California introduced a bill this week that will make it easier for businesses to pursue a social or environmental mission with equal fervor as they pursue profits. The classic argument against corporate social responsibility initiatives is that they interfere with the primary responsibility of business – to drive shareholder returns. This sentiment is often used againstinvestment in social or environmental issues, as current law in many states allows shareholders or investors to sue companies taking environmental or social measures that negatively affect shareholder financial returns (such as a philanthropic donation or investment in energy retrofits). The proposed bill would establish a new model of business called a “flexible purpose corporation,” allowing companies in California to give equal weight to all elements of the triple bottom line.
The California bill is the latest in a number of proposals on the state level to encourage responsible business practices. Nonprofit organization B Lab advocates nationwide for what it dubs Benefit Corporations – “a new class of corporations that are required to create a material positive impact on society and the environment.” Maryland and Vermont have already enacted Benefit Corporation legislation and several other states are following suit by introducing bills for review.
For years, Cone has studied and preached the business case for engaging in cause and corporate responsibility activities. We know these efforts can help drive reputation, employee loyalty and sales for companies. Yet the focus on short-term shareholder returns still exists as the biggest barrier to doing good. With legislation supporting new, dual-benefit business models – such as flexible purpose corporations and Benefit Corporations – business and social good can live together in harmony. We are encouraged by the efforts in California, Maryland and Vermont and look forward to seeing the potential influx of for-profit companies with social and environmental missions baked into their DNA.