Hales Encourages Corporate Responsibility; Supporting B Corporations

Evan Manvel

It’s a small investment in encouraging the private sector to more explicitly consider public benefits.

At the first joint appearance of the three leading Portland mayoral candidates, Charlie Hales announced an interesting policy proposal: supporting certified B corporations by charging them only half of the city’s business license tax, while urging the county to halve its business income tax as well.

Hales’ announcement came at the first annual event of the Voice for Oregon Innovation and Sustainability, “Oregon’s Chamber of Change.” It was an impressive gathering of wonks, progressives, and businesspeople, including Mayor Sam Adams, Multnomah County Chair Jeff Cogen, and a who’s who of sustainable business.

Just what are B corporations Hales is talking about? A Wikipedia excerpt:

A benefit corporation is [a class of corporation legally required] to create general benefit for society as well as for shareholders. Benefit corporations must create a material positive impact on society; consider how decisions affect employees, community and the environment; and publicly report their social and environmental performance using established third-party standards.

Six states – Maryland, Vermont, New Jersey, Virginia, Hawaii, and California – have passed legislation in 2010 and 2011 governing this new kind of corporation, and legislation is pending in several other states.

In the same vein, a group called B Labs audits corporations and certifies those that pass as B corporations. Hales’ proposal would allow certified B corporations to get the small tax break, forgoing the need for Oregon to pass a benefit corporation law.

Why the excitement about new corporate structures, laws, and certifications? From B Labs:

B Corporations address two critical problems:

  • Current corporate law makes it difficult for businesses to take employee, community, and environmental interests into consideration when making decisions; and

  • The lack of transparent standards makes it difficult for all of us to tell the difference between a ‘good company’ and just good marketing.

In the Los Angeles Times, B Corporation advocate Jay Coen Gilbert argues:

That's one fundamental constraint on sustainable businesses: They're doing that at significant legal exposure. [California's new law] helps to provide them with legal protection to pursue what some people perceive as a triple bottom line -- creating financial profit as well as social and environmental impact."

Before [the new law], Gilbert added, "corporations have one fiduciary duty: to maximize value to shareholders even if that comes at the expense of workers or the community or the environment. It's a system that's set up to externalize costs to society."

Examples of local B Corps include gDiapers, Bamboo Sushi, Eleek, Inc, Equilibrium Capital Group, and TriLibrium (a CPA firm). There are currently 30 certified B corporations in Oregon.

The Oregonian’s Beth Slovic reports Hales estimates the cost of his proposal at around $60,000.

From the Hales press release:

“As mayor, I plan to encourage these environmentally, socially responsible businesses here in Portland,” stated Hales. “It just makes sense for us to be the first city in America to say thank you financially to businesses that choose a different way, a better way; and to say to socially responsible entrepreneurs across the country: set up shop in Portland – we want your business!”

The proposal sends a positive message while not being grandiose or expensive. It’s a small investment in encouraging the private sector to more explicitly consider public benefits. B Labs’ slogan is “using the power of business to solve social and environmental problems.”

At a time when people are rising up against big banks and Wall Street, it's just smart governance to encourage the growth of Oregon businesses that are eager to contribute to the public good.

Comments

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    While I love the concept, the devil, as Michelle Bachmann pointed out to Herman Cain, is in the details. This is both subject to game playing and could be a budget buster in spite of Charlie's guesstimate.

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      I suggest reading the Large Manufacturer Impact Assessment here: http://www.bcorporation.net/become/BRS

      Good detail on what it really means. The questions are intriguing and hard to game, such as "At what juncture do your part time/flex time employees qualify for full time health care benefits?" and "Is the majority (over 50%) of the company’s ownership located in the same communities as at least two-thirds of your workforce?"

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    and by the way, the comment, "corporations have one fiduciary duty: to maximize value to shareholders even if that comes at the expense of workers or the community or the environment. It's a system that's set up to externalize costs to society." is bull. There is no legal requirement for companies to maximize profits. It is up to the shareholders and in many private industries they can do what they want. Same is true of many public companies where the management is not controlled by Wall Street.

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      Yeah, I found that to be a bit hyperbolic too.

      My understanding is most corporations work under the business judgement rule that presumes Boards act in the best judgement of the company. While some may argue that leaves one open to challenges about "being wasteful" under Grobow v. Perot, in practice I'm not aware of it being a big issue.

      There is the case that in hostile takeovers, there's the Delaware Supreme Court ruling Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. that requires boards to change from "defenders of the corporate bastion to auctioneers charged with getting the best price for the stockholders at a sale of the company."

      Other corporate lawyers want to weigh in?

      I think the second concern of B Labs may be more compelling: third-party certification, separate from simple marketing.

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      Spot on! COSTCO continues to offer excellent pay and benefits plans to employees considering the limited amount of training required for their positions. This continues to be a concern for investment advisors, but the company does very well, the employees recieve good pay and benefits and the customers are pleased.

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    Too complicated for me, but I will say that if the concept of "B" corporations gains traction, my law firm will need to hire more tax lawyers. The idea that it is possible to avoid or substantially reduce corporate taxes by claiming some sort of dedication to the greater public good is interesting, but I suspect widely open to abuse.

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    More tax breaks for business! Huzzah!

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      Way to be simplistic.

      The problem is that we've been giving breaks to the wrong businesses. Businesses that don't care if they have a policy that discourages hiring the unemployed, businesses that pollute, businesses that see gain above good.

      Would we need to Occupy if corporations were held to a higher standard of responsibility? No. So where do we start? How do we start dividing the wheat from the chaff? This is the carrot, there's also a stick.

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    While no court cases have resulted, presumably the board of a benefit corporation would have to defer to the articles of incorporation when making a “business decision” that impacts the interests of employees, consumers, the community, and the environment if so required. Since the issue for so many on the sustainability front is not doing “good” but maintaining founding principles during expansion, I think the B Corp structure provides a legitimate solution to social entrepreneurs in Oregon. Hales’ proposal expedites this process by allowing immediate tax breaks for certified B Corps. I think this tactic is spot on—while recruiting new business is always nice, Oregon is full of companies that are already dedicated to the triple bottom line. This is the type of behavior that needs to be recognized!

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