Businesses to start proving their social worth
Similar to an organic or fair-trade certification, Connecticut business may soon be certified as “benefit corporations” to show that they make a positive impact on the environment and society.
In a 128-12 vote, members of the House of Representatives voted to pass legislation to create a new “benefit corporation” classification for businesses that straddle the line between the traditional for-profit and nonprofit models. However members of the Senate were unable to vote on the bill before the end of the legislative session. Advocates hope to push for the legislation next session.
Rather than being driven by profits alone, the bill would allow companies to have a social mission that requires its decision makers to consider not only the interests of their shareholders but those of their workers, the community and the environment. Such a corporation will then be required to publish an annual report of its performance in achieving its societal and environmental goals, according to third-party standards.
“Ultimately it gives businesses the freedom to use their profits and resources in the way they see fit, and have a social impact if they so choose,” said James Woulfe, an program associate at Social Enterprise Trust (reSET) who helped draft the legislation.
The classification doesn”™t have any tax-related benefits, but it removes legal impediments to running a social enterprise and can help build consumer trust in a brand, Woulfe said. Additionally, it protects against “green washing,” where a company claims to be environmentally friendly in order to boost sales, but in actuality is not. About seven states have passed similar legislation including New York and New Jersey.
“It makes sure companies that are talking the talk, walk the walk, which is really powerful,” Woulfe said. “It also allows the great social enterprises out there to show the impact they are having, which will hopefully bring them more business.”
Based in Hartford, reSET is a nonprofit with the mission of building a hub of social enterprises in Connecticut. The legislation is largely built off of a national model created by the nonprofit B Lab, but Connecticut”™s law contains one extra element Woulfe said he hopes attracts entrepreneurs to the state.
The legislation allows entrepreneurs to essentially “lock in” their business”™ social mission, so if the leadership of the company changes, the mission must be preserved. If the company is sold, any of the remaining assets after debts have been paid must also go toward the mission as well.
“Once the idea really takes hold and breaks into the mainstream, I think you”™ll see a lot of businesses do this in the future,” Woulfe said. “It really makes sense. You can streamline doing business and making a social impact in one entity.”
After a career on Wall Street, Vince Lagnese said it was important to him to start a business that adhered to a higher standard of ethics and social accountability than the traditional model of what he called “unbridled capitalism.”
So in 2011 he founded Rhyme & Reason, a basic clothing company in Stamford that donates at least10 percent of the purchase price of any good to a partnered charity the customer chooses.
“It”™s very black and white,” Lagnese said. “There”™s nothing gray or potentially misleading like a lot of companies have done where they have an embedded a philanthropic element to their business.”
Lagnese said it is very important to him to have his company certified as a benefit corporation and was pleased to hear legislators were considering the bill. Since New York had passed similar legislation, Lagnese said he had seriously considering moving his company, as he already manufactures the clothing in that state.
“This certainly encourages us not to relocate,” Lagnese said. “We believe strongly in that kind of model ”“ the ethos and perspective where profits aren”™t the primary agenda. We”™re very encouraged.”