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The Benefit Corp Revolution: What it Means for Businesses, Non-Profits, and You

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Benefit Corp Revolution:
          What it means for businesses,
                non-profits, and
                     YOU
SPEAKERS
Jonathan Storper, Esq.
Hanson Bridgett LLP
                           MODERATED BY
                           Leslie Keil, Esq.
Dermot Hikisch             Hanson Bridgett LLP
B Lab


Josh Becker                PRESENTED BY
New Cycle Capital
LESLIE KEIL, Esq.
   Senior Counsel
 Hanson Bridgett LLP
 GEO Circle Co-Chair
   Full Circle Fund
Tweeting Tonight?
    Mention

  @HansonBridgett
   @FullCircleFund
   @Bcorporation
  @JoshBecker2010
#bcorp #SocEnt #csr
Socially Responsible Businesses

Seeking Legal Protection for Stated Values
• Safe harbor for directors for multi-stakeholder approach
• Flexibility to prioritize among profits, environment and social
  concerns
Better Exit Strategies and Succession Planning
• Stated values unchanged by sale of minority/majority of stock
• Greater flexibility to identify the "right" buyer and succession
  planning
Better Business Model

• "Firms of Endearment" beat S&P 500 peer firms return
  9x over a 10 year period
• 60 million Americans are "conscious consumers"
• "Socially responsible" investors manage $2.7 trillion
• 100,000 sustainable businesses adopting a better model
• Aligned strategic partners, vendors, suppliers and
  stockholders
JONATHAN
STORPER, Esq.
Partner & Sustainable
Business Practice Chair
 Hanson Bridgett LLP
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The Benefit Corp Revolution: What it Means for Businesses, Non-Profits, and You

  • 1. Benefit Corp Revolution: What it means for businesses, non-profits, and YOU SPEAKERS Jonathan Storper, Esq. Hanson Bridgett LLP MODERATED BY Leslie Keil, Esq. Dermot Hikisch Hanson Bridgett LLP B Lab Josh Becker PRESENTED BY New Cycle Capital
  • 2. LESLIE KEIL, Esq. Senior Counsel Hanson Bridgett LLP GEO Circle Co-Chair Full Circle Fund
  • 3. Tweeting Tonight? Mention @HansonBridgett @FullCircleFund @Bcorporation @JoshBecker2010 #bcorp #SocEnt #csr
  • 4. Socially Responsible Businesses Seeking Legal Protection for Stated Values • Safe harbor for directors for multi-stakeholder approach • Flexibility to prioritize among profits, environment and social concerns Better Exit Strategies and Succession Planning • Stated values unchanged by sale of minority/majority of stock • Greater flexibility to identify the "right" buyer and succession planning
  • 5. Better Business Model • "Firms of Endearment" beat S&P 500 peer firms return 9x over a 10 year period • 60 million Americans are "conscious consumers" • "Socially responsible" investors manage $2.7 trillion • 100,000 sustainable businesses adopting a better model • Aligned strategic partners, vendors, suppliers and stockholders
  • 6. JONATHAN STORPER, Esq. Partner & Sustainable Business Practice Chair Hanson Bridgett LLP
  • 7. What is a Benefit Corporation? • New class of for-profit general California corporation • Create traditional economic value, PLUS...  Purpose: creates a material positive impact on society and environment, taken as a whole  Accountability: In addition to profits, must consider environmental and social factors in actions and operations  Transparency: reports annually on environmental and social performance using independent standards • Flexible: can revert to general corporation or other entity • No independent certification requirements
  • 8. What Makes a Benefit Corporation Different? Purpose Traditional Corporations •Engage in any lawful business activity •May identify narrower purpose in Articles of Incorporation Benefit Corporations •ADDITIONAL purpose to create "general public benefit"  Definition: A material positive impact on society and the environment taken as a whole, from the business and operations of a benefit corporation (§14601(c))  Adds to and/or limits other corporate purposes
  • 9. What Makes a Benefit Corporation Different? Purpose Option to include 1+ "specific public benefit" purposes "Specific public benefits" (defined in §14601(e)): •Providing low-income or underserved individuals or communities: – beneficial products or services – economic opportunity beyond creating jobs in ordinary course of the business •Preserving the environment •Improving human health •Promoting the arts, sciences, or advancement of knowledge •Increasing flow of capital to entities with public benefit purpose •Accomplishing any other particular environmental/social benefit
  • 10. What Makes a Benefit Corporation Different? Accountability Mandatory: Board of Directors and Officers must consider impact on ALL of the following (§14620): •Shareholders • Customers •Employees/workforce • Environment (local and global) •Community and society, including any local community where company, its subsidiaries or suppliers are located •Short and long-term interests, including: – benefits that may arise from its long-term plans; and – possibility that interests may be best served by retaining control •Ability to accomplish general, and any specific, public benefit purpose
  • 11. What Makes a Benefit Corporation Different? Transparency Annual Benefit Report (§14630) •Explanation of how company pursued general/specific public benefit, the extent to which it was achieved, and circumstances that hindered achievement •Process and rationale for selecting the third party standard used to prepare report •Any connection between the company and creators of the third party standard used that might affect credibility
  • 12. What Makes a Benefit Corporation Different? Transparency How does the Assessment work? •Annually assess triple bottom line performance using an independent, third-party standard (§14600(g)) •Standard must be comprehensive, credible, independent and transparent •Must apply the standard consistently from one year to the next or explain reasons for inconsistencies •No auditing or certification required 4024240.1
  • 13. What Makes a Benefit Corporation Different? Transparency Third Party Standard Requirements • Independent third party standard • Uses a balanced multi-stakeholder approach • Developed by a company with no material financial relationship with the benefit corporation (= or > 5% ownership/income stream) • No more than 1/3 of the benefit corporation directors represent an association from a specific industry or a business which is assessed against the same standard • The benefit corporation is not materially financed by an association or business which is assessed by the same standard 4024240.1
  • 14. What Makes a Benefit Corporation Different? Transparency Sample of Qualifying Standards* • B Impact Assessment (www.bcorporation.net) • Global Reporting Initiative (www.globalreporting.org) • Green Seal (www.greenseal.org) • People4Earth Business Framework (www.people4earth.org) • Food Alliance (www.foodalliance.org) • ISO 2600 (www.iso.org/iso/social_responsibility) • UL Environment – ULE 880 (www.ulenvironment.com) * New standards are being developed and existing standards being tailored to meeting Benefit Corporation criteria 4024240.1
  • 15. What Makes a Benefit Corporation Different? Transparency Disclosure of Annual Benefit Report • Send to all shareholders within 120 days after fiscal year end • Post on benefit corporation's website • Website version may exclude any financial or proprietary info • If no website, then provide free copy to anyone upon request 4024240.1
  • 16. Resources  Benefit Corporation Information Center hosted by B Lab: www.benefitcorp.net  Firms of Endearment: How World-Class Companies Profit from Passion and Purpose by Rajendra S. Sisodia, David B. Wolfe, and Jagdish N. Sheth. Upper Saddle River, PA: Wharton School, 2007  Profit for Life: How Capitalism Excels by Joseph H. Bragdon. Cambridge, MA: Society for Organizational Learning, 2006  The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance by Robert G. Eccles, Ioannis Ioannou and George Serafeim. Boston, MA: Harvard Business School, 2011
  • 17. DERMOT HIKISCH Director of Business Development B Lab
  • 18. Big Problem Our current capitalist system wasn’t designed for this • Current corporate law works against sustainability and social impact • No standards to distinguish ‘good companies’ from good marketing
  • 19. Big Opportunity The evolution of capitalism 20th Century 21st Century Shareholder corporation Stakeholder corporation Maximize Create shareholder value social and shareholder value exclusively simultaneously
  • 20. The Entrepreneur is The Engine of Change B Lab is a nonprofit organization that supports the world’s leading entrepreneurs using business to solve social problems Initiative 1: Shine a light on the Entrepreneur Initiative 2: Initiative 3: Remove legal Drive capital to the impediments for the Entrepreneur Entrepreneur
  • 21. Big Need Standards to drive support Last 10 years Next 10 years Good products Good companies + 500 others B Corporations * Impact Investing * Public Policy
  • 22. What is a B Corporation? • Meet independent, comprehensive and transparent standards of social and environmental performance • Meet higher standards of transparency • Meet higher legal standards of accountability B Corporations * Impact Investing * Public Policy
  • 23. B Corporation – Performance Standards B Impact Rating System Free web-based tool for positive impact assessment (over 7000 users) • Comprehensive • Comparable • Transparent • Dynamic • Independent • Score 80 out of 200 points for certification B Corporations * Impact Investing * Public Policy
  • 24. Certified B Corps – Accountability Standards Certified B Corps amend their bylaws giving shareholders additional rights requiring directors to: “consider the impact of decisions not only on shareholders, but on all stakeholders” B Corporations * Impact Investing * Public Policy
  • 25. Initiative 1: Supporting a Movement Leader of this movement are 500+ B Corps across 60 industries and 40 states B Corporations * Impact Investing * Public Policy
  • 26. Why Become a B Corporation? 1.Lend their Leadership to advance B Lab’s mission to help create a new corporate form. 2.Save money by taking advantage of the growing number of partnerships which deliver immediate financial value. (>$2m in annual savings 1.Maintain mission by adopting the B Corp Legal Framework. As a B Corporation, founders and other mission-driven minority shareholders can hold directors accountable to consider the impact of operating and liquidity decisions not only on shareholders, but on all stakeholders. 2.Enhance brand equity by differentiating the company, not just its products, through third party validation that company has met higher performance and legal standards. 5. Enhance Brand Awareness, 300+ press hits in 2011, national brand campaign. B Corporations * Impact Investing * Public Policy
  • 27. B Corporation – Benchmarking Over 2000 companies have completed the assessment B Corporations * Impact Investing * Public Policy
  • 28. The Entrepreneur is The Engine of Change Initiative 1: Shine a light on the Entrepreneur Initiative 2: Initiative 3: Remove legal Drive capital to the impediments for the Entrepreneur Entrepreneur B Corporations * Impact Investing * Public Policy
  • 29. Initiative 2: Advancing Supportive Public Policies The community becomes a powerful constituency • New corporate form > Benefit Corporations • 7 states passed (MD, VT, HI, NJ, VA, CA, NY) • 10 states moving forward • Strong business support B Corporations * Impact Investing * Public Policy
  • 30. The Entrepreneur is The Engine of Change Initiative 1: Shine a light on the Entrepreneur Initiative 2: Initiative 3: Remove legal Drive capital to the impediments for the Entrepreneur Entrepreneur B Corporations * Impact Investing * Public Policy
  • 31. Initiative 3: Drive Capital Driving capital beyond SRI to Impact Investing - Indpnt ratings agency based on B Ratings System (S&P analog) -Morningstar and Capital IQ for Impact - Fund Ratings and Company Ratings - Developed and Emerging Markets -50 GIIRS Pioneer Funds; 300 Companies; 30 Countries B Corporations * Impact Investing * Public Policy
  • 32. 15 Pioneer Investors B Corporations * Impact Investing * Public Policy
  • 33. 200 Pioneer Companies Pioneer Companies by Industry: Pioneer Companies by Region: B Corporations * Impact Investing * Public Policy
  • 34. Beta Analytics & Benchmarking B Corporations * Impact Investing * Public Policy
  • 35. Seizing the Opportunity Building a new sector of the economy • Creates economic opportunity • Strengthens communities • Restores environment • Alleviates poverty Legal Clean Tech Food Hospitality Private Equity Wealth Managemt Home Apparel Education Building Industry Retail Architecture Restaurant Arts Telecom Media PR Comm Consulting Developing World www.bcorporation.net Banks Real Estate Footwear Marketing Renewable Energy IT www.benefitcorp.net Biotechnology Personal Care Pharmaceuticals B2B B2C www.giirs.org dermot@bcorporation.net B Corporations * Impact Investing * Public Policy
  • 36. JOSH BECKER Partner New Cycle Capital Co-Founder & Board Chair Full Circle Fund