A little provision was sneaked into the Italian parliament's big end-of-year budget package: it will now be possible for Italian companies, new or already existing, to incorporate as "Società Benefit," or Benefit Corporations. These companies will be officially allowed to put societal benefit on a par with profits.
In the US, 30 states plus Washington, DC, have such legislation, and the new Italian law could inspire similar legislation in other European countries. Such legislation is considered important because otherwise a for-profit company's management could, in theory, be held legally liable if it doesn't put short-term profit maximization for shareholders ahead of all other criteria. Normally a societal benefit, such as reducing carbon emissions, will also be beneficial to shareholders, but that benefit might not be as immediate or as direct as shareholders would like. So having the specific corporate legal structure of a Benefit Corporation alleviates any doubt on this question. Benefit Corporations, also known as B Corporations, aren't off the hook on generating profits: any for-profit company needs to grow in order to be sustainable, and in fact the new laws don't discourage profit making.
The drive for more B Corporations can be traced to an initiative called B Lab, founded with the publication of a "Declaration of Inter-Dependence" on July 5, 2006, which stated that "we envision a global economy that uses business as a force for good." The statement suggested that the economy of the future could be "comprised of a new type of corporation - the B-Corporation - which is purpose driven and creates benefits for all stakeholders, not just shareholders."
B Lab offers voluntary certification as a B Corporation based on a process that includes a survey and follow-up work with Philadelphia-based B Lab's staff. The survey, called the Benefit Impact Assessment, covers five overall areas with questions such as the following:
- Governance - Are social responsibility goals incorporated in the mission statement, articles of incorporation, and bylaws? Are there board or management committees in place to ensure that these goals are met? Are there adequate controls in place to ensure ethical behavior by management? Does the company produce transparent reporting on financial and other aspects of its management?
- Workers - How well are workers compensated with pay and benefits? Are they offered on-the-job opportunities for training and advancement? Are there opportunities for worker ownership in the company? Are good procedures in place for constructive worker-management communication? How flexibly does the company respond to personal or family needs?
- Community - Is the company locally owned? Does it purchase resources locally? How many full-time, well-paying jobs does it provide? How diverse is its workforce? How much charitable giving is done locally?
- Environment - Do the company's land, office, and plant comport with high environmental standards? Does the company minimize waste, use renewable energy, recycle materials, and avoid toxic emissions? Does the company minimize inputs of energy and water? Does it minimize its air and water pollutants?
- Impact Business Models - Is the company structured in a way that maximizes its social impact? Does the company promote healthy and sustainable lifestyles? Is it trying to model new energy efficiency or green technologies?
There are now 1550 B Corporations in 42 countries, and the movement is growing fast. B Lab Europe launched in April 2015 with 60 founding B Corporations, and as of last May, more than 30,000 companies worldwide were using the free Benefit Impact Assessment.
The Assessment is a useful tool, regardless of the desire to certify as a B Corporation, because it allows a company to reflect on its social and environmental impact, benchmark itself against other companies, set goals for improvement, and become more strategic about how to improve productivity through increasing its positive societal impact. Reducing a company's environmental footprint and improving its employee engagement, for example, are ways to reduce costs and improve productivity.
Meanwhile, five more states in the US are considering introducing Benefit Corporation legislation. And if the Italian move is replicated in other European countries and the trend continues around the world, governments may be laying the foundation for longer-term sustainability to override the current shareholder focus on short-term profits alone.
"There is one and only one social responsibility of business," conservative economist Milton Friedman famously said, and that is "to use its resources and engage in activities designed to increase its profits."
Friedman may be turning over in his grave, but corporate social responsibility - of the broader kind - is here to stay.