RALEIGH, N.C. — For-profit companies that have the twin purposes of maximizing shareholder value and making a positive social impact could be incorporated in North Carolina under a bill the state Senate approved unanimously this year that now awaits consideration in the N.C. House.
“This would broaden the ability of a company to provide societal benefit,” says state Sen. Richard Stevens, a Cary Republican and co-chairman of the Appropriations Committee who co-sponsored the bill with Don Vaughan of Greensboro, deputy Democratic leader in the Senate; Pete Brunstetter, a Winston-Salem Republican and co-chairman of the Appropriations Committee; and Sen. Ellie Kinnaird, a Chapel Hill Democrat.
The bill is based on model legislation promoted by Pennsylvania-based B Lab, a nonprofit that receives significant support from the Rockefeller Foundation.
Similar laws have been enacted in Maryland, Virginia, New Jersey, Vermont and Hawaii, and are in the works in New York and California, and roughly 450 companies throughout the U.S. have been certified as B corporations by B Lab, says Stephanie Nieman, Carrboro-based director of developed market standards for B Lab.
Stevens says the state Secretary of State’s Office and the North Carolina State Bar both reviewed the bill and neither opposed it.
The bill has been endorsed by a broad range of North Carolina companies and organizations, including Burt’s Bees and Larry’s Beans in Durham, The Redwoods Group and iContact in Morrisville, Chapel Hill-Carrboro Chamber of Commerce, Self-Help Credit Union in Durham, and N.C. Center for Nonprofits.
In permitting the creation of “benefit corporations,” or “B corps,” the proposed legislation would adjust the fiduciary duty of boards of directors “to allow them to achieve other objectives in conjunction with, not in place of, the maximizing of profits,” says A.P. Carlton Jr., a lawyer in the Raleigh firm of Allen, Pinnix & Nichols who represents clients that are considering forming B corporations.
Under the state’s Business Corporation Act, he says, if directors of a corporation “focus on anything other than maximizing profits, they are not fulfilling their primary obligation to shareholders,” and would be “subject to challenge by shareholders.”
The concept of a B corporation “is the first real, original, constructive thought anyone has had in the corporate governance world in about 25 years,” says Carlton, a former president of the American Bar Association and founding counsel for the North Carolina Community Foundation whose areas of focus include corporation governance and nonprofits.
The bill would require the board of a B corporation to include an independent director who would have to certify annually that the company acted according to its public-benefit purposes.
That requirement is akin to the provision of the federal Sarbanes-Oxley law calling for the audit committee of a corporate board to include an independent expert director, Carlton says.
The bill also would require a B corporation to prepare an annual report spelling out how it is carrying out its public-benefit purposes.
Stevens says the bill would make it easier “for shareholders who want to invest in companies not only to make a profit but also for the good purpose being conducted by the company as well.”
Carlton says the bill provides an alternative to entrepreneurs who want to develop a “social-enterprise model” without creating a traditional tax-exempt organization regulated by the IRS under Section 501(c) of the federal tax code, particularly 501(c)4 community-service or social-welfare organizations such as those related to chambers of commerce or utility companies.
Characterizing the bill as “pro-business” because it “allows flexibility for boards of directors in determining corporate objectives,” he says that if the bill does not become law, he would advise aspiring B corporations to incorporate in another state with laws that allow them.
Kevin Trapani, president and CEO of The Redwoods Group, says the bill would create jobs because, by relaxing restrictions in the current law that inhibit socially-responsible companies from engaging in activities other than those that focus on maximizing shareholder value, it would remove risks to raising growth capital.
Under current law, “an organization that is built to recognize a balance of interests between multiple stakeholders — including shareholders, but also customers, employees, the environment, the community – puts itself at risk when it makes balanced decisions,” he says.
By contrast, he says, the proposed legislation “will allow community-focused companies to grow by giving them access to capital that aligns with their mission.”
State Rep. Stephen A. LaRoque, a Kinston Republican who chairs the House Rules Committee, says he knows of no opposition to the bill and expects it will get a committee hearing in the short session that begins next May.