Benefit corporations are new forms of business enterprises that are dedicated to improving corporate social responsibility without necessarily compromising the traditional laws of corporations (Post, Preston, & Sachs 2002). Although most of these corporations are privately owned, they have a legal obligation to create benefits to the society as well as to the shareholders. Their decisions and policies must, therefore, create a positive impact on their employees, the entire community as well as to the environment. This is often monitored through well-established third party standards that are mandated to evaluate their social and environmental impacts (Post, Preston, & Sachs 2002).
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In the United States, Maryland State became the first of its own to pass Benefit Corporation legislation in 2010. After this, several other states including California, Hawaii, Illinois, New Jersey, New York and others begun to adopt the policy (Hacker, 2005).
Ethical Issues in Benefit Corporations
In a traditional capitalist economy, private enterprises focus more on profit maximization and minimizing the cost. This can easily create room for policies that can be harmful to the rest of the society as well as the environment (Hacker, 2005). With the advent of benefit corporations, certain ethical values have been put in place to check on policies that can endanger the society even as the shareholders make profit (Carroll & Buchholtz, 2010). These ethical requirements demand that the directors of corporations only approve policies that would put into consideration the interests of all stakeholders including shareholders, employees, suppliers, consumers and the entire community (Post, Preston, & Sachs 2002). Furthermore, such policies must not be harmful to the global community and to the natural environment and must also be approved in full view of their long-term corporate effect to all stakeholders (Post, Preston, & Sachs 2002).
Advantages of Benefit Corporations
Since its inception in Maryland in 2010, the Benefit Corporations’ status has been associated with a number of advantages. To begin with, it encourages a business that does not only consider the financial profit made by the investors, but also the integrative social benefits to all stakeholders (Hacker, 2005). Furthermore, benefit corporations also enhance a high level of accountability in undertaking her business and social mission. This is mainly achieved through their annual reports that must include their social as well as environmental benefits (Hacker, 2005). Therefore, this high level of accountability leads to another advantage of benefit corporations known as branding. In such a case, investors use non-financial considerations to shape their decisions and frame their behavior (Hacker, 2005).
Disadvantages of Benefit Corporations
Although benefit corporations have gained a strong support from various public policy makers, it has proven to have a number of disadvantages. Since it has more social responsibility and liability, it limits the business goal of profit making (Jensen, 2008). It has also been observed that the high level of social responsibility that is expected from benefit corporations should have certain financial obligations of appreciation and facilitation. This fact also has not been realized since there is no legal mechanism through which the state or the public rewards such services by the corporations. Lastly, social welfare of a society is a complex phenomenon that requires fulfillment of various needs by various agencies hence limiting this to benefit corporations alone is an assumption that is not sufficient for development (Jensen, 2008).
Investing in Benefit Corporations
Despite the few enforceability problems, benefit corporations is a viable means of enhancing social good alongside the financial profit in business. However, this requires a number of modifications if the intended dual purpose is to be met (Hancock, 2005). For instance, there should be very clear legal framework of ensuring that the directors and officers of the corporations meet their social obligations. This is based on the observation that despite the stated social obligation, benefit corporations still remain more accountable to the shareholders rather than the society at large (Hancock, 2005).
For further formation and expansion of these corporations to remain justifiable, internal regulations regarding policies and procedures, organizational structure, reporting framework, rating and evaluation mechanisms need to be modified. Although the modification of benefit corporations is necessary for the achievement of the dual purpose that they are meant to serve, the B-Lab certification might still remain relevant. B-Lab is a nonprofit organization whose mandate is to monitor the effective use of business to solve both social and environmental problems (Post, Preston, & Sachs 2002). It might remain useful for a standardized and neutral evaluation of benefit corporations.
As a matter of fact, benefit corporations policy is a social economic investment policy whose objective is to enhance integrative social development alongside capitalist business. Although the policy is perceived to be people friendly, its implementation has been greatly challenged due to internal structures that when modified, can enhance effectiveness of the corporations.
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