Benefit corporation law will lead to successful, responsible businesses

By Maggie Robak
Opinion Editor

Recently, the California legislature approved AB361, a bill which creates a new classification of business called a benefit corporation. This bill will prove to be a positive step for California, as it will create more community-conscious businesses.

Benefit corporations are businesses that must take into account the impact that their decisions have on the environment, employees, and the community as a whole. This is opposed to the traditional method of pleasing the shareholders like other businesses are required to do by law.

The creation of benefit corporations will ensure that businesses make community-conscious decisions which will, therefore, lead to a better community.

Prior to the passage of this law, California law stated that corporations must adhere to the interests of the shareholders and raise a maximum profit. This left companies with the Catch-22 of either ignoring the community’s interests and making a profit or becoming a non-profit organization which eliminates their ability to generate revenue.

However, this bill legally protects the company from shareholder lawsuits, eliminating that tough decision. It allows companies to make a profit without giving up their values.

The bill also requires that a benefit corporation publicly report its annual social and environmental performance using a credible independent source.

This is a major step in creating socially responsible businesses because it will lead to greater transparency.

Furthermore, the legislation states that businesses must make decisions that also benefit their employees, thus creating a better work environment. Costco, although not a benefit corporation, practices many of the principles that a benefit corporation follows. Costco, which brings in a net income of over $1 billion, proves the potential success of benefit corporations.

California is the seventh state to adopt this bill, which has proven effective in a number of states such as New York. There are 506 benefit corporations nationally, 18 of which are California businesses, even though this option has only been available for a couple of weeks.

According to the non-profit organization B Lab, benefit corporations have an annual savings of $2 million after switching to this new type of corporation.

Some groups, such as the State Bar of California, opposed the bill claiming that it did not clearly state the responsibility of company officials to shareholders. However, the bill does state that companies still have an obligation to create a profit; they are just able to prioritize the interest of many different groups.

Overall, this bill will better the relationship between the public and businesses and also create more stable and better communities. At the same time, it will distinguish socially accountable corporations from those who claim to be but are not in practice.