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Can social responsibility equal profits? The success of Benefit Corporations tells us “yes”

Can social responsibility equal profits? The success of Benefit Corporations tells us “yes” 

The goals of a traditional corporation is to make the shareholders as much money as possible. This is done by continuously evolving to increase profitability, increase the market share, cut down on expenses, and improve employee retention rates. 

However, we are at a tipping point. Consumers are demanding more of themselves, of businesses, and of society as a whole.  Gen Z members are three times more likely to say that the purpose of business is to “serve communities and society” rather than to simply “make good products and services.” 

It’s not only consumers that care about social responsibility; employees also want to work for companies with a value-driven purpose. Millennials will grow to 75% of the workforce by 2025, and 77% say their “company’s purpose was part of the reason they chose to work there.” 

In response to this new generation of consumers and employees, benefit corporations have arisen as a tool to use business as a force for good. A Benefit Corporation balances purpose and profit as part of its mission statement. 

A Benefit Corporation is legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment. They expand the obligations of board members and require them to consider environmental and social factors, as well as the financial interests of the shareholders. This gives directors and officers the legal protection to pursue a mission and consider the impact their business has on society and the environment. 

A Benefit Corporation is like a non-profit because it functions with the greater public good in mind, but that is where the similarities end. A Benefit Corporation does not get any of the tax benefits of a 501(c)(3) organization; which include exemption from Federal income tax, tax-deductible contributions, passable exemption from state income, sales and employment taxes, reduced postal rates, exemption from Federal unemployment tax, and tax-exempt financing. A Benefit Corporation is still taxed like a business, and has the same corporate governance structure and responsibilities. 

Although the terms are frequently used interchangeably, a Benefit Corporation is not a certified B Corp. A B Corp is a certification given out by B Labs, which requires a company to pass a rigorous examination of all their company policies and impact. A Benefit Corporation is a legal entity, like a S Corporation or LLC. 

A strong social mission of a Benefit Corporation also drives profitability. Patagonia is a company that promotes anti-consumerism (do you remember the “don’t buy this jacket campaign”?), environmental causes, and is fair trade certified. The company’s mission statement is “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.” And as of 2018, Patagonia is worth $1 billion! 

Patagonia is not the only company to demonstrate that having an environmental mission can be profitable: A survey of 200 academic studies found that “88% of reviewed sources find that companies with robust sustainability practices demonstrate better operational performance, which ultimately translates into cash flows,” and “80% of the reviewed studies demonstrate that prudent sustainability practices have a positive influence on investment performance.”

Athleta is another Benefit Corporation (and Certified B Corporation) success story. When the company decided to become a Benefit Corporation it was to share with consumers the great work the company was doing behind the scenes to have an ethical supply chain, support women and girls, and reduce waste. An unexpected, but positive benefit was also a transformation of the workplace: there was a tremendous increase in talent retention and recruiting as a result of the new status. 

Patagonia and Athleta are just two examples of brands who have experienced financial and employee success due to alignment of profits and a purpose. If you are interested in starting a Benefit Corporation (or any type of business) having a legal team that is familiar with the intricacies of business formation, operations, tax strategies and corporate governance can be the most seamless and robust route for entrepreneurs. For more information on our business law and tax practice, including entity formation, corporate transactions, and tax implications, see here.