Fill in the blank in the following sentence: The goal of a corporation is to maximize _____________ value. If you said “shareholder”, then you understand the long established explanation of the 20th century definition of a corporation. But does this definition work today? Can a public or private organization simply focus on the bottom line profit without any regard for resource or people impact? From a legal point, not only should they, but they are required to or face potential shareholder lawsuits.
As organizations become more conscious of their social responsibility, they are starting to focus on a triple bottom line (TBL). For those unfamiliar with the term, it stands for people, planet and profit and captures an expanded definition of what organizational success means. It entails a commitment by the organization to measure success by reporting on economic, ecological and social measures (rather than economic alone). Unfortunately, the “C” corporation isn’t really structured for this type of organization. Luckily, there are two structures that help.
The b-corp (or Benefit Corp) is a type of corporation which uses the power of business to solve social and environmental problems. B Lab, a nonprofit organization, certifies B Corporation based on criteria that meets comprehensive and transparent social and environmental performance measures, as well as other accountability and sustainability standards. The most significant component of the b-corp is that there is a legal requirement to follow the criteria and corporate documents are changed to reflect that.
The L3C (or Low-profit Limited Liability Company) is a legal form of business entity created to bridge the gap between non-profit and for profit investing by providing a structure that allows for investments in philanthropic ventures designed to provide a social benefit. Unlike a standard LLC, the L3C has an explicit primary charitable mission and only a secondary profit concern. But unlike a charity, the L3C is free to distribute the profits, after taxes, to owners and investors. A primary benefit of the L3C is the qualification of the company as a program related investment (PRI), thus allowing for investments by foundations who otherwise may not have been allowed (as a for-profit). The L3C as an official legal structure is not available in all states.
As the definition of corporate success evolves to include social and environmental responsibilities so must the supporting legal and organizational structures. Hopefully, these two entities are the beginning of a long overdue update.