An Entirely, Utterly New Corporate Form for Not-Only-for-Profits

The numero uno dilemma for not-only-for-profits is how to grow. How can you expand without compromising your mission? After all, you aren’t really helping your cause if you’re reaching a relatively puny number of customers. I recently heard Jerry Greenfield of Ben & Jerry’s talk at a Columbia University Graduate School of Business panel and he admitted that he wasn’t so sure going public was a great idea, since it ended up forcing them to sell to Unilever 15 years later.

One giant step forward would be the passage of laws creating an entirely new legal status for companies that want to take into account all their stakeholders. A group of not-only-for-profits, nonprofits, and law firms have been working since early this year on creating such model legislation for California.

The bill would create a new corporate form legally mandating that companies have a duty to consider the interests of the community, employees, and the environment, in addition to shareholders. That way, a public company wouldn’t be forced to take steps that might drive short-term financial results, but would be at odds with its cause. If it’s bought by another business, the mission also would be protected.

The background to this effort: Last fall, Gov. Schwarznegger vetoed legislation that would have made California a “constituency state”, a much weaker status under which companies are allowed to take into consideration interests other than shareholders. When Schwarznegger vetoed it, he asked for the legislature to come back with a bill creating a new form of incorporation.

The group has two committees. One, which includes B Corp., New Leaf Paper, RSF Social Finance, and Pacific Community Ventures, is identifying California legislators to act as sponsors. The legal committee is drafting the bill and expects to introduce its proposed legislation end of this year or early 2010.

Even if the law passes, proponents face more hurdles, of course. For example, there’s the question of just what tax level not-only-for-profits will have to pay. The Internal Revenue Service will probably have to weigh in there. Another issue is the kind of procurement preferences federal and state government agencies may or may not be obligated to give to these companies. “This first piece of legislation is setting the table for the first phase of this effort,” B Corp co-founder Jay Coen Gilbert told me. “At least, now you’ll be dealing with an actual corporate entity, not just an idea.”

Also, passage in California should give a boost to other policy initiatives in Pennsylvania, New York, Nevada, and Delaware. Stay tuned.