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By Joe Boomgaard | MiBiz
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WEST MICHIGAN — When companies are born in Michigan, they have two options for how they can incorporate, as an S Corporation or as a C Corporation. But a new set of bills in Lansing would increase the corporate alphabet by adding a B Corporation, short for “benefit corporation,” to the options list.

Senate Bills 359 and 360 and House Bills 4615 and 4616, all of which garnered bipartisan support, would create the new class of corporation in Michigan. Five states — Maryland, Vermont, New Jersey, Virginia and Hawaii — have already enacted similar bills. Michigan is among six states that are currently considering such legislation.

Benefit Corporations function exactly the same as C Corporations in terms of taxation, but the new classification would give businesses the fiduciary duty to consider non-financial interests when making decisions as well as require accountability through annual reporting, said Jay Coen Gilbert, co-founder of B Lab, a national nonprofit organization championing the new classification.

“West Michigan blows me away,” Gilbert said at a briefing on the legislation held at Cascade Engineering in mid-July. “Every time we come to Michigan, we realize how much amazing stuff is happening here. Sustainability is as normally thought about as environmental activity. That’s part of a bigger trend of market-based solutions for social problems. … We’re trying to marry the power of business with civil society. The problem is the current system, particularly the legal system, which is not designed to support that act. We have bifurcated brains. Either you’re a mercenary businessperson or a bleeding-heart social servant, and never the twain shall meet. But we’re both, so how do we meet in one entity?”

To date, B Lab has built a community of over 425 certified Benefit Corporations representing more than 50 industries. Cascade Engineering is one of two certified B Corps in Michigan and is the largest certified B Corp in the nation with over 1,000 employees and 14 businesses. B Lab developed the standards to help certify those B Corps.

Gilbert said Cascade “elevates the movement” because the company is “doing good” at a scale far beyond what many small businesses can, plus it’s doing so while being in a manufacturing industry hit hard by the current recession.

But while Cascade is certified by B Lab as having the qualities of a Benefit Corporation, the legislation would allow companies to legally incorporate as a Benefit Corporation. In essence, the new classification would give the company cover with investors in making decisions that perhaps don’t contribute to the company’s profitability, but that do contribute to the surrounding community and to the environment.

“The legal obligations of the directors of companies is to act in the best interest of the (shareholders). The problem for mission-driven companies is they are open to the threat of lawsuit from one of the shareholders if they fail to meet their fiduciary duty,” Gilbert said. For example, a shareholder can sue the company for putting money toward some civic cause instead of investing that back into the company in a way that would make shareholders more money. “At the very base level, if you choose to run your business with attention to people, planet and profit, you should be legally protected to do so. Shareholders of a B Corp have an additional right … to enforce a higher standard of action for those corporations. That’s important for small- to medium-sized companies who want to make sure their mission is protected.

“(That demonstrates) something more than a mission statement. It’s something with teeth.”

Erik Trojian, director of policy for B Lab, said the new classification doesn’t cost the states any money since B Corps would not get any preferential treatment in taxation. He said the argument could be made that B Corps actually reduce the burden of local government because more companies would be empowered to “do things in their neighborhoods that they’ve not done before.”

Gilbert said that while B Corps don’t have any procurement, investment or tax credit attached to them, their attraction lies in the legal protection and market differentiation that comes with the new classification.

State Rep. Vicki Barnett, D-Farmington Hills, and State Sen. Mark Jansen, R-Cutlerville, both spoke at the briefing.

Barnett, the State House minority whip, said the legislation would create “the 21st century business model for sustainability.” She said businesspeople would no longer have to wait and create foundations to do good works with the money they made in business. Under the new model, “profits drive the mission,” she said.

Many family-owned businesses have long operated privately as mission-driven businesses, Jansen said.

“It’s in the heart and soul of West Michigan (to serve) a mission of some kind,” he said.

Both lawmakers expected the bills to go up for votes this fall and to pass both chambers. In other states that have passed the bills, the legislation has often gone though with unanimous support.

“Business is driving the train of our culture, but (many are looking for ways to) use that for a higher purpose than just amassing wealth,” Gilbert said. “We want to help reinvent capitalism for the next century, to create higher value for shareholders and our society at the same time and bring diverse folks together.”