July 3, 2014

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Capitalism with a Conscience

A New Utah Law Protects Corporations that Give Back

Gaylen Webb | Illustration by Mark Jarman

July 3, 2014

There’s a new corporate consciousness—call it “capitalism with a conscience”—sweeping across the globe. It officially arrived in Utah in May, and the power it carries with it could be enormous.

On May 13, Senate Bill 133 became law, creating a new class of Utah businesses called “benefit corporations” or B-corps. Utah was the 20th state to implement a B-corp law. Thirteen Utah businesses registered as B-corps on that day, receiving their certificates of registration from Lt. Gov. Spencer Cox during a ceremonial gathering of government and business leaders at the Utah State Capitol.  

The bill’s chief sponsor, Sen. John Valentine, says traditional C and S corporations have always had one obligation: maximize profits in order to maximize dividends for shareholders. “That’s been their fiduciary duty, as determined by the courts, since about 1910,” he explains.

Not so for B-corps, which use their financial muscle to do more than just create wealth for shareholders. B-corps originated after a 2010 Delaware Supreme Court ruling in eBay v. Newmark upheld the notion that corporations are legally required to maximize profits. So states began passing B-corp laws to protect a corporation’s officers and directors from being sued when the company expanded its fiduciary duty to include social or environmental responsibilities.

Valentine looked at the B-corp laws in other states and thought a statute was a good fit for Utah, which leads the nation in volunteerism and charitable giving. Further, the state has numerous corporations that do more than maximize the bottom line for shareholders. “They may have a social contract to assist a school or a little village in Africa. They may have a goal to operate with the least amount of impact on the environment,” he says. “All of the social agendas affect the bottom line, because the bottom line is used for purposes other than giving the final dime to the shareholder.”

Steve Klass, executive director of P3 Utah, a nonprofit promoting business for people, planet and profit, says the original 13 Utah B-corps are companies that have made social and environmental responsibility part of their cost of doing business. “They define success by what is called the ‘triple bottom line,’ or the degree by which they can improve human existence for their employees and communities and the environment, while also making a profit,” he explains. “It’s doing good while doing well.”

With the new statute in place, a Utah company that registers as a federal C or S corporation may also register as a B corporation, which is a state designation. Becoming a B-corp doesn’t give a company any financial benefits, tax incentives, special perks or preferential treatment. However, as a B-corp, the company can expand its fiduciary duty beyond maximizing profits. A B-corp has the added responsibility of supplying an annual report to the Utah Division of Corporations that identifies the public benefits the company has generated for the year. The report must be produced using a third-party verified standard in reporting the benefits.

Beyond the Bottom Line

Despite the additional red tape, a growing number of corporations want B-corp designation because they take a holistic approach to all aspects of their businesses and want to use their resources for a greater good.

For example, it bothers Topher Webb, president of Utah-based Mezzo Chocolate, one of Utah’s 13 original B-corps, that a series of middlemen take most of the profits from growers in the cacao bean trade. He is trying to eliminate the middlemen and work directly with his cacao growers to ensure they are treated well and receive a greater share of the profit from the cacao beans. Webb says he is even willing to pay more for the beans to make that happen.

But it doesn’t stop there. Mezzo Chocolates rewards the work of its employees by paying higher wages, providing healthcare benefits and offering ownership in the company.

“We established Mezzo as a place people could work and feel like they weren’t just employees, but as important to the company as I am myself,” he says. The company is also concerned about the environment and the trash it creates. An internal program called the Wasatch Initiative focuses on limiting waste and recycling as much as possible. The company is also working to get off the electric grid by investing in solar power. Webb hopes to be energy self-sufficient within five to six years.

“We are really conscientious to ensure everything we do has little impact on the environment,” he says.

Earlier this year, serial entrepreneur Davis Smith returned to Utah after living in South America where he grew Baby.com.br into Brazil’s 2012 Startup of the Year. Smith heard about B-corps when he returned to the States and wanted to register Cotopaxi, his new outdoor products company, as a B-corp. Unfortunately, Utah didn’t offer the B-corp registration at the time, so he registered Cotopaxi as a B-corp in Delaware. The company, he told his Silicon Valley and New York investors, would have a social mission to reduce poverty. They loved the idea. So did a host of people who wanted to work at Cotopaxi.

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