Beneficial business takes shape in Vermont

By Dan McLean, Free Press Staff Writer • Monday, February 22, 2010

 

The goal of for-profit companies is, well, to make profit.

Legislation has been introduced in Montpelier that would allow companies to exist for other reasons — providing a social good for the community while returning gains to investors. Such companies would register as a “beneficial corporation.”

Vermont would be the first state to enact such legislation, although similar measures are being considered in several states.

Passing the bill “provides Vermont with a very unique and important leadership opportunity,” Seventh Generation co-founder Jeffrey Hollender said.

Seventh Generation, which sells environmentally friendly cleaning products to socially aware consumers, is one of a few Vermont firms that have registered as a benefit corporation through a Pennsylvania-based nonprofit. The nonprofit, dubbed B Lab, certifies companies as a “B Corp.” if they score at least 80 points on a 200-point scale designed to measure corporate responsibility. To date, 205 companies have been registered in 28 states.

Seventh Generation scored a 120.7 in B Lab’s most recent ranking. The Burlington-based company scored lowest in the “community” category, just 27 percent. In response to the low marks, Hollender established a program to give employees paid time off to volunteer. “We need this type of process to continue to encourage companies to raise their own standards,” he said.

Being a B Corp. is important to Seventh Generation, Hollender said, “because today so many business want to call themselves ‘responsible.’ And there is no standard that determines what a business has to actually do to be considered a responsible business,” he said.

“One would hope ‘B Corp.’ will become like the Good Housekeeping seal of approval,” Hollender said. The legislation being pitched in Vermont “is the next logical step,” he said.

The B Corp. bill

“This bill proposes to allow new and existing for-profit corporations to elect status as a for-benefit corporation with the purpose, among other things, of creating public benefit,” the proposed legislation says. The measure is called the Vermont Benefit Corporation Act. The bill views a public benefit as “a material positive impact on society and the environment, as measured by a third-party standard, through activities that promote some combination of specific public benefits.”

Unlike B Lab’s designation, there is no criteria to qualify to be a “benefit corporation” under the proposed Vermont law, as long as the company files annual reports about its community-oriented work.

Ken Merritt, a founding partner of Merritt & Merritt & Moulton law firm that works with local entrepreneurs, said there will still be a real impact.

“To the extent it moves the needle in the positive direction, I view it as a positive,” he said, emphasizing the designation should be a draw for investors.

Will Patten, executive director of Vermont Businesses for Social Responsibility, backs the measure. He says investors interested in long-term growth, not short-term gains — what Patten calls “patient capital” — will be available for the benefit corporations, helping them grow in Vermont.

Each company that registers as a benefit corporation will designate a member of its board to serve as “the benefit director,” who would file a report quantifying the company’s public benefit compliance.

The report would detail “the ways in which the benefit corporation pursued general public benefit during the year and the extent to which general public benefit was created.” If the report is not filed for two years, the benefit corp. status would be revoked, according to the proposal.

Patten is pushing the legislation and is preparing to testify during upcoming legislative hearings on the bill.

“It’s a no-cost, positive piece of legislation that might have an impact on Vermont’s economy,” Patten said. The law would give companies legal cover to purse societal goals that may result with less profit, he said. Such a law, perhaps, could have allowed Ben & Jerry’s to dismiss Unilever’s buyout, said Patten, who worked for the iconic ice cream company as director of retail operations for 16 years.

Hollender, too, mentioned the Ben & Jerry’s example. “Hopefully, if they had been a B Corp. they would have had additional protection to make a decision ... and not be exposed to potential shareholder litigation.”

Green Mountain Coffee Roasters Inc. is a heavily sought candidate to become a benefit corporation. A two-thirds vote by shareholders would be required to convert a to a benefit corporation, the bill says.

During his visit to Vermont this month when he spoke to members of the local business community at a Vermont Venture Network event, Jay Coen Gilbert, who co-founded B Lab and helped draft the legislation, paid a visit to Green Mountain Coffee to gauge their interest in the idea.

Green Mountain Coffee declined to comment about the pending legislation and the roaster’s interest in the concept.

King Arthur Flour in Norwich is also a Vermont B Corp. According to its Web site “As a Founding B (Beneficial) Corporation, King Arthur Flour holds itself accountable to high standards of corporate social and environmental responsiblity.”

 

Marketing advantage

There can also be a marketing advantage to be a benefit corporation.

“I think there is really marketing value ... how do you differentiate yourself in a cluttered market is a huge issue,” Gilbert said.

Seventh Generation, for example, isn’t just about being a good corporate citizen. The company has set ambitious sales goals of $1 billion annually, up from $150 million a year, as of last summer.

“That benefit should grow over time as more people become more aware of what it means” to be a benefit corporation, Hollender said.

Although Gilbert recognizes the marketing boost of being a benefit corporation, the effect of the legislation, he said, will be to encourage companies to pursue societal goals and to help consumers and investors determine “between a good company and good marketing.”

“If it turns into a legal green-washing machine, then shame on us,” Gilbert said.

Economic impact

The legislation, advocates said, could attract companies to Vermont and compel growing companies to stay.

Patten of VBSR is cautious not to oversell the potential economic impact, however, saying it’s unlikely the provision would help Vermont create another niche industry such as the legislation that has allowed the formation of captive insurance companies.

 

“We are not saying that money is going to rain down on us like a summer storm,” Patten said.

Benefit corporations aren’t the only alternative forms of companies that have been pitched in Vermont in recent years. The state enacted a law allowing low-profit, socially conscious corporations to receive funding from philanthropies. These low-profit, limited liability corporations, dubbed “L3Cs,” took effect but haven’t brought floods of cash to the state. Like the benefit corporation, that legislation was introduced at the prompting of an out-of-state group, the Cross River, N.Y.-based Mary Elizabeth & Gordon B. Mannweiler Foundation Inc.

“The expectations around the L3C haven’t been met yet,” Patten said.

Gilbert is a bit more harsh, saying the L3C is “kind of viewed as a failure.”

Gilbert says this legislation has more promise. Similar “B Corp.” legislation is being considered in Colorado, Maryland, New York, North Carolina, Pennsylvania and Oregon, he said.

Contact Dan McLean at 651-4877 or dmclean@burlingtonfreepress.com.