How do I Create General Public Benefit?

Benefit corporations are required to have a purpose of creating “general public benefit.”  This differs from traditional corporations, which are allowed to form for any lawful purpose and are required through statute and case law to maximize profit for their shareholders while performing achieving their purpose.

General public benefit is defined as a “material positive impact on society and the environment, taken as a whole, as assessed against a third-party standard, from the business and operations of a benefit corporation.”

The Model Legislation explicitly states that “[t]he creation of a general public benefit . . . is in the best interests of the benefit corporation.”  This serves to protect against the presumption that the financial interests of the corporation take precedence over the general public benefit purpose, which maximizes the benefit corporation’s flexibility in corporate decision-making.

Interpreting “Material Positive Impact”

Government has no role in interpreting “material positive impact.”  The benefit corporation, its directors, and, ultimately, its shareholders have the responsibility to determine what they deem to be 'a material positive impact'.

Some observers have expressed a concern that the requirement for a benefit corporation to create a “material positive impact on society and the environment” is too vague, and the concept of “general public benefit” too broad to be meaningful.  To address this concern, the Model Legislation provides for this requirement to be assessed against a comprehensive, credible, independent and transparent third-party standard.

The comprehensive criteria specifically ensures that the corporation’s impact on each of the non-financial interests that directors are required to consider are assessed in the annual benefit report.  The Model Legislation thus strikes a balance between specifically enumerating those interests to be considered and linking them to those impacts to be assessed without being overly prescriptive in listing specific metrics to be used to make those assessments or to weight those metrics or interests.

The most difficult obligation for a court to enforce would be the requirement that the corporation “pursue the creation of a material positive impact on society and the environment, taken as a whole, as assessed against a third-party standard.” If the corporation could show a meaningful good faith effort to pursue such positive impacts, then a judge would likely be reluctant  to interpose his or her judgment against the corporation. This is similar to how judges, via the business judgement rule, give directors freedom to pursue profit in a traditional corporation. Absent such effort, a judge might give directors a fixed period of time to undertake such action, which could perhaps be demonstrated by the corporation achieving a higher performance level under the third-party standard it had applied in earlier benefit reports.

Other related issues:

General vs. Specific

Some observers have questioned why the statute should require the creation of “general public benefit” rather than simply the creation of one or more “specific public benefits.”  

The first reason is directly related to the purpose of the legislation itself. One of the main purposes of benefit corporation legislation is to create a voluntary new corporate form that has the corporate purpose to create benefit for society and the environment generally as well as shareholders.  The intent is to create a new corporate form that does not overlap with existing capabilities in traditional corporations.  The duties performed in a benefit corporation can not be performed in a traditional corporation.  This is not necessarily true in the few other social enterprise forms also in existence.  The entrepreneurs, investors, consumers and policy makers interested in new corporate form legislation are not interested in, for example, reducing waste while increasing carbon emissions, or reducing both while remaining indifferent to the creation of economic opportunity for low-income individuals or underserved communities. They are interested in creating a new corporate form that gives entrepreneurs and investors the flexibility and protection to pursue all of these public benefit purposes. The best way to give them what they need is to create a corporate form with a general public benefit purpose.  Also by creating general public benefit as a whole benefit corporations are more nimble than companies that must pursue  a single safe harbor, which requires amendment of their articles if they wish to alter their mission or end up completing their mission.  This is one of the reasons that approximately 90% of all social enterprise that assume a social enterprise corporate form have become a benefit corporations.

The second reason is to avoid unintended consequences. The “general public benefit” purpose helps to prevent abuse of the legislation by corporations interested in “greenwashing.” Without the general public benefit purpose, a corporation could name a single, narrow “specific public benefit” purpose (e.g., keeping the river in back of the factory free from toxic effluents) and then “consider” and dismiss all other non-financial interests when making decisions. This would undermine one of the main purposes of the legislation, namely the creation of a new corporate form whose corporate purpose is to create benefit for society generally.

Flexibility

Some observers have expressed concern that the definition of general public benefit is prescriptive, lacks flexibility and legislates morality.  In fact, the legislation does the opposite specifically through the general public benefit provision that recognizes that different companies will pursue the creation of a material positive impact on society and the environment in a variety of ways.  A general public benefit provision encourages flexibility and enables innovation by simply setting a “directional” performance requirement (i.e., “material positive impact on society and the environment”) without creating unnecessarily prescriptive performance requirements (e.g., achieve zero waste or be carbon neutral).  Also by seeking general public benefit as a whole benefit corporations are more nimble than companies that seek a single safe harbor, which requires amendment of their articles if they wish to alter their mission or if they end up completing their mission.  

Directors Liability

Some observers have expressed concern that directors of benefit corporations would be exposed to personal liability if the benefit corporation did not “create a material positive impact on society and the environment.”  The Model Legislation specifically includes a provision that makes clear that directors and officers are not liable for monetary damages.  

"Positive Impact" vs. Net Impact

Some observers have expressed concern that “material positive impact” takes no account of potential “negative impacts” of the business or operations of a benefit corporation. This is true and intentional. A “net positive impact” would imply that one could add and subtract impacts from diverse activities (e.g., add 2 units for reducing energy usage per unit of production, subtract 1 unit for a discrimination lawsuit, etc.) based upon some common unit of measure. Such a unit of measure does not exist and is unlikely to exist at least for a considerable period of time.  Rather, the legislation recognizes that numerous existing standards already aggregate diverse corporate activities into an overall assessment for a corporation’s social and environmental performance. This is an important first step that, when coupled with the legislation’s requirement that the benefit corporation’s performance be assessed against a comprehensive, credible, independent, and transparent third-party standard, moves the market closer to a desired “net impact” assessment.

Society and the Environment vs. Society or the Environment

Some observers have been concerned that the requirement to create “a material positive impact on society and the environment” places too high a burden on benefit corporations in that very few businesses can do both. For this reason, the Model Legislation includes the phrase “taken as a whole” after “society and the environment” so that the legislation’s intent is clear that, as the corporate purpose ought to be to create general rather than specific public benefit, the assessment of the benefit corporation’s pursuit of this objective should also be “taken as a whole” as it relates to both social and environmental impact.   The model legislation is created in such a way to recognize that some companies may wish to be strong in one area and simply consider other factors.  This adds to the laws flexibility.