Sustainable firms now have a corporate vehicle for meeting needs of evolving stakeholder capitalism
As corporate governance issues related to sustainability come under greater scrutiny, British Columbia has introduced a new form of corporate structure into Canada – the “benefit company.”
Valerie Mann, a partner at Lawson Lundell in Vancouver, says the move follows in the footsteps of 36 U.S. states using this type of corporate vehicle to help manoeuvre in a world of “evolving stakeholder capitalism.”
Benefit companies is a new corporate status meant for-profit entities. However, they must promote one or more “public benefits” and, perhaps more importantly, conduct business in a way that is “responsible and sustainable.” Benefit companies can be either private or publicly traded.
Mann’s colleague at Lawson Lundell, Chat Ortved, adds that a benefit company must have a clear public purposed enshrined in their articles and pursue that purpose in a way that accounts for the well-being of stakeholders. It must also agree to use a “fair and proportionate share” of available resources.
Further to that, benefit companies must also disclose an assessment of how they are meeting those stated objectives, measured against a third-party standard. And these legal requirements are enforceable against the corporation by shareholders. Mann says her firm has already received several inquiries about what is needed to become a benefit company.
Under B.C. corporate statute, which came into being June 30, there is now a process for converting a regular company into a benefit company. Ortved says “at its most basic, it requires a decision by a majority, normally two-thirds, of shareholders to pass a special resolution to approve the conversion. As well, a newly formed company can apply to become a benefit company.
Mann says most of the companies who have applied, or are interested in applying, already have “presented themselves to the market as having a corporate mission to promote products such as environmental technologies or sustainable business practices.”
But Ortved adds potential benefit company “could be any industry, any sector – there is a lot of flexibility in what a public benefit could be.”
The benefit company’s concept comes from the United States, where at present a corporate entity’s legal first duty is to its shareholders. Mann says this is in contrast to Canada, where “well-settled” law indicates that directors and officers of Canadian companies owe no outstanding duty to shareholders – they are required to act in the company’s best interests, taking into account the views of relevant stakeholders.
The absence of the “primacy of shareholders” concept in Canadian corporate law could be seen as making the need for benefit companies in Canada “somewhat redundant,” Mann says. Still, there are many good reasons for Canadian companies to consider getting this designation.
For instance, Mann says, global capital has made a significant push towards encouraging long-term, sustainable corporate behaviour. A benefit company’s shareholders are better able to enforce the goal of sustainable practices, and bench-marking those practices against third-party standards will help lead to greater transparency.
“Companies are getting pressured from investors, they’re getting pressured from employees and come up against sustainability objectives when attracting talent,” Becoming a benefit company cements that commitment to the environment.
As well, becoming a benefit company could have marketing advantages here and abroad. “There are a lot of companies that like to tell people they are walking the walk when it comes to sustainability,” says Mann. And becoming a benefit company, with the values of sustainability enshrined, helps send out that message.
Mann also wants to clarify that becoming a benefit company in B.C. is different from undergoing a certification process by a third party, such as B Corporations certification. Becoming a benefit company underscores the commitment to sustainability within the firm’s governing constitution.
Ortved notes, however, that since the benefit company legislation is so new, coming from passage of a private member’s bill in the B.C. legislature, it’s unclear how the courts will interpret some of its features.
“For example, we know there needs to be disclosure, about sustainability responsibilities and how they are being lived up to, but there’s no formal guidance on what that disclosure must look like.”
Another concept that might be tested, Ortved says, is the idea of a benefit company using it’s “fair share” of available resources? We don’t know what this means yet,” he says. “And that’s going to be one of the interesting things as the benefit company model develops in B.C.”