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Enter the ‘B’ Corporation

Kris Ormseth

Every holiday season people look outside of themselves and make efforts to benefit others. But can corporations, which typically focus on maximizing shareholder profits, do the same thing while still doing right by their investors? Enter the “B” Corporation.

Unlike its well-known siblings – LLC, C Corp and S Corp – a B Corporation’s governing documents specifically authorize the board of directors to consider the interests of a wide variety of stakeholders who may be affected by corporate policies and transactions. These stakeholders can include employees, suppliers, customers, and the community in general.

Idaho’s corporation statute requires the board of directors to make decisions and act in a manner that the directors believe is “in the best interests of the corporation.” That language has generally been interpreted to mean the best interests of the corporation’s shareholders.

To be sure, many “regular” corporations take actions that may result in a short-term decrease in shareholder profits. For example, a corporation might pay higher-than-average wages to its employees or make charitable donations to improve education or health care. If challenged by a shareholder, however, the legal support for this type of action is not simply that it is good for the employees or good for the community.

Elijah Watkins

Instead, the proper way for the board of a “regular” corporation to justify actions such as high wages or charitable donations is to conclude that they are in the best long-term interests of shareholders. For example, directors might justify paying high wages by arguing that it helps the corporation attract and keep the most talented employees, who over time will produce higher profits that more than make up for the extra wage expense. Education or health care donations might be justified by determining that a healthier and more educated community will produce a better workforce over time.

Directors of B Corporations, on the other hand, are given specific guidance as to what factors may be considered in determining the best interests of the corporation. One requirement for being certified as a B Corporation is that the corporation’s articles of incorporation and bylaws include a provision that authorizes the directors to consider factors such as the social and economic effects of a policy or action on current and retired employees and the community as a whole.

It is important to note that B Corporations are not required to act differently from regular corporations. Nor do the B Corporation provisions give employees or community members the right to sue the corporation if they don’t agree with some corporate action. Instead, the concept is to enable a board of directors to freely consider the interests of non-shareholders when deciding what is in the best interests of the corporation.

The process for becoming certified as a B Corporation is administered by the nonprofit organization B Lab (www.bcorporation.net). The process involves scoring at least 80 (out of a possible 200) in an impact and sustainability assessment, and revising the corporation’s articles of incorporation and bylaws to include the concepts described above. There are now over 600 B Corps in 18 countries, including six in Idaho.

The CAPROCK Group, an investment office located in Boise, San Jose, Seattle and Park City, is one of the Founding B Corporations. Craig Olson, a managing director, noted the company has high standards of accountability and transparency for its clients, and therefore becoming a B Corp was a natural fit.

Another local B Corp is Oliver Russell & Associates. Russ Stoddard, corporation president, said the B Corporation structure fits with values his company has maintained since its founding in 1991, particularly its values of being progressive and socially responsible. He also believes the B Corporation designation is a competitive distinction in the market and that a range of clients will respond favorably.

Many corporations may feel they already have sufficient leeway to take proper account of the interests of all stakeholders and may not see a need for B Corporation certification. But as social media increases the social interaction, commentary and scrutiny surrounding corporations, more may seek the flexibility of B Corporations.

Kris Ormseth is the managing partner for Stoel Rives LLP in Boise. His practice emphasizes general business advice, acquisitions, debt and equity financings, and corporate governance. He can be reached at (208) 387-4267 or kjormseth@stoel.com. Elijah M. Watkins, an associate in the Litigation practice group, focuses on complex commercial disputes, business torts, internal investigations, and securities litigation. He can be reaches at (208) 387-4275 or emwatkins@stoel.com.

About Kris Ormseth and Elijah Watkins

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