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Can I Get a Witness?! The Evolution of Capitalism

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It's not often we get the opportunity to witness history.

Thousands of visionary business leaders are building the foundation for the kind of systemic change that can create a new economy with millions of new high quality jobs and improve the quality of life in communities across our country.

Today, through their efforts, benefit corporation legislation sits on the desks of Governor Jerry Brown in California and Governor Andrew Cuomo in New York. It has reached their desks with accelerating momentum, having been signed into law by Republican and Democratic governors in Maryland, Vermont, New Jersey, Virginia, and Hawaii, and moving forward with broad bi-partisan support in Pennsylvania, North Carolina and Michigan.

These business leaders recognize that if we want to build a new economy -- one that is more inclusive, resilient, and sustainable -- we need a new kind of corporation.

Three things distinguish benefit corporations from traditional corporations: higher purpose, greater accountability and more transparency.

Higher Purpose

By explicitly affirming that the purpose of a benefit corporation is to "create a material positive impact on society and the environment," benefit corporation legislation unleashes the full creative power of humans to use business as a force for good, addressing our most challenging problems from poverty alleviation to environmental restoration.

Aside from its legal implications, this declaration of purpose sets those who make it free. Whether by law or custom, we believe and act as though business can have no purpose other than the maximization of profits. This belief is a psychological, if not a legal, prison that constrains our imagination and ability to live to our full potential as human beings.

A full life is a life of service to something more than oneself, whether that something be family, friends, community, the environment, society, or future generations. By restricting our economic life to the pursuit of purely selfish and material ends, we restrict our own development as humans by diminishing our capacity to serve others.

Greater Accountability

By voluntarily accepting legal responsibility to "consider the effects of their decisions" upon not only their shareholders, but also their employees, community, and the environment, benefit corporations recognize that business exists in the context of society, and ought to be accountable for its impact on society, whether or not that impact is captured by a financial statement.

Something as opaque to most of us as redefining the fiduciary duty of directors to include this "consideration" requirement, is really nothing more than putting into corporate law the higher law that we should do unto others as we would have them do unto us.

It is nothing more and nothing less. It is simple. It is profound.

In a system of corporate law that places an extraordinary, and well-founded, faith in directors' judgment, benefit corporation legislation simply expands the scope of those things about which we expect directors to exercise their judgment.

This provision originates in the belief that better process will result in better outcomes specifically for those interests (e.g. employees, community, environment) that are the new focus of directors "consideration." Benefit corporation legislation ensures that, at least in benefit corporations, a conversation is taking place in the board room and in the executive offices about the role of business in society that may not have been taking place before, or that wasn't taking place as consistently and thoughtfully in both good and bad business cycles.

And, importantly, this better process also has legal teeth. Shareholders of benefit corporations are given a right of action to enforce these higher standards of corporate purpose and accountability.

More Transparency

Finally, in addition to setting a goal ("to create a material positive impact on society and the environment") and establishing a process that supports achieving that goal ("considering the effect of decisions on all stakeholders"), perhaps most importantly, benefit corporations are also required to assess and share publicly their progress toward that goal.

Efficient and effective markets are built on transparency. If we desire a marketplace of businesses that voluntarily adopt a corporate purpose to "create a material positive impact on society and the environment," then we are well-served to require those businesses to be transparent about their overall social and environmental performance.

Credibility and comparability matter. An appropriately skeptical public and an increasingly discerning community of investors, recognize that selective self-reporting is not as useful as reporting the full story against a third-party standard.

Consistent with the legislation's market-based approach, benefit corporations are free to choose among many existing third-party standards, as long as the standard selected is "comprehensive, credible, independent, and transparent." This will accelerate the development of generally accepted standards for assessing overall corporate social and environmental performance, supporting an effective capital and consumer market for businesses that aspire to benefit society, not just shareholders.

The Evolution will be Televised

As a society, benefit corporation legislation is important because it builds the legal infrastructure for a new economy that is more inclusive, resilient and sustainable.

As individuals, benefit corporation legislation is important because it sets us free to use the power of business to pursue a higher purpose and because it provides us with the tools to reach our full potential as human beings.