One of the most important ways to be successful in business is to have a clear purpose. Purpose-driven companies tend to have a greater degree of success than their traditional counterparts. So, how does a company strike a balance between profit and purpose?

Nowadays, there is a solution: becoming a benefit corporation.

This concept emerged in the United States in the early 2000s, and the term ‘benefit corporation’ was coined in 2007 by B Lab, a non-profit organisation that certifies and supports socially responsible businesses. The main idea behind B Lab is to create a new economic model, where companies will compete to be better for society and the planet.

The state of Maryland was the first in the United States to enact legislation recognising benefit corporations in April 2010. Subsequently, 35 states, in addition to Washington D.C., have followed in creating legislation that permits the establishment of benefit corporations. Consequently, after the US, several countries around the world started to introduce this model into their own economies.

Currently, in EU countries, only Italy and France have recognised benefit corporations in their national legislation. In Italy this legal structure is called ‘Società Benefit’. As defined by B Lab Europe, a ‘Società Benefit’ is neither a social enterprise nor a non-profit organisation, but rather an evolution of the concept of for-profit business to take on the challenges of the 21st century and bring about common benefits both for society and the environment.”

A benefit corporation is a type of corporation that is mandated by law to give as much priority to their social and environmental responsibilities as they do to their financial success. This model is designed to address some of the perceived shortcomings of traditional corporations, which have prioritised profits over other considerations.

Benefit corporations seek to create a positive impact on society and the environment while still being financially successful and this model is often seen as a way to balance the interests of multiple stakeholders, including shareholders, employees, customers, and the broader community.

Before making the decision to become a Benefit Corporation, CEOs must evaluate their company’s purpose and values to ensure they align with the values of a Benefit Corporation. They should also understand the benefits and implications of making the change, including additional legal and financial requirements, such as producing an annual benefit report and meeting higher standards of transparency and accountability.

How benefit corporations differ from traditional corporations

Benefit corporations compared with traditional companies have a different set of legal requirements and fiduciary responsibilities. Although the requirements may vary depending on specific country corporate law and the jurisdiction. For example in Italy, USA or for B Lab certification, we can observe some general points:

  • Legal obligation to pursue social and environmental goals: Benefit corporations are legally required to prioritise social and environmental responsibility alongside financial success. This means that the companies must consider the impact of their decisions on a broader set of stakeholders, including the environment, employees, customers, and the community.
  • Greater transparency and accountability: Benefit corporations are required to report on their social and environmental performance, which aims at promoting greater transparency and accountability. The reporting allows stakeholders to evaluate the company’s impact on society and the environment.
  • Fiduciary duty to consider non-financial stakeholders: The directors and officers of a benefit corporation have a fiduciary duty to consider the impact of their decisions on all stakeholders, not just shareholders. This means that benefit corporations must balance the interests of shareholders with those of employees, customers, and the community.
  • Be Mission-driven: Benefit corporations are often driven by a specific social or environmental mission. This mission is typically enshrined in the company’s governing documents and provides a clear framework for decision-making.
  • Be Flexible: The companies which adopt this business model are not limited to a specific industry or sector, and can pursue a wide range of social and environmental goals. This flexibility allows benefit corporations to adapt to changing circumstances and emerging social or environmental issues

The author would like to thank Artem Filenko, GMD intern, for his support in research and writing for the present article.

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