s social and environmental impact. Once approved, companies can market themselves as Certified Benefit Corporations and receive access to B Lab’s portfolio of services in exchange for a fee.

 

Unlike Benefit Corporations, which are licensed by a state’s legislature, Certified B Corporations must meet B Lab’s social and environmental criteria before receiving certification. Benefit Corporations on the other hand only need to declare a social mission, usually in the company’s articles of incorporation, and report on their social returns annually. While B Corp legislation may not necessarily require companies to meet specific criteria, the new legal status represents a concerted shift away from business-as-usual.

 

B Lab has been a leading proponent of B Corp legislation across the country due to what its co-founder sees as shift in consumer thinking. In an interview with PBS, B Lab co-founder Bart Houlahan said that since the financial crisis, “the broader public really started to doubt business.”

 

The New Consumer

This characterization may not be too far from the truth. Over the last decade, and particularly after the financial crisis, Americans have had to come to grips with their economy and are beginning to question some of their basic assumptions about how business should work. Are the raw materials for goods sustainably sourced? Are workers paid a living wage?

 

These are important questions for the post-financial crisis consumer. No longer is he or she concerned only with having the highest quality at the lowest price. The new American consumer is discerning, cares about people and the environment and wants more than just low prices. The new consumer wants added value.

 

B Corps are providing this added value in a number of ways, either by donating a portion of profits to charity, ensuring that supply chains utilize sustainable production and procurement practices, or simply by paying employees a living wage. By reporting on these practices, B Corps provide a signal to consumers, letting them know that their purchase is making a difference.

 

True Diligence

While B Corps may act as a signal to socially conscious consumers, perhaps their greatest value is for entrepreneurs. The new legal status could aid social ventures in obtaining growth capital when bringing their start-ups to scale.

 

With the rise in popularity of socially responsible investment, some investors are looking to put capital into projects that generate social or environmental returns in addition to profit. These investors can be a vital source of growth capital, and B Corps are well positioned to take advantage of this movement.

 

However, socially responsible investors run the risk of investing inefficiently if investees begin to pursue profits at the cost of their social mission. This wastes time and money, as greater social benefits could be accrued through an alternative investment. B Corps could increase the efficiency of socially responsible investments, as each company’s social impact report will help to ensure that capital goes to the right place.

 

Rather than rely strictly on a company’s balance sheet to do their due diligence, B Corps provide investors with another layer of accountability and give them a truer sense of an organization’s social impact. By making it easier for investors to assess that impact, B Corps may encourage higher levels of investment in social ventures and green businesses. For entrepreneurs, this translates into faster growth and deeper impact.

 

More than Just Money

So what does this mean for the people of New Mexico, and how will the new legislation affect the state’s business climate? Well, New Mexico has little to lose by passing the legislation and a lot to gain. Offering B Corp status will not cost the state anything, and similar legislation in other states has received wide bi-partisan support, making it unlikely that B Corps will be politically contentious.

 

If anything, passing the legislation will help to spur increased investment within the state and encourage growth in the social venture sector and green economy. This growth could also result in job creation, as social ventures begin to expand and require more labor. Additionally, these new jobs will be quality jobs, as most B Corps make it a priority to pay their workers a living wage.

 

At the very worst, few will take advantage of the new legal status, making B Corps another relic on the rulebooks. However, given the rise in socially responsible consumers and investors, this scenario is highly unlikely.

 

B Corps have a bright future. They represent a new way of doing business, which puts people before profit. With any luck, New Mexico will be the next state to take the lead on this legal innovation, showing the rest of the country that businesses can do more than just make money. They can help to change the world.

 

 

 

William A. White is is a graduate researcher with Social Enterprise Associates and is currently a master’s candidate in Urban Policy Analysis at The New School.

 

 

 

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