Vermont becomes second state to pass B Corporation legislation
Vermont has become the second state to pass a benefit corporation law, which creates a new class of corporations dedicated to creating public benefits as well as shareholder value. The new form of incorporation requires a company to appoint independent directors to report annually on their performance against social goals stipulated in their articles of incorporation. Importantly, qualified shareholders can sue a for-benefit corporation for failing to produce those benefits. Conversely, actions taken by for-benefit corporate officers to create or uphold a public benefit cannot be construed as violating their fiduciary responsibilities to shareholders. State lawmakers in Vermont note that directors of such companies would have better legal standing to resist takeover offers on the grounds that they might not support their social obligations.
Gov. Jim Douglas signed the “Vermont Benefits Corporations Act” into law May 19, said David Coriell, a spokesman for the governor’s office. Maryland became the first state to pass such legislation in April, according to B Lab, a Philadelphia-based non-profit that has been lobbying state legislatures to pass such laws. B Lab worked with Vermont Business for Social Responsibility to pass the law there. Ben Cohen and Jerry Greenfield, founders of Ben & Jerry’s Ice Cream, threw their support behind the bill. The entrepreneurs told the Associated Press that had Ben & Jerry’s been organized as a for-benefit corporation, it might have had better legal standing to resist Unilever’s lucrative takeover offer for the company in 2000.
Directors of for-benefit corporations in Vermont “shall, in determining what is in the best interest of the for-benefit corporation, consider the effect of any action or decision not to act on the shareholders, employees, suppliers and customers, the economy of the state, region and nation, community and societal considerations and the local and global environment,” reads the law.
Such companies must name an independent for-benefit director, who shall prepare a statement in the annual report where they express whether, “in their opinion, the corporation acted in accordance with its general and any specific public benefit purpose in all material respects” during the period covered by the report.
The law is designed to allow existing corporations to amend their articles to become for-benefit corporations or for new companies to organize as for-benefit corporations. A corporation may terminate its status by securing two-thirds of shareholders votes to amend its articles to delete the for-benefit provision.
Such legislation has been supported by B Lab, which has certified more than 300 companies as B Corporations. To be certified as a “B Corp,” companies must agree to meet and institutionalize comprehensive and transparent social and environmental performance standards. Members must undergo audits and agree to have the results published on the B Corp website. Benefits of B Corp certification include differentiation from the growing barrage of greenwashing claims. Currently, Dansko LLC and GoLite are the only two OIA members to secure B Corp certification. GoLite published its first annual sustainability report in January.
B Lab reports state lawmakers in New York, Pennsylvania, North Carolina, Colorado, Washington and Oregon have also expressed “significant interest” in passing B Corp style legislation.
Vermont already boasts several B Corps, including Seventh Generation, the maker of non-toxic household cleaning products; SUSIKUY Clothing Company, LLC, which makes eco-ethical fashion apparel; and King Arthur Flour Company, a 100 percent employee-owned maker of flour.