In early January, leaders of more than 20 local for-profit corporations gathered at the State Capitol with then-Minnesota Secretary of State Mark Ritchie to become public benefit corporations — the first companies in Minnesota to legally declare their decisions will contemplate public good as well as profit.
Businesses that advance the common good aren't new — Minnesota businesses have long led the charge to further corporate responsibility to the community in addition to advancing their business goals. Today, however, there is a new generation of businesses that wish to commit themselves even more deliberately and transparently to advancing a specific public good.
Minnesota joins 26 other states in creating the legal framework to support these public benefit corporations by adjusting existing corporation statutes.
Traditionally, for-profit entities have been required by corporate law to do one thing: maximize shareholder value and profits. This narrow purpose can limit a board of directors' behavior in taking public benefit into account, particularly when it is perceived to be at odds with maximizing shareholder value. But under the new Minnesota law, any company that declares itself a public benefit corporation is free to — and indeed required to — also contemplate its self-declared "public benefit" when making business decisions.
A "public benefit" is a term open to interpretation. It might be promoting economic opportunity for individuals or communities beyond job creation. It might be improving the health of employees and local communities, promoting the arts and sciences or choosing to work with public benefit-driven nonprofits. A public benefit corporation may even translate "public benefit" as hiring and working with low-income and underserved individuals or communities. Regardless of how the business chooses to define "public benefit," it must report its efforts at the year's end.
There's no tax benefit, they won't receive any special government treatment and there's no legal recourse if they fail. It's just a public, transparent declaration.
Why bother then?
First off, there is a legal upside to becoming a public benefit corporation. Under traditional corporate statutes, the pursuit of social or environmental goals potentially exposes corporate directors to the risk of lawsuits from shareholders interested in profits alone. As a public benefit corporation, such lawsuits could be warded off more easily so long as the public benefit corporation can show it was acting with due care in following its public benefit mission.
While time will tell, from a legal standpoint, public benefit corporation status will likely act as a rudder for shareholders and leadership. They will be well served to remember that, at the year's end, it could be detrimental to business if they have ignored their mission. The genius of public benefit corporation status is that it serves to affect the behavior of a corporation in favor of advancing a public benefit without fear of shareholder backlash or lawsuits.
Becoming a public benefit corporation may also be a smart public relations move. Just as companies will put weight to their fair trade partnerships or organic status, they can add "public benefit corporation" to packaging and signage and make it integral to their brand. They can also leverage the year-end reports to prove their business decisions are making a positive impact on communities.
In today's marketplace, this is a strong selling point. For many consumers, particularly millennials, social conscience is an important driver when choosing a product, service or brand. More people want to know that their dollars are going toward business practices that help the environment or society. Well-publicized public benefit corporation status may offer a brand an edge in the marketplace.
Public benefit corporation status may also be a way to lure young talent to a firm, a recurring struggle for Minnesota corporations. Recent studies have shown that many millennials are looking to make a social change through their work. Public benefit corporation status will help in the pursuit of the best young candidates for a job if it's proven the job is making a social or environmental difference.
Public benefit corporation status may even be a stronger moniker of a company's commitment to the public good than the confusingly named "B corporation" third-party certification offered by the B Lab company out of Pennsylvania. While rigorous, this privately administered certification process is entirely voluntary and available to any business regardless of its corporate form. Minnesota's new public benefit corporations, by contrast, have elected to make the commitment to advance a public benefit right into their corporate DNA.
A boost For Minnesota
Public benefit corporations are good for Minnesota. The free-market benefits of public benefit corporation status may encourage more Minnesota for-profit businesses to ramp up their social and environmental practices. In the years to come, some of the small businesses that declared their new status will become large businesses, and their public benefit corporation status may take on an added importance.
Don't be surprised if some of Minnesota's next Fortune 500 firms are guided by conscience as much as by profit.