"For Benefit Corps" thumbs up or thumbs down? -- Posted by Cairn Cross, of Fresh Tracks Capital, on his Facebook Page:
Today John Margolis posted a well written article on his news blog called "Corporate Values" (http://www.vermontnewsguy.
After studying the bill I decided that there were both positives and negatives and that I should be "neutral" and not be an advocate for, or an opponent of, the proposed legislation. I remain neutral today but find it interesting that quite a bit of the article was devoted to using the new law as a way to perhaps thwart the sale of a company. The example of the Ben and Jerry's sale to Unilever was cited. Theoretically, if B & J was charted as a for benefit corporation it might not had to have considered stockholder value as the primary motivator and it could have rejected the B & J offer. There is of course a counter argument which is that maybe B & J would not have successfully raised money from the public to began with if it was organized as a "for benefit corporation" because the investors would have been concerned that at the end of the day the company would not be managed for the financial benefit of the stockholders but instead would have been managed for another purpose, perhaps at the whim of the founders and the board.
My concern over S.263 at inception, and my continued concern particularly after reading the Margolis piece, is that the bill is not investor or stockholder friendly. Capital flows like water along the path of least resistance. Any barriers to this path, slow or divert the flow of capital. For instance asking investors to be patient as to liquidity or to take a lower return on their investment for corresponding risk, will slow the flow of capital. Similarly I fear that asking investors to have stockholder value subordinate to other "for benefit" values will be a barrier to new capital formation. The counter argument is that there are indeed a few pools of capital formed to invest in "B corporations" (which are similar to S.263's "for benefit" corporations) and there may be a pent up demand from investors who are not concerned about value but are concerned about other benefits.
So that's why I am neutral on S.263. However, I'd love to hear what the rest of you think.
(Cairn Cross' Facebook Post)
After studying the bill I decided that there were both positives and negatives and that I should be "neutral" and not be an advocate for, or an opponent of, the proposed legislation. I remain neutral today but find it interesting that quite a bit of the article was devoted to using the new law as a way to perhaps thwart the sale of a company. The example of the Ben and Jerry's sale to Unilever was cited. Theoretically, if B & J was charted as a for benefit corporation it might not had to have considered stockholder value as the primary motivator and it could have rejected the B & J offer. There is of course a counter argument which is that maybe B & J would not have successfully raised money from the public to began with if it was organized as a "for benefit corporation" because the investors would have been concerned that at the end of the day the company would not be managed for the financial benefit of the stockholders but instead would have been managed for another purpose, perhaps at the whim of the founders and the board.
My concern over S.263 at inception, and my continued concern particularly after reading the Margolis piece, is that the bill is not investor or stockholder friendly. Capital flows like water along the path of least resistance. Any barriers to this path, slow or divert the flow of capital. For instance asking investors to be patient as to liquidity or to take a lower return on their investment for corresponding risk, will slow the flow of capital. Similarly I fear that asking investors to have stockholder value subordinate to other "for benefit" values will be a barrier to new capital formation. The counter argument is that there are indeed a few pools of capital formed to invest in "B corporations" (which are similar to S.263's "for benefit" corporations) and there may be a pent up demand from investors who are not concerned about value but are concerned about other benefits.
So that's why I am neutral on S.263. However, I'd love to hear what the rest of you think.
(Cairn Cross' Facebook Post)
Planet has proven to produce artificial wealth and a roller coaster boom and bust economy. Yet corporate law requires that companies do exactly that.
So a Benefit charter protects directors who want to make decisions that are in the best long term interests of a company. Benefit corporations act in the best interests of all stakeholders, including shareholders. They are not "non-profit" or limited profit like the L3C. They make money in a prudent - I call it old-fashioned - way.
This law protects them.
Cairn, you know, I think there's no good reason to oppose S.263. Pass it into law and see how it flies. We did so with other novel corporation types including captive insurance and L3Cs. It's fun to kick the ball around hypothetically and conclude Benefit corps won't attract investors, but in terms of legislation I suppose it makes sense to let proponents to take the ball and run with it.
Will, in terms of stimulating investor interest, I think a feasible way to raise capital might be through bond offerings and/or convertible preferred shares. These types of investments are probably a good fit for investors with a long term view. ... See More
A Benefit corp might even offer investors a bond ladder opportunity. Briefly explained, the company would issue 5 year notes once a year for 5 years, or a series of 5 year, 6 year, 7, 8, 9 and 10 year notes simultaneously. The investor purchases equal amounts of each bond and receives a rotation of annual dividends. At the end of the term, the investor can either cash out or purchase a new set of bonds. This method diversifies total investment, reduces risk, offers tangible returns on a regular basis. The effect might be that investors would be more likely to appreciate the long term view and therefore agree with the board of directors to refuse a buyout from a company that does not align with the Benefit corps social mission.
Let me know if you need me to contact my reps and senators, ok Will?
As one with some experience at both building and failing in early-stage businesses targeting Consumer Markets, who's just beginning to learn about Capital Markets, I offer my 2 cents and welcome all feedback:
Most successful marketing efforts depend (among other things) on effective Market Segmentation. Effective segmentation is (usually) achieved by Segmenting Markets around Perceived Benefits to Buyers.... See More
When it comes to marketing Equity of a Corporation to Capital Markets, my general experience as a Marketer leads me to believe that the "Investor Benefits" of B-Corps (as Will Patten has beautifully articulated above) will be Valued by "Some Investors", for "Some Portions" of their Investment Portfolios. This is nothing more (or less) than a theory of strategic marketing Segmentation applied to Capital Markets. My response to Nate Freeman's question regarding "where's the need for Benefit Corp's that's not already been addressed by NPO's and L3C's, I would ask, "Where's the need for iPhones, when there are already so many other Smart Phones and MP3 players out there in the marketplace that cost less?" It's all about market Segmentation, Branding and great, targeted marketing. Not everybody has an iPhone and certainly nobody "needs" and iPhone. But there IS a market for them! I believe Equity in B-corps "Should" be appealing to certain types of investors for certain portions of their portfolios. That's only because I also believe that market-worthy Products and Services marketed by successful B-Corps must, by definition of "Success" be appealing to major segments of Consumers. Stakeholders and Society.
Earlier today, @BCorporation just tweeted and posted on their Facebook page (which I RT'd as @DavidRVT) an article totally relevant to this discussion, from the Impact Investor Blog: http://www.theimpactinvest
"Yet other companies become B Corps to raise capital. A number of the almost 30 financial services companies that are B corps have invested in other B Corps or extended financing to them. Two of them—RSF Capital Management and E3 Bank now require that their corporate borrowers use the B Impact rating system. New Resource Bank also uses the rating system as part of its assessment of potential lenders. B Lab recently signed an agreement with Investors’ Circle, the angel network for triple bottom line businesses, that also requires all companies that present at their conferences to submit themselves to the B Impact Rating System. B Lab is also working with groups in Singapore, in the United Kingdom, and in Toronto that are developing local social stock exchanges." http://bit.ly/aJIJ5N
My personal experience and outlook are 100% aligned with what James Smith has written above, when it comes to the First Order of Business for any Enterprise (whether Socially Responsible or Otherwise). As Unilever's first CEO of Ben & Jerry's, my friend Yves Couette, succinctly put it to the B&J's Leadership Team in early 2001 : "The least socially-responsible thing that any socially-responsible company can do is to go out of business. To be a sustainable, any business MUST return adequate profits to its shareholders."
In summary, I agree with those in favor of passing the VT legislation and letting the Capital Markets decide upon the value of the equity in B-Corps. As with any product launch, the Buyers decide! All my best wishes to you All!