By Sarah Davasher-Wisdom | GLI
Our region has the potential to realize an incredible opportunity during the 2016 Kentucky legislative session by passing House Bill 50, sponsored by Representative Kelly Flood (Lexington) and co-sponsored by Representative Steve Riggs (Louisville). By passing public benefit corporation legislation, which has made it through the House and is now under consideration in the Senate, we can access more than $1.5 billion in philanthropic dollars that are presently under-utilized statewide.
Public benefit corporations give businesses the freedom to consider public benefit in addition to profit. There is no added burden or cost to the state if public benefit corporation legislation is passed. This voluntary status has no impact on existing corporate forms, taxes, or government regulation. Essentially, this creates a no-cost economic development program for states by permitting a new market of social enterprises and impact investors.
Impact investors and social entrepreneurs are constrained by current law that makes it difficult to know when they are allowed to consider additional interests, such as public benefit. Due to this legal uncertainty, directors still fear civil claims if they depart from their fiduciary duties to maximize profit. This point was recently reaffirmed by the case eBay Domestic Holdings, Inc. v. Newmark, in which the Delaware Chancery Court stated that a non-financial mission that “seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders” is inconsistent with directors’ fiduciary duties.
Make no mistake: This legislation directly impacts our region. For that reason, I am traveling to Frankfort this week with multiple individuals, some interested in establishing their own public benefit corporations and others wishing to invest in them.
Thirty-one other states have passed such legislation and some have even reported revenue gains because of it. It has wide-ranging, bipartisan support; in fact, 13 states that have such legislation passed it unanimously. Indiana’s own public benefit corporation law took effect on Jan. 1, 2016.
Public benefit corporations are accountable and transparent. With a publicly available annual report outlining the company’s benefits to the community, shareholders are given the materials they need to enforce their rights and investors are able to determine if the company accomplishes their stated mission. Public benefit corporations produce this annual report of their benefits through a third-party standard. This allows investors and consumers to review the report to make an informed financing or purchasing decision. It also differentiates good actors from bad and prevents “green-washing,” which is dishonest representation of environmental impact.
Passage of public benefit corporations allows businesses, operating in the free market, to decide how they can improve society, then actively work to bring the vision to life. There are many public benefit corporations that are already household names such as Patagonia, Ben & Jerry’s, Seventh Generation, and Warby Parker. With the success found in other states, Kentucky must pass this legislation to attract, grow and retain great businesses that specifically declare a specific public benefit as central to their existence.
About the author: Sarah Davasher-Wisdom is the senior vice president of Public Affairs & Strategy for Greater Louisville Inc., the local chamber of commerce.