Benefit Corporations

Definition

Benefit corporations are a type of for-profit business entity that are legally required to consider the impact of their decisions on their workers, the community, and the environment, in addition to their shareholders. They are designed to balance purpose and profit, and are a growing trend in the 21st century as organizations seek to create positive change while still operating as a business.

5 Must Know Facts For Your Next Test

1. Benefit corporations are legally required to pursue a material positive impact on society and the environment, in addition to generating profit.
2. Benefit corporations must consider how their decisions affect their workers, the community, and the environment, not just their shareholders.
3. Becoming a benefit corporation requires a company to amend its legal governing documents to enshrine its commitment to stakeholder interests.
4. Benefit corporations are required to report annually on their social and environmental performance using a third-party standard.
5. The benefit corporation legal structure originated in the United States, with the first state passing benefit corporation legislation in 2010.

Review Questions

• Explain how the concept of benefit corporations relates to the idea of organizing for change in the 21st century.
  • Benefit corporations represent a shift in the traditional business model, where companies are legally required to consider their impact on a broader set of stakeholders beyond just shareholders. This aligns with the 21st century trend of organizations seeking to create positive social and environmental change through their core business operations, rather than just maximizing profits. The benefit corporation structure allows companies to enshrine their commitment to purpose and impact, helping to drive meaningful change in the way businesses operate and organize themselves in the modern era.
• Describe how the benefit corporation model relates to the concept of corporate social responsibility (CSR) and the triple bottom line approach.
  • Benefit corporations build upon the principles of corporate social responsibility (CSR) and the triple bottom line framework. Like CSR, benefit corporations are required to consider their social and environmental impact, not just their financial performance. And similar to the triple bottom line, benefit corporations must balance purpose and profit, measuring success across social, environmental, and financial metrics. However, the key distinction is that benefit corporations have this stakeholder-focused approach legally embedded in their governing structure, making it a core part of their business model, rather than just a voluntary initiative or add-on to traditional shareholder primacy.
• Analyze how the emergence of benefit corporations challenges the traditional shareholder-centric view of the firm and the role of business in society.
  • The rise of benefit corporations represents a fundamental shift away from the traditional shareholder primacy model, where a company\u2019s sole purpose is to maximize returns for its shareholders. Benefit corporations challenge this view by legally requiring companies to consider the interests of a broader set of stakeholders, including workers, the community, and the environment. This signals a move towards a more holistic, purpose-driven understanding of the role of business in society. Rather than solely focusing on profits, benefit corporations must balance multiple, sometimes competing, priorities. This shift in perspective has the potential to drive meaningful change in how organizations are structured and operate, as they seek to create positive social and environmental impact alongside financial success.

Related terms

Corporate Social Responsibility (CSR): The practice of businesses considering the social and environmental impacts of their operations and integrating ethical, philanthropic, and sustainability initiatives into their core business strategy.

Triple Bottom Line:

An accounting framework that considers a company\u2019s social, environmental, and financial performance, rather than focusing solely on the financial bottom line.

Stakeholder Theory:

The idea that a company has a responsibility to a broader group of stakeholders beyond just its shareholders, including employees, customers, suppliers, and the local community.