Here’s a B for Boeing. One for Bank of America, too. And one for all the other mega-corporations that are elbowing at the table for billions in government Bailouts (with a capital B) via the CARES (Coronavirus Aid, Relief, and Economic Security) Act.
At the heart of my Plan B bailout proposal is an intriguing and relatively new legal structure called a “benefit corporation.”
Legislators fashioning the CARES Act are rightly focusing on safeguards for making loans to public companies that limit the recipient’s ability to fund self-serving stock buybacks, cap dividend payments, and corral managerial compensation and bonuses. I believe requiring these companies to become benefit corporations (also referred to as public benefit corporations) would deliver an even better and longer-lasting ROI to society for our investment.
So just what is a benefit corporation? Basically, this structure is a formal, legal obligation that requires a company to value stakeholder interests above those of a singular focus on maximizing profit for shareholders. Not only should a benefit corporation strive to create a financial profit, but it is also legally responsible for creating and proving that it delivers a measurable public benefit each year. This benefit could be a positive impact for workers, a community, an underserved population, and/or the environment.
(Note: Benefit corporations are not the same thing as Certified B Corporations; the latter is a voluntary certification program operated by the nonprofit B Lab that companies use to assess and document their social and environmental impact.)
Each year a benefit corporation must demonstrate its impact through the publication of an annual report detailing the actual social and environmental impact the company has created.
The company must use an independent, comprehensive, and transparent reporting standard to support this publication. This legal tool also reduces director liability by enabling boards to balance financial and non-financial interests when making decisions.
Thirty-six states have enacted benefit corporation legislation and another five states are working on it. I don’t believe it will be long before every state offers this form of corporate structure. Perhaps most important, the state of Delaware — where most of the biggies are legally incorporated — currently recognizes the benefit corporation structure.
There are more than 5,600 companies in the United States that have chosen this form of legal governance. While most are smaller businesses, larger companies such as Method (cleaning products), Kickstarter (crowdfunding), and Patagonia (a billion-dollar-revenue outdoor clothing company) have adopted it as well.
If forced conversion to a benefit corporation seems too draconian, the government could offer this option among others. As an incentive for selecting benefit corporation designation, a company could receive a considerably longer term for loan repayment with zero interest. Or if a company doesn’t elect the benefit corporation structure, its government loan might come with a markedly higher interest rate and thus, a better return on investment for taxpayers. Of course, the government (and we taxpayers), always have an equity stake; that last stipulation is definitely not the most popular of options in corporate circles and could make becoming a benefit corporation more attractive.
In any event, benefit corporations could become a centerpiece of the CARES Act for public companies. For my money, if the big corporations want taxpayer assistance during the short term, we should bind them with a “B” and require them to provide a real and enduring return to society by becoming benefit corporations. There’s another potential “benefit”: Research is showing increasing evidence that companies with public benefit at their core deliver better financial performance over time.
Plan A and its unadulterated focus on maximizing short-term profits for stockholders hasn’t served society very well for a while now, and this is being brought into stark relief by the coronavirus crisis (and the looming shadow of a climate catastrophe that, for a brief moment, has retreated backstage to peer out from behind the curtains). For me, for you, it’s time we seek more from our taxpayer investments in large, public companies. It’s time we pivot to Plan B.
B the Change gathers and shares the voices from within the movement of people using business as a force for good and the community of Certified B Corporations. The opinions expressed do not necessarily reflect those of the nonprofit B Lab.
My Plan B for All the Big Corporate Bailout Proposals was originally published in B The Change on Medium, where people are continuing the conversation by highlighting and responding to this story.
