Social purpose corporations to become legal June 7 (PSBJ)
[Updated 11/17/2023] This article in the Puget Sound Business Journal was the first media coverage of Newground’s pioneering status as the first Social Purpose Corporation under Washington State law. Shared here as fair use for educational purposes only. -Ed.
Social purpose corporations to become legal June 7
By Valerie Bauman, Puget Sound Business Journal
Apr 6, 2012, 3:00am PDT
Bruce Herbert (left), chief executive of Newground Social Investment, talks with Brian Howe, founder of Vox Legal. Newground could be Washington's first social purpose corporation under a new law. Vox Legal is certified by a nationwide social-benefit network. (Photo: Marcus R. Donner)
Washington state will have a new kind of corporation in June — one that will allow shareholders to embed social and environmental goals into the company’s DNA.
Gov. Chris Gregoire signed a bill into law March 30 authorizing "social purpose corporations" that can serve goals beyond the financial bottom line.
The new law — part of a national movement — arrives in a "We Are the 99 Percent," post-recession era in which some businesses are looking for ways to demonstrate that they want to benefit their community, employees and the environment, as well as their bank accounts.
The newly minted category of social purpose corporations (SPCs) gives shareholders the ability to decide a company can pursue these social goals. In a traditional corporation, executives could potentially be sued if shareholders find that other priorities — including social projects — have taken precedence over maximizing financial return.
When the law takes effect June 7, Newground Social Investment may be the first company in the state to snag this new badge of social responsibility.
Bruce Herbert, founder and chief executive of the small Seattle investment firm, started the application process in mid-March, even before the measure had been signed into law. His company has long focused on socially responsible investments that reap financial rewards for his clients while focusing on the issues that matter to them most (for example, the environment).
"What I've seen over and over again is that companies that operate sustainably with a long-term perspective not only do well by the environment, by their communities, but also, they're profitable," said Herbert, who has focused on social investing since the 1980s. "Companies on the other hand who have a fairly short-term perspective — next quarterly earnings report, for instance, 90 days from now — they almost cannot justify doing the right thing."
Social purpose corporations are distinct from "B corporations," or Benefit corporations. Seven states have companies registered in this category, and the designation is being considered in seven other states. B corporations are required to adopt social standards established by a third party, while Washington's SPCs may adopt policies that their leaders and shareholders consider most critical — whether those are environmental, community, employee or other standards.
Some debate has emerged about which standard is better. B corporations came first, from legislation that Philadelphia-based nonprofit B Lab helped draft or support in various states. The Washington state Legislature ultimately went with a different standard.
"In the social purpose corporation model, the company has to do an annual report on how it's meeting its social purpose and provide that to the Secretary of State's office, said Rep. Jamie Pedersen, D-Seattle, a sponsor of the legislation. "The Secretary of State makes that public. But there's no enforcement, and it's self-reporting from the company."
In either case, the changes are part of a national movement. Increasingly, companies are trying to find ways to build sustainability and social responsibility into their brands.
"It is for marketing purposes," said Brian Howe, the founder and lead attorney for Seattle-based Vox Legal, a company that's certified by B Lab as a B corporation and provides legal services to social entrepreneurs. "But it also reflects a real DNA of the company in terms of what they value."
While Washington state will register social benefit corporations, some companies may still pursue B corporation credentials from B Lab.
For a sliding scale fee (generally between $500 and $25,000, depending on profits), companies that submit to a third-party audit on the issues that define B corporations (B corps) can receive the stamp of approval from B Lab. Similar to the "Good Housekeeping Seal of Approval," B Lab's certification offers companies credibility on social responsibility.
Seattle-based Brenthaven, a company that designs protective covers for iPads and other electronics, spent between $2,000 and $3,000 to get B Lab certified. For CEO Scott Armstrong, it's a worthwhile investment. That initial expense, along with a few adaptations, has added some costs, but Armstrong anticipates the company will ultimately reap long-term fiscal returns.
For example, the company started using materials that are less harmful to the environment, provided employees with incentives to take public transportation and added a profit-sharing program that rewards workers with a bonus of 10 percent of their salaries if Brenthaven hits its sales goals for the year.
"Being able to tell customers that we're a sustainable business, and we're doing the right thing and we're part of B Lab — you can't really say it's a reason customers choose us, but it's certainly helped push us into the win column." Armstrong said.
Former Starbucks president Howard Behar calls the shift toward B corps and SPCs "capitalism with a conscience."
"There's a consensus starting to build that you can be a capitalist pig and still do the right thing," Behar said. "And I think that's what we've got to get to."
Supporters of B corps and SPCs argue that eventually the rest of the world will realize the profitability of focusing on the long-term impact of corporate behavior.
"What's now called social investment," Newground's Herbert said, "in future years will just be called investment."
—Valerie Bauman
vbauman@bizjournals.com / 206.876.5439
Staff Writer, Puget Sound Business Journal
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