On January 1, 2012, the first day California-based companies could legally change their corporate status to become a ‘benefit corporation,’ Patagonia founder Yvon Chouinard marched into the office of the Secretary of State and filed papers to put his company’s principles into practice.
Yvon Chouinard founded Patagonia out of a small blacksmithing shop in an old warehouse in Ventura, California. It was a humble start with humble intentions — making gear and clothes inspired by his love for climbing and mountaineering, and doing so with a respect and awareness for the surrounding world. And over the years, as Patagonia expanded to the tune of more than 2,000 employees around the globe and roughly $600 million in annual revenue, Chouinard never strayed from his ethos of social and environmental responsibility. From sustainable manufacturing techniques to employee-friendly practices, Patagonia incorporated its social impact into the fabric of the company and was able to build a business that is also a force for good. So when California passed the better corporation legislation, there was no hesitation for Patagonia to make the change.
Registering as a benefit corporation meant that Patagonia was still a for-profit entity, but it now had voluntarily and officially placed its social and environmental pursuits on par with its goals of financial gain.
The company was now legally bound to create a material positive impact on society and the environment, to consider the impact of its decisions not only on shareholders, but also on employees, suppliers, customers, community and environment, and to publicly report its overall social and environmental performance. And by becoming a benefit corporation, Patagonia would not receive any tax exemptions or benefits over traditionally incorporated businesses. In fact, the company would be subject to more rigorous scrutiny of their policies and practices to ensure they are adhering to the utmost ethical standards.
It may seem like being a benefit corporation means being laden with rules and restrictions, and there is no clear upside for the corporation other than the intrinsic value of caring for the community and environment. But that is simply because the benefits aren’t so easily enumerated.
First, it is necessary to understand that sustainability initiatives can lead to financial benefit, and this is especially true for a benefit corporation. A benefit corporation creates a structure in which the company embeds sustainability into both its short-term and long-term business strategies. And through the creation and development of more sustainable business practices, the company will ultimately be able to elevate its efficiency in operations, finding better use and conservation of resources and reducing overall costs.
Another advantage of becoming a benefit corporation is that the business will be able to distinguish itself from other for-profit competitors who are purely in the business to achieve financial gain without concern for their social or environmental impact. This allows the benefit corporation to express its ethical priorities to the customers, which ultimately helps build brand identity.
Other businesses may decide to become benefit corporations to protect their social and environmental endeavors from outside influence. Traditionally, for-profit companies have been dominated by the ideology that their fundamental purpose is to achieve financial wealth and boost investor returns. Under that model, the pursuit of social or environmental goals subjects executives to the risk of lawsuits from shareholders solely interested in maximizing their profits. But as a benefit corporation, shareholders are just as important as the social and environmental goals. So companies like Patagonia do not have to worry about investors opposing their mindful mission, because those efforts are simply part of the company’s priorities.
The legal structure of a benefits corporation also protects a company’s social and environmental initiatives from future influence. Even with a new CEO or new investors, the company is legally obligated to consider both shareholders and stake holders (employees, suppliers, customers, community and environment) when making decisions. This means that the company’s mindful business and employee practices will be honored and preserved no matter what corporate changes may occur down the line.
Benefits corporations also help the company ensure it is not at risk of failing to respond and plan for future environmental regulations. It is estimated that companies will soon be required to cut carbon emissions by a significant percentage. This will inevitably impact the availability and costs of energy, which are expected to rise substantially. By addressing energy efficiency concerns now, benefit corporations will have an edge over their competitors in the future.
By giving equal weight to public benefit and profit, benefit corporations may also find an increase in employee recruitment and retention. Not only do people want to work with companies that have and demonstrate ethical priorities, they also want to work in an environment where they can have a more balanced work-life practice. At Patagonia, for instance, employees are provided with an on-site child development center, company-subsidized, locally grown organic snacks, free yoga classes, and even the freedom to set their own hours. And the result? Happy, productive workers that are dedicated to their jobs and to the company.
It may seem ironic, that by focusing on goals besides profit, benefit corporations are actually able to increase their wealth. But then again, wealth is so much more than financial gain. And that’s exactly the belief driving the growth behind benefit corporations.