Business & Social Enterprise: Benefit Corporations

Transparency for Benefit Corporations

12.28.16 | Linda J. Rosenthal, JD

Around the nation, state legislatures are jumping on the bandwagon to authorize a new kind of for-profit corporate model for socially conscious entrepreneurs and consumers: the “benefit corporation.” We mentioned in “Social Enterprises: A Revolution Under the Radar” that California has been a leader in this movement.
Each jurisdiction has its own version of this new hybrid format. The Golden State’s statutory scheme emphasizes (1) accountability to a broad range of stakeholders; and (2) transparency by an annual, comprehensive assessment of successes and failures, based on an objective, “third-party standard.”
We introduced the accountability duties in “California Benefit Corporations: An Introduction” and the transparency elements in “California Benefit Corporations: What Directors Must Report.”

Transparency Evaluation and Disclosure

The California model’s transparency feature begins with a mandatory annual report. The directors must evaluate (and disclose) how the corporation worked toward achieving “general public benefit” and any “specific public benefits” that had been designated in the articles of incorporation. They must also explain the extent to which these benefits were achieved, and disclose any circumstances that hindered achieving these purposes.
This “assessment” of how the benefit corporation achieved the “triple bottom line” of “profits, people, and planet” must be measured against a standard developed by an independent third-party. The same standard is to be used from year to year; any change or deviation must be an explained.

What, Exactly, is this Third-Party Standard?

“Third-party standard,” according to California Corporations Code section 14601(g), “means a standard for defining, reporting, and assessing overall corporate social and environmental performance . . . “
This standard must be:

comprehensive, using an approach that assesses a benefit corporation’s impact on multiple stakeholders as well as on the bottom line and profitability;

developed by an independent entity with necessary expertise; and
publicly available

Where to Find An Independent Third-Party Standard

So how does a benefit corporation go about finding and using this all-important independent, third-party standard?
Happily, there are several entities that meet the tall order mandated by the California Corporations Code, and are ready and willing to help benefit corporations comply with their transparency duties.