Originally published at ilsr.org. By John Farrell and ILSR Research Associate, Matt Grimley.
The misunderstandings that from time to time occur between communities and the managers of electric-lighting companies will, to my mind, disappear entirely if the relations between the two are correctly founded on the basis of public control, with corresponding protection to the corporations operating this industry.
More than 100 years ago, standing in front of a crowd of investors, Samuel Insull articulated his vision for a responsive and responsible electric utility.
Fresh from building his own electric utility empire from Thomas Edison’s companies, Insull wanted his electric industry recognized as a natural monopoly with competition viewed as a threat the public good. Public regulation, he argued, would provide a reasonable and steady profit to the monopoly utility, while economies of scale of power plants would allow the utility company to deliver increasingly inexpensive electricity in service of the public good.
A century later, only half of Insull’s rough vision has come true. Most of today’s investor-owned electric utilities retain their century-old monopoly, but insufficient regulation has often left the public good by the wayside. Instead, investor-owned electric utilities (IOUs) have kept a laser focus on shareholders’ returns. They have built large, unnecessary fossil-fueled power plantswhen more energy-efficient approaches would cut consumers’ costs. They try to change electric rates in ways that harm the poor and elderly, then use public funds to help the indigent pay their bills. They spurn rooftop solar and customer-owned power generation.
In some sense, this behavior is no surprise. The regulatory scheme Insull imagined shaped two key profit motives for utility companies: selling more power and building more infrastructure. But neither makes sense any longer. Electricity demand has leveled off, and distributed, non-utility power generation is often less expensive than relying on utility shareholder capital.
Adding insult to the injury of the public good, investor-owned utilities frequently lobby against legislation in the public interest, from renewable energy to energy efficiency standards to community solar programs. They use their publicly-granted monopoly profits to oppose the public interest.
One new model is emerging, however, that offers an alternative to the traditional investor-owned utility, and aligns with fantasy of Insull’s original vision to simultaneously protect the public good. It’s the B Corp.
Green Mountain Power B-lines into a B Corp
In 2014, one electric utility in Vermont shuffled away from historic investor-owned electric utility trends. Green Mountain Power transformed itself into a B Corp, a designation that cements its commitment to sustainability, transparency and accountability. The certification, administered by nonprofit B Lab, mirrors legislation in most states allowing businesses to become “benefit corporations” that uphold similar goals.
A benefit corporation is an alternative corporate structure. Essentially, it changes the for-profit corporation, which may consider the public interest, into one that legally must pursue greater social goods and regularly report to shareholders on its progress. Failure to do so could trigger a shareholder lawsuit.
It was an easy decision for Green Mountain Power to join the well over 1,000 corporations publicly committed to working toward the public good. The company wanted to “become the Ben and Jerry’s of the utility world,” according to CEO and President Mary Powell. The ice cream giant, also a B Corp based in Vermont, won praise in the late 1980s for putting its social mission on par with its economic goals. More than anything, Green Mountain Power’s move reflected its embrace of changes (and threats) to the outdated, centralized business model still used by many electric utilities.
But unlike many of its counterparts, Green Mountain Power helped expand net metering across its home state. It also fronts the cost of retrofitting homes with solar and energy efficiency products (paid back via the utility bill) in a program that generates substantial cost savings for households. Green Mountain Power also built one of the nation’s first all-solar microgrids, and finances energy storage for customers. The utility, has mapped out its distribution circuits (shown below) to help solar developers see where’s there’s room to grow.
Even while adding more renewable energy to its fuel mix, Green Mountain Power has lowered its electric rates three times in the past four years.
As a vertically-integrated utility, Green Mountain Power controls everything from power plants to the distribution wires that connect to homes. But it decided to turn its gift of monopoly control into the “un-utility,” Powell says, to “really become an organization that was fast, fun, and effective.”
It was a culture shift that enabled the change.
Powell works in the same “colorful Costco” of an office as everyone else. Workers can come and go as they please. Everyone understands that the customer is at the core of the business model — a far cry from the conservative culture of most monopoly, investor-owned utilities, which prioritize shareholder value over the public interest in a decentralized renewable energy future.
“Culture eats strategy for breakfast every day,” says Powell.
The numbers tell part of the story.
Since Green Mountain Power sealed its B Corp status in late 2014, its net income — a central metric used to gauge the utility’s financial success — has not wavered from its general upward trajectory. The leadership at Green Mountain Power doesn’t expect that to change.
Gaz Metro, the Canadian energy firm that bought Green Mountain Power several years ago, has enjoyed a healthy run so far, Dorothy Schnure, a spokesperson for the Vermont utility, told ILSR in June. But those benefits have not shortchanged customers or the public interest.
“We want to keep a very stable rate path, and we want to earn healthy and stable returns for our investor, which we have done,” Schnure said. “Our approach has been if we serve our customers really well and we delight our customers and we look out for our customers, our investor’s going to be OK.”
Green Mountain’s leap to B Corp certification was a natural one. For years before, the utility had focused on policies supporting its customers and their communities. Company leaders insisted on upholding this corporate philosophy through acquisition talks with Gaz Metro a decade ago, when they made clear that the Canadian company’s parent — pipeline operator Enbridge, hotly contested for its environmental impact —needed to stay on the sidelines.
“Before we agreed to that purchase, we did a lot of due diligence in making sure that Gaz Metro’s philosophy would align with ours and that we would be able to continue working as a deeply conscious and socially-conscious entity,” Schnure said. “That’s how we operate and it’s part of what makes us so successful.”
Green Mountain Power might have been well-positioned to pounce on the B Corp process, but that doesn’t mean the utility’s work is done. To keep the certification, it must submit annual reports that support its status — a motivator, Schnure said, for Green Mountain Power to deepen its focus on sustainability and accountability.
B-coming a B Corp
Though Green Mountain Power is still the only utility to secure B Corp status, the path is open to other utilities doing the same. A utility can become a B Corp in any state, and most states offer legal “benefit corporation” designations.
Depending on the type of structure a company has, the process for solidifying a commitment to social good may include:
- Seeing if its home state has the legal framework to incorporate benefit corporations. To date, 30 states and the District of Columbia have adopted such legislation.
- Following the state process to become a benefit corporation. This usually includes amending its governing documents, then sealing support from a majority of shareholders to ratify the change. State filing requirements for these amendments are usually identical to tweaks related to any other corporate structure.
- Seeking the rigorous B Corp certification from B Lab, with or without the legal structure of a benefit corporation. The differences between a benefit corporation and a B Corp are listed here. Hint: the legal structure and certification are complementary.
There are more than 3,000 benefit corporations in the world. Of those, there are more than 1,600 benefit corporations registered as B Corps, spanning 42 countries and 120 industries.
B-lieving the Difference a B Corp Makes
Benefit corporations must do things differently than their brethren. If every utility were a benefit corporation, a number of utility actions over the past year might have played out differently. Note that this is not a wish list — benefit corporations must consider public goods.
Structuring as a B Corp or a benefit corporation isn’t a perfect antidote, even for companies considered beacons in the movement like Green Mountain Power. The Vermont utility has fielded blowback in the spring from people who live near an industrial wind project that one critic said is noisy enough to drive down their quality of life and erode home values.
In a letter to the editor published in the Manchester Journal, she questioned whether Green Mountain Power was responsibly building wind infrastructure, or if the the company was simply expanding its power-producing assets to boost its bottom line — a familiar strategy for investor-owned utilities.
Still, the B Corp and benefit corporation designations send a notable message and carry an unmistakable upside that — if widely adopted in the entrenched energy industry — could improve the way utilities engage with consumers.
For example, under a benefit corporation structure, it would have been tougher for NV Energy to lobby the Nevada Public Utilities Commission in 2015 to cut net metering rates, including a controversial retroactive measure that reduced reimbursement rates for already-installed projects.
Beyond triggering smaller payments for more than 17,000 Nevadans, the move pushed several solar developers out of the state. The utility justified its campaign by pointing to costs of net metering, but as a benefit corporation, it would have had to also factor in widely acknowledged benefits. Instead of lobbying to cut solar energy, the utility could have fought for it.
Then, in spring 2016, the Public Service Commission in Washington D.C. voted 2 to 1 to approve Exelon’s merger with Pepco — a decision that defied the mayor, numerous stakeholders and even its own prior order. Mergers aren’t unusual in the utility world, especially after the past two decades of unraveling anti-monopoly legislation.
But the consolidation trend exposes conflicts between public and private interests, showcasing the toll these deals can take on the public. With Exelon and Pepco, most criticism boiled down to Exelon needing to support its own generation with Pepco’s captive customers. Still, after a two-year fight, the transaction was finalized in June. Opponents plan to sue.
Given a benefit corporation law such as the one in play in Delaware — the most common place for U.S. businesses to incorporate — Exelon and Pepco directors would have had to consider all corporate constituencies in their merger application, not just stockholders and the highest bidder.
And then there’s Xcel Energy. After more than three years, and with almost 1,000 applications in the queue, the utility’s community solar programhas only three solar gardens up and running.
Calling it a “slow start” is understatement that sidesteps Xcel’s delay tactics. First, the utility rejected a value-of-solar pricing program intended for the community solar gardens. Then it refused to answer developer questions about grid location and muddied co-location rules of projects. Even after it started approving applications, Xcel continues to keep technical and financial information from community solar developers.
A community solar law took effect in 2013, but has been slowed down by Xcel Energy ever since. A benefit corporation likely wouldn’t have waited this long. By force of its structure, it could have prioritized the public benefit of the value-of-solar methodology. It could have treated the grid as a commons, freeing up information to solar developers — like Green Mountain Power did — instead of flexing its monopoly power.
It’s not that slapping a B-Corp label on a utility will make it good, but it will give the public additional leverage to demand the utility consider broader interests than its own.
Digging B-low the Surface
A shift toward the B Corp mindset aligns with a swell of public support for rules that favor energy efficiency and increased reliance on renewables. Largely over the past two decades, lawmakers in states nationwide have adopted standards for efficiency and renewable production — both key tools in the fight against climate change.
In recent years, Maryland regulators boosted energy savings targets for utilities in their state while California agreed to double its energy efficiency savings goals by 2030. Plus, a recent report from the Lawrence Berkeley National Laboratory shows states’ aggressive renewables policies — increasingly popular nationwide — deliver distinct benefits without driving up costs.
But it’s not just the public that want electric utilities to change. In the last year, there has been a rash of electric utility shareholder initiatives, all directed toward making their companies more sustainable:
- Shareholders of Madison Gas & Electric submitted a proposal to force more renewable energy generation, that was eventually withdrawn after the utility agreed to increase its use of renewables and collaborate with shareholders to evaluate opportunities to expand its renewables business
- Nextera Energy shareholders, facing opposition from the company, crafted a resolution for the to company consider sea level rise even as it reinforces old power plants built along the Floridian coast
- 8.5 percent of Ameren shareholders in May 2016 voted for a resolution requiring the company to adhere to a 30 percent renewable energy standard by 2030 — not enough support for outright approval, but enough to keep it on the ballot at next year’s shareholder meeting
- Nearly 40 percent of Entergy shareholders recently demanded that the utility increase distributed, renewable energy throughout its territory
According to a report from the Institutional Investors Group on Climate Change, electric utilities and their business models face a growing number of liabilities, shown below:
Source: Institutional Investors Group on Climate Change
Customers and shareholders of electric utilities want them to change in the public interest to address these risks. Regulators want them to change. Legislators are tired of the utilities’ pushback.
Most electric utilities are culturally and structurally reluctant to consider anything beyond shareholder returns, but they don’t have to be. Green Mountain Power shows that there’s a way to reconcile shareholder and the public interest, and that retaining a utility monopoly could make sense even if it’s no longer a natural monopoly.
Maybe it’s time for a Plan B.
This article originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter or get the Energy Democracy weekly update.
More Information
- Bradley, Robert Jr., “The Insull Speech of 1898: Call for Public Utility Regulation of Electricity (The origins of EEI’s support for cap-and-trade in today’s energy/climate bill),” Master Resource, April 29, 2010, https://www.masterresource.org/edison-electric-institute/the-insull-speech-of-1898/.
- The important text added to the governing documents usually includes: “… [The Director] shall give due consideration to the following factors, including, but not limited to, the long-term prospects and interests of the Company and its shareholders, and the social, economic, legal, or other effects of any action on the current and retired employees, the suppliers and customers of the Company or its subsidiaries, and the communities and society in which the Company or its subsidiaries operate, (collectively, with the shareholders, the “Stakeholders” ), together with the short-term, as well as long-term, interests of its shareholders and the effect of the Company’s operations (and its subsidiaries’ operations) on the environment and the economy of the state, the region and the nation.”
By Bruce Watson, The Guardian, 21 Nov 2013
Benefit corporations: can a legal designation boost sustainability? Benefit corporations, recognised in 19 states, are legally required to consider impact on their environment and society in business decisions,
As many executives have found, one of the biggest barriers to long-term corporate sustainability is, oddly enough, one of its biggest potential beneficiaries: shareholders.
This is because the traditional goal of a business – the maximization of financial gain – tends to prize short-term profit at the cost of long-term corporate (and societal) survival and growth. When those conflicts occur, shareholders can make a legal case that anything that reduces short-term profits is, arguably, corporate mismanagement.
Ultimately, then, corporate executives face a difficult quandary: How can they balance their short term responsibility to shareholders with their long term responsibilities to their companies, their communities, their workers and the environment?
Making it official
B Lab thinks that it may have a solution. The non-profit group already works around the world to promote the B Corps corporate stewardship standard, a certification program in which companies are evaluated based on their commitment to “social and environmental performance, accountability and sustainability”. Now, B Lab has developed benefit corporations, a new type of US corporate organisation that enables companies to give legal backing to their sustainability commitments.
First launched in 2010, benefit corporations are designed with an eye toward long term profitability and sustainability. Katie Kerr, B Lab’s director of communications, explains that, instead of focusing narrowly on shareholder value, benefit corporations work to support all stakeholders, including “entrepreneurs, worker and everyone else who is affected by a business”.
This notion of broader responsibility is actually written into the benefit corporation definition, and companies that apply for – and receive – benefit corporation status are legally required to adhere to it.
In addition to generating profits, benefit corporations must have a “materially positive impact on society and the environment; consider the impact of their decisions not only on shareholders, but also on workers, community, and the environment” and must publish a publicly available annual report that assesses their “overall social and environmental performance against a third-party standard”.
So far, 375 firms have benefit status, and they run the gamut from outdoor clothing company Patagonia to green engineering firm The Green Engineer to investment firm RSF Social Finance. Many benefit corporations are small businesses, but some, like Campbell’s Plum Organics division, are wholly owned subsidiaries of larger corporations.
Benefits of ‘benefit’ status
While it may seem onerous to take on the benefit-corporation responsibility, it can actually help a company realize its business goals while protecting its ideals. This was the case for Vermont flour company King Arthur Flour, which received benefit corporation status in 2012.
The 222 year-old private company is 100% employee-owned, under an employee stock ownership plan. This distinction gives King Arthur workers a voice in company governance and results in significantly higher pay than the industry standard, says Terri Rosenstock, King Arthur’s public relations manager. The company regards this policy as a key part of its mission, but its values wouldn’t be legally protected in the case of a corporate buyout.
“If someone wanted to buy us, we would only be able to look at numbers, at our strict profitability,” Rosenstock explains. “Now, we are legally able to factor in other considerations, like our values, our products, our employees and the effect that we have on our community.”
Before it applied for benefit corporation status, King Arthur was already B Corp certified, which means that, to a great extent, the move to become a benefit corporation has had a minimal effect on its corporate governance. But, Rosenstock claims: “Our designation as a Vermont benefit corporation has given us more security.”
That said, while benefit corporation status protects these companies from some legal attacks over the profitability of their decisions, it opens them up to other types of lawsuits. If stakeholders in a benefit corporation believe that the company is failing to live up to its social mission, they are allowed to bring a benefit enforcement proceeding, or BEP, against the company.
Depending on the individual state, its benefit incorporation laws and its legal interpretation of those laws, both the mechanism for levying a BEP and the available legal remedies could vary greatly. In general, though, BEPs can only be levied by people within a benefit corporation, or by third parties of the company’s choosing. This frees the benefit corporation from having to deal with outside critics who may question its social mission or sustainability performance. Arguably, though, this could also reduce valid public scrutiny.
Does this really change anything?
It takes only a cursory glance at the list of existing benefit corporations to see that these companies often follow a certain type. As a general rule, they already tend to be concerned with sustainability and often already have a larger social mission. And many, like King Arthur Flour, are already certified B Corps when they apply for benefit corporation status.
This was the case with New York’s Greyston Bakery, which saw minimal change to its corporate culture when it became a benefit corporation in 2012, CEO Mike Brady says. This isn’t to say that the switch to a benefit corporation has come without challenges. Brady notes that the benefit corporation certification came with a handful of short-term costs: “Among other things, we have to spend resources to document our activities and create our Annual Benefit Report, check that our suppliers adhere to our Supplier Code of Conduct, and research various environmentally responsible programs like clean energy,” he explains. “While it is difficult to see if these marginal costs have any immediate short term benefit, we are convinced that they will have a long-term ROI.”
Unlike B Corps certification, which is increasingly becoming a selling point among informed consumers, benefit corporation status doesn’t seem to carry a large promotional benefit.
King Arthur Flour’s Rosenstock, for example, says that the company hasn’t widely advertised its move to a benefit corporation structure. “We haven’t done much promotion around our designation as a Vermont benefit corporation, although we’ve shared our stories through our own social media channels, including our blog.”
Greyston’s Brady expects benefit corporation status will pay off, in the long term, with increased transparency and the growth of a benefit corporation community. The yearly reporting “makes it easier for people to see what we are doing and to compare us with other companies in the market,” he explains.
Creating a benefit ecosystem
Conversely, it also helps him find out about the activities of some of his corporate partners. “It has had a network effect of enabling collaboration between like-minded businesses,” he notes. “When I’m looking for suppliers, I seek out benefit corporations and B Corps.”
At this point, 19 states and DC have benefit corporation laws on the books, and fifteen other states have bills pending. Perhaps most importantly, Delaware – the state in which most of corporate America makes its home – recently passed a law enabling the creation of benefit corporations.
Brady believes that the growth of the benefit corporation standard will, ultimately, have a broad-reaching effect on America’s corporate culture. “As the number of B Corps and benefit corporations expand, I think it will help CEOs struggling to get support for sustainability initiatives.”
In other words, while companies like King Arthur and Greyston Bakery are using the benefit corporation standard to protect their individual business values, they may also be helping to change America’s overall corporate environment.
Bruce Watson is a New York-based writer who reports on finance, food and culture. He tweets @Bruce1971
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A Plan B for Every Monopoly Electric Utility?
BY JOHN FARRELL | DATE: 28 OCT 2015 |
Electric companies seemingly face a business “death spiral” because the 20th century rules for the electric grid make it a challenge to address stagnant energy demand and competition from energy-producing customers. The result is a utility-funded war on solar and other distributed power, and retrenchment on last century’s business model as many utilities try to gain certainty by taxing solar or requiring customers to pay more regardless of how much energy they use. But one investor-owned utility—Green Mountain Power—is bucking the trend and embracing a 21st century electricity system that’s driven from the ground-up by distributed renewable energy, storage, and smart grids.
A Different History
Green Mountain Power has distinguished itself from its peers for nearly a decade. In 2008, this utility serving 75% of Vermont’s electric customers testified to the state’s Public Service Board that it wanted to expand net metering by increasing project sizes, the capacity cap on projects, and pay a premium of 6 cents per kilowatt-hour—in addition to the retail energy rate—to solar producers because of the value of offsetting dirty, peak energy production.
In 2011, the utility completed its campaign to install 10,000 solar panels in 1,000 days, beating its goal by installing 26,000 panels.
In 2013, the utility was the first in the nation to rent cold-climate heat pumps to assist with residential heating and cooling.
In 2014, unlike many of its utility peers, Green Mountain Power supported quadrupling the capacity cap on net metering from 4% to 15%. The law also allowed projects under 15 kilowatt to be registered within 10 business days. The utility followed up on its support for expanding solar by breaking ground on a microgrid for Rutland, VT, combining 2.5 megawatts of solar with 4 megawatts of battery storage. The project provides resilient power in the event of a larger grid outage, and contributes to the utility’s goal of making Rutland the “solar capital of New England.”
Also in 2014, the utility announced a partnership with NRG to “remake the Vermont grid” by offering “community solar, energy management systems, micropower, personal power, electric vehicle charging and similar distributed energy offerings.” More broadly, the partnership is intended to “transform the distribution grid ‘to a market-based platform designed to create efficiencies and distributed energy solutions.’”
In 2015, the utility launched a program for customers to “share solar,” allowing customers with sunny roofs to host solar arrays at no cost. The customer would receive a portion of the energy, reducing their energy costs, and the remaining production would be available for purchase by other electric customers.
A Different Orientation
While Vermont’s largest utility has sided with its customers, other utilities continue to battle against them, in fights covering more than two-thirds of U.S. states (Vermont is notably absent from the list).
The difference?
Green Mountain Power is the only electric utility in America organized as a Benefit (or “B”) Corporation. B Corps are for-profit companies, but include “positive impact on society and the environment in addition to profit” as their legally defined goals. It’s like the “fair trade” label for coffee or the LEED standard for buildings, a way to differentiate between companies whose only goal is profit maximization and those that want the legal flexibility to think more broadly.
The utility has a vision for using the energy system to the greater benefit of all its customers:
GMP is at the forefront of a new energy system for Vermont that can improve lives, reduce costs, and be produced in a more environmentally and economically sustainable way. They are leading the transition from the traditional grid of the past, to one that is more resilient and reliable, and that uses a series of microgrids through renewable and clean energy generation and innovative energy storage solutions. This work will empower their customers like never before and increase their comfort in all Vermont seasons while fostering healthier, stronger communities.
Why Not All Monopoly Utilities?
The fundamental rule of the 20th electric utility system is granting government-sanctioned monopolies to most for-profit utility companies, to avoid costly duplication of electrical infrastructure and capture economies of scale for power generation. But the grid is built, and the scale economies for fossil fuels are undermined by the socialized health and environmental costs as well as competition from cost-effective distributed renewable power. The utility’s monopoly is increasingly un-natural.
One solution is to follow New York into the brave new world of regulated de-monopoly, changing the distribution system from just one piece of a utility behemoth into an open, competitive platform for delivering energy services. It’s removing the conflict of interest for utilities that own power plants that compete with customer-driven solar, energy storage, and energy management.
But an alternative to cracking open archaic monopolies would be to incorporate the public benefit into their corporate charter.* Instead of requiring utility commissioners and legislators to endlessly battle well-funded utility companies over incremental shifts toward a cleaner and more equitable energy system, bake it into their legal structure. Make every utility monopoly company a B corporation.
Most utility companies aren’t prepared to embrace the transformative opportunity to democratize the electricity system, whether due to inertia, conservative culture, or perceived conflicts with their profit-maximizing mission. They can’t envision a system in which the customer is king, and not the utility. And the tools we have to move utilities require enormous time, energy, and money to overcome the power of their economic and political incumbency.
Maybe it’s time for Plan B.
—
This article originally posted at ilsr.org. For timely updates, follow John Farrell on Twitter or get the Democratic Energy weekly update.
Photo credit: Martin Ringlein via Flickr (CC BY-NC-ND 2.0 license)
*Note: this wouldn’t change anything for government-owned municipal utilities or rural electric cooperatives, that operate under the auspice of democratic control.
Can electric utilities operate in the public good?
Posted on March 9, 2017 by dmguion
Kearny Generating Station in New Jersey. An obsolete baseline power plant converted to a peaking plant.
In 1898, electric utilities were in their infancy. Samuel Insull was head of Chicago Edison Company and president of the National Electric Light Association.
He proposed what eventually became their structural and legal framework. A regulated monopoly. He claimed his proposal was for the public good
A company had to build and maintain the necessary infrastructure to generate and sell electricity. That made the business a natural monopoly in his opinion.
Each utility would be vertically integrated. That is, it would both generate and distribute electricity. As such, competition would threaten the public good.
He argued that large utilities with a monopoly could generate and deliver the most inexpensive electricity. And they would earn a reasonable profit. Regulation would insure that the electric companies operate in the public good.
He proposed that state governments, not federal or local, should regulate utilities. They would set rates in exchange for protecting the utilities from competition.
Did the vertically integrated regulated monopoly ever truly work that way? It doesn’t any more. Regulations insist on the lowest possible rates at all costs. Suppose a utility wanted to stop using fossil fuels. No regulator would allow it as long as coal or natural gas costs less than other fuels.
The cost of alternative energy iscoming down so drastically. Solar and wind will soon be less expensive than fossil fuels. But the most efficient way to use them involves distributed energy and microgrids.
In other words, they bypass the utilities as they are now structured. And so utilities fight rooftop solar, net metering, and other recent innovations. They fear their business model can’t survive the onslaught. It’s easier to fight innovation than agree on how to change the business model.
Benefit corporations
A traditional corporation exists to maximize return on investment for shareholders. Whatever other goals it has must take a back seat to maximizing profit.
More and more corporations today have embraced Corporate Social Responsibility (CSR).
They make involvement in environmental protection or charitable activities a priority. They set up separate programs within the organizational structure to oversee these efforts. CSR has proven to benefit a corporation’s public image. Sometimes even bottom line.
But what if a corporation’s social intentions interfere with maximizing profit? Legally, shareholders can sue in court. And they will win.
Nowadays, many people start corporations with a social benefit in mind. They want to make a profit, but it’s a secondary consideration. Not long ago, they had to avoid taking their companies public if they wanted to maintain social benefit as their core focus.
Recently a new corporate structure has emerged, called the benefit corporation. Or for companies that want a more rigorous accountability, Certified B Corporations.
For the socially-minded, the benefit corporation has an important advantage over CSR. Benefit corporations define for themselves what measurable benefit they want to produce. That benefit becomes a core responsibility. It becomes equal to providing return on investment for shareholders.
Right now, 31 states have passed legislation that enables benefit corporations. Laws differ. In most cases, the laws require an annual report that measures how well they have met their social goals. The corporation rates itself against an approved standard.
By now, a majority of Americans want to work for or buy from companies with a social mission. Many people prefer not deal with companies that don’t somehow give back to society. Benefit corporations, therefore, can attract employees, investors, and customers from among these people
Well-known B corporations include Etsy and Patagonia.
Green Mountain Power as a B corporation
House with both solar panels and wind turbine
In 2014, Green Mountain Power in Vermont reinvented itself as a certified B corporation.
Instead of fighting net metering, it has expanded it. It helps customers retrofit their homes to be more energy efficient.
And instead of raising rates, it has lowered them three times over the last four years. Yet its net income continues to grow.
As a B corporation, it has defined sustainability as a core corporate function. It must demonstrate how it meets its environmental commitments in its annual reports. A certified B corporation can only maintain its status by seeking recertification every two years.
It still gets environmental complaints, but as a B corporation it has to take them more seriously than other utilities are required to.
Most utilities as regulated monopolies control both generation and distribution of electricity. When I first started investigating the impact of renewable energy on electric utilities, it appeared that their best means of survival was to abandon this structure.
Green Mountain Power remains a vertically integrated regulated monopoly. So far, of more than 2,000 benefit corporations operating in the US, Green Mountain Power is the only electric utility.
So far.
Perhaps others will see Green Mountain’s success as a model for reinventing themselves. It will require explicit commitment to support its customers and seek the public good. A level of public good Insull never imagined.
Related posts
Community solar has colossal growth potential
Up on the housetop: home solar energy going utility-scale
Will home solar kill electric utilities?
Sources:
How many benefit corporations are there? / Ellen Berrey, University of Buffalo, SUNY, University of Denver. May 5, 2015
Understanding benefit corporations / CT Corporation Staff, Wolters Kluwer. September 28, 2016
What if . . . your electric utility was a benefit corporation? / John Farrell, Renewable Energy World. February 14, 2017Posted in Green businesses Tagged b corporations, benefit corporations, electric utilities, Green Mountain Power, green power, public good, solar power, sustainability
End Monopoly Protections to Fix PG&E and Other UtilitiesMarch 18, 2019By ADAM B. SUMMERS
Also published in The Orange County Register Sat. March 16, 2019 Show More »52Shares
Questions are swirling about the future of Pacific Gas and Electric—and gas and electricity service in general in California—since the company filed for bankruptcy protection in late January. In light of PG&E’s safety and financial issues, some state officials have proposed replacing its board of directors, forcibly breaking up the company, or even having the state government take over its operations. San Francisco is considering buying up some of PG&E’s infrastructure assets and developing its own municipal utility.
But greater—or total—government control would only exacerbate one of the main problems responsible for the company’s failure: its government-protected monopoly status, which encourages inefficiency and a lack of responsibility while denying competition and consumer choice.
The state has bestowed regional monopolies on the “Big Three” investor-owned utilities—PG&E, Southern California Edison, and San Diego Gas and Electric—and heavily regulates their prices and business practices. This monopoly status is justified based on claims that, because of the large capital and infrastructure investments needed to provide gas and electricity, these markets are “natural monopolies” that favor a single operator, and thus cry out for government regulation and intervention. It’s as if somehow the normal laws of supply and demand do not apply to these “natural” monopolists.
This special carve-out of economic theory for “public utilities” is erroneous, however, as Loyola University Maryland economics professor Thomas J. DiLorenzo explained in his 1996 paper “The Myth of Natural Monopoly.”
“There is no evidence of the ‘natural monopoly’ story ever having been carried out,” DiLorenzo asserted, adding that “in many of the so-called public utility industries of the late eighteenth and early nineteenth centuries, there were often literally dozens of competitors.” New York City was served by six electric light companies and six gas companies during the 1880s, for example, and Chicago had 45 electric companies in 1907.
But, as economist Horace M. Gray observed in 1940, “between 1907 and 1938, the policy of state-created, state protected monopoly became firmly established over a significant portion of the economy and became the keystone of modern public utility regulation.” This trend prompted all sorts of industries—including coal, oil, radio, milk, agriculture, air transport and even real estate—to try to gain “public utility” status—and the windfall profits and lack of competition that would result from it.
In other words, the regional utility monopolies we see today are the result of politics and government intervention, not market forces.
Not all cities have electric utility monopolies, however, and the differences are stark. Economist Walter J. Primeaux studied competitive and monopolistic electric markets and concluded, not surprisingly, that consumers in competitive markets benefited from lower prices and better services. In what should also not come as any shock, while consumers preferred competition, utility executives generally preferred monopoly. Why shouldn’t they, when it allows them to pass virtually any costs on to consumers without fear of losing market share to competitors? As Pennsylvania State University energy and environmental economics professor Andrew N. Kleit noted in a November 2016 Wall Street Journal column, “Because utilities’ profits are a function of how much they spend, there is little incentive to cut costs and increase efficiency.”
Government mandates, such as California’s efforts to push for “greener”—and more expensive—energy sources, the cap-and-trade program and other environmental regulations have driven consumers’ energy bills up even higher. California energy prices are already among the nation’s highest, and additional unnecessary environmental restrictions, along with the financial fallout from the severe wildfires in recent years, will only hike them further.What consumers really need is competition, not more politicization of the gas and electricity markets. Political decision-making leads to waste, special-interest payoffs, and indulgence of the ideological whims of those few in power instead of economic realities. Free markets give consumers what they want—whether they are served by one company or 45. If enough consumers demand “cleaner” energy, the market will supply it.
The government need only lift its monopoly protections and its numerous regulations to allow greater competition and consumer choice. Even if a single company were to be the major energy supplier in one place at any particular point in time, the mere threat of competition would force it to operate more efficiently, producing better outcomes for consumers.
But that would require politicians and bureaucrats to give up the power to dictate how businesses and consumers should behave—and no longer assuming credit for taking action to “solve” the problems they have helped to create—and that would be truly shocking.ADAM B. SUMMERS is a Research Fellow at the Independent Institute.TwitterEmailAntitrust, Competition, and MonopolyBusiness and EntrepreneurshipEconomyEnergyEnergy and the EnvironmentEnvironmental Law and RegulationFree Market EconomicsGovernment and PoliticsGovernment PowerNatural Resources
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Brooklyn’s social housing microgrid rewrites relationships with utility companies
Rethinking businessGuardian sustainable business
Microgrids, promising energy self-reliance for communities, are growing in popularity as they become more affordable
Julian Spector
Staff writer at Greentech Media reporting on clean energy
Thu 17 Aug 2017 01.00 EDTLast modified on Wed 14 Feb 2018 12.42 EST
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Residents of a social housing complex in Brooklyn, New York, can’t stop another tempest like Superstorm Sandy from crashing through their city, but they can feel secure that it won’t cause a power cut.
In June, the 625-unit Marcus Garvey Village cut the ribbon on its very own microgrid, a localised network of electricity production and control. Rooftop solar panels produce clean power when the sun is up; a fuel cell takes in natural gas and churns out a steady current all day; when it’s more valuable to save the electricity for later, the largest lithium-ion battery system on New York City’s grid does just that.
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These contraptions – which cost $4m (£3m) to install – reduce the community’s monthly power bill by 10% to 20%.
“It helps keep the housing cost affordable,” said Doug Staker, co-founder of Demand Energy, the company that developed and operates the microgrid. Italian utility Enel acquired Demand Energy earlier this year.
In a disaster like the storm that ripped through the country’s eastern seaboard five years ago, many people will lose power. During Sandy, approximately 8m homes and businesses lost power, some for more than a week. But if this happens again, the complex’s microgrid will switch into what’s called island mode, isolating itself from the broader grid to run like its own miniature utility.
Residents need not flee to find safe temperatures, light and a phone charger because the community centre and critical offices can maintain power for about five days. And, if clouds clear, the solar power can charge the batteries again.
Community energy
Microgrids have been around for a long time, often featuring diesel generators hooked up to lead-acid batteries. But clean power microgrids are gaining popularity as they become more affordable.
Falling costs for solar panels and batteries are making them more economically compelling, and they have the potential to rewrite relationships between people and the big utility companies. Microgrids offer something that rooftop solar alone cannot: the ability to leave the grid entirely.
Just a few miles from Marcus Garvey, the experimental Brooklyn Microgrid – designed by tech company LO3 Energy – aims to let households with rooftop solar panels trade power among themselves, cutting out the middleman.
“We need to make energy a product and a service that people can purchase on their own and not rely on a large centralised entity,” one participant told the New York Times in March.
That sort of rhetoric has prompted consternation among utilities, which for a century have controlled electricity access.
If customers make and store electricity, they won’t need to buy as much from the utility. That could mean utilities don’t recover the costs of their investments and have to raise their rates, which hits customers who don’t have the wherewithal to install their own generating capacity.
“While tariff restructuring can be used to mitigate lost revenues, the longer-term threat of fully exiting from the grid (or customers solely using the electric grid for backup purposes) raises the potential for irreparable damages to revenues and growth prospects,” the Edison Electric Institute, a US utility industry group, wrote in an emblematic 2013 report (pdf).
Going it alone is hard work
Those irreparable damages have not yet arisen, largely because staying connected to the grid is almost always more convenient than switching to full self-reliance.
Turning solar panels and batteries into a microgrid requires adding an electrical switch to disconnect from the grid, a more sophisticated inverter and system controls to balance electrical supply with demand for every second of the day.
“It’s fairly complicated to set up your own microgrid and have enough generation resources to cover the load in the system,” said Bill Torre, director of energy storage and systems research at the University of California San Diego (UCSD), where he helps design one of the world’s most sophisticated microgrids.
Spray on and printable: what’s next for the solar panel market?
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The Marcus Garvey solar and fuel cells both produce a maximum of 400 kilowatts, but typical summer energy demand for the housing complex, including air conditioning, is 1,500 kilowatts, according to Staker. Fulfilling all that demand in island mode would take a lot more generation capacity; instead, the islanded microgrid powers critical functions to keep the community safe.
Successful microgrid business models have targeted larger sites (such as military bases and university campuses) with professional energy managers, in situations with specific needs.
“One of the primary benefits of the microgrid is improved reliability of service, and the cost and development of a microgrid is insurance to having a better degree of electric reliability,” said Torre.
In those cases, you pay a premium up front to prevent an even costlier outcome. And if the microgrid provides additional benefits on top of that, like cheaper utility bills and cleaner power production, so much the better. UCSD reports that its microgrid serves 92% of the campus’ electricity needs and saves more than $8m annually compared to buying that power.
New England states, still reeling from Sandy and subject to severe winter storms, have begun sponsoring clean energy microgrids to keep municipal governments up and running in a natural disaster.
Montgomery County, Maryland, contracted with a subsidiary of major utility Duke Energy to run a solar-powered microgrid at its public safety headquarters. This operates as a subscription service. The county government pays Duke for a higher level of reliability than was available from the grid before.
This project represents a possible turning point. Even if almost all customers find it easier to stay connected to the grid, efficient appliances and rooftop solar can reduce the volume of kilowatt-hours they purchase. Utilities can counter that lost revenue by offering new, more sophisticated products, like Duke’s.
Back in Brooklyn, the Marcus Garvey microgrid helps reduce peak demand for utility Consolidated Edison by consuming its own stored energy on the hottest days when New Yorkers crank the air-conditioning simultaneously, freeing up Con Ed to supply the other people who need more power.
The utility has an agreement to pay Marcus Garvey Village for using its stored energy to reduce demand on the grid at key moments. That local demand reduction contributes to a broader effort by Con Ed to avoid a $1.2bn electrical infrastructure upgrade by using cheaper, localised alternatives. That, in turn, saves all ratepayers money.
“Utilities are starting to see that as a bonus: let’s partner with this group and deploy these systems,” Staker said. “It’s more win-win.”Topics
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This discussion is closed for comments.Order by OldestShow 25Threads Collapsed
- PatLogan 17 Aug 2017 2:4023In June, the 625-unit Marcus Garvey Village cut the ribbon on its very own microgrid, a localised network of electricity production and control. Rooftop solar panels produce clean power when the sun is up; a fuel cell takes in natural gas and churns out a steady current all day; when it’s more valuable to save the electricity for later, the largest lithium-ion battery system on New York City’s grid does just that.These contraptions – which cost $4m (£3m) to install – reduce the community’s monthly power bill by 10% to 20%OK, that’s $6,400 per dwelling. For a 15% saving, taking the midpoint. At 5% cost of capital, and (say) another 3% for ops and maintenance that’s about $500/year, for that to be cheaper than conventional supply, each dwelling would have to be paying $3,400/year.The average US electricity bill across all users is about $1200-1300/year – and I suspect most occupants of these dwellings would be likely to use considerably less than that.OK, so there’s the security argument – but how long was power off for in Brooklyn – a matter of hours, on a once in decades event. And the microgrid can only supply a fraction of the demand from the buildings anyhow. There’s an argument for high security of supply at emergency service headquarters, military bases and so on – but is this a reasonable premium to pay for partial supply for a domestic structures?This bears all the hallmarks of a mix of greenwash and subsidy milking. What deperesses me is that the Guardian is so credulous about this stuff it couldn’t be bothered to do a simple cost calculation on the resultant supply. Share Facebook TwitterReport
- Mazter PatLogan 17 Aug 2017 3:2423Hiya, there’s some explanation of revenue and financing here:
Marcus Garvey Village MicrogridInnovative financing key to project executionThe Marcus Garvey project will more than pay for itself through a combination of incentives from Con Edison, along with ongoing revenue generated through participation in demand response and peak shaving power programs. The New York City Energy Efficiency Corporation (NYCEEC), a non-profit finance company that offers loans and alternative financing solutions for energy efficiency and clean energy projects, devised a financing approach that allowed a new business entity to own and operate the energy storage system profitably and financed the project with a 10-year non-recourse project loan. The Village’s owners, L+M Development Partners, and Demand Energy agreed on a “shared savings” operating model to cover debt service and share in revenue generated, allowing both to collaborate to produce the greatest return possible, and L+M had no upfront investment to install the system.
Also, this article
It Takes a Microgrid
explains that the local substation needed a $1.2bn upgrade to avoid overloads, though they are not common.Without initiatives like BQDM, the Brownsville substation would need a $1.2 billion upgrade to meet the stress created from the projected overload of 53 MW in 2018. Such an expenditure is even more difficult to justify because overloading is predicted to occur, on average, on only four days during the summer cooling season. But thanks to a new direction from the New York Public Service Commission (PSC) and as part of their Reforming the Energy Vision (REV) initiative, Con Edison has been empowered to solve the problem by making the grid more efficient, creating a new model for earning returns for shareholders. Share Facebook TwitterReport - PatLogan Mazter 17 Aug 2017 3:2934“explains that the local substation needed a $1.2bn upgrade to avoid overloads”I think the $1.2 billion is for upgrades to the entire network, Mazter, not to a single substation. In fact, you’d struggle to spend more than a few million on a substation, perhaps tens of millions at HV level.“The New York City Energy Efficiency Corporation (NYCEEC), a non-profit finance company that offers loans and alternative financing solutions for energy efficiency and clean energy projects, “So a subsidised loan… Share Facebook TwitterReport
- Show 4 more replies
- Mazter PatLogan 17 Aug 2017 3:2423Hiya, there’s some explanation of revenue and financing here:
- Androsupial 17 Aug 2017 7:3812Presumably the efficiency of a microgrid improves with scale … up to the size of – let’s guess – a utility company. Should we have a smart grid of multiple microgrids superimposed on, or running parallel to, the orthodox grid to achieve load balancing? And as microgrids cannot detach themselves 100% from the orthodox grid, yet benefit from its (almost) 100% availability, at what point do orthodox grids increase their charges by a whole lot? Ethically, as well as financially, if you want to break free of the utility grid, you have to do it all the way; anything less exposes the microgrid and tenants to extortion by the orthodox grid and utility companies.
he fossil fuel industry’s invisible colonization of academia
Corporate capture of academic research by the fossil fuel industry is an elephant in the room and a threat to tackling climate change.
Benjamin Franta and Geoffrey Supran @GeoffreySupran
Mon 13 Mar 2017 06.00 EDTLast modified on Wed 14 Feb 2018 12.02 EST
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On February 16, the Harvard Kennedy School’s Belfer Center hosted a film screening of the “Rational Middle Energy Series.” The university promoted the event as “Finding Energy’s Rational Middle” and described the film’s motivation as “a need and desire for a balanced discussion about today’s energy issues.”
Who can argue with balance and rationality? And with Harvard’s stamp of approval, surely the information presented to students and the public would be credible and reliable. Right?
Wrong.
The event’s sponsor was Shell Oil Company. The producer of the film series was Shell. The film’s director is Vice President of a family-owned oil and gas company, and has taken approximately $300,000 from Shell. The host, Harvard Kennedy School, has received at least $3.75 million from Shell. And the event’s panel included a Shell Executive Vice President.
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The film “The Great Transition” says natural gas is “clean” (in terms of carbon emissions, it is not) and that low-carbon, renewable energy is a “very long time off” (which is a political judgment, not a fact). Amy Myers Jaffe, identified in the film as the Executive Director of Energy and Sustainability at the University of California, Davis, says, “We need to be realistic that we’re gonna use fossil fuels now, because in the end, we are.” We are not told that she is a member of the US National Petroleum Council.
The film also features Richard Newell, who is identified as a Former Administrator at the US Energy Information Administration. “You can get 50% reductions in your emissions relative to coal through natural gas,” he says, ignoring the methane leaks that undermine such claims. The film neglects to mention that the Energy Initiative Newell founded and directed at Duke University was given $4 million by an Executive Vice President of a natural gas company.
Michelle Michot Foss, who offers skepticism about battery production for renewables, is identified as the Chief Energy Economist at the Center for Energy Economics at the University of Texas at Austin. What’s not said is that the Energy Institute she founded at UT Austin is funded by Chevron, ExxonMobil, and other fossil fuel interests including the Koch Foundation, or that she’s a partner in a natural gas company.
You may notice a pattern. The very experts we assume to be objective, and the very centers of research we assume to be independent, are connected with the very industry the public believes they are objectively studying. Moreover, these connections are often kept hidden.
To say that these experts and research centers have conflicts of interest is an understatement: many of them exist as they do only because of the fossil fuel industry. They are industry projects with the appearance of neutrality and credibility given by academia.
After years conducting energy-related research at Harvard and MIT, we have come to discover firsthand that this pattern is systemic. Funding from Shell, Chevron, BP, and other oil and gas companies dominates Harvard’s energy and climate policy research, and Harvard research directors consult for the industry. These are the experts tasked with formulating policies for countering climate change, policies that threaten the profits – indeed the existence – of the fossil fuel industry.
Down the street at MIT, the Institute’s Energy Initiative is almost entirely funded by fossil fuel companies, including Shell, ExxonMobil, and Chevron. MIT has taken $185 million from oil billionaire and climate denial financier David Koch, who is a Life Member of the university’s board.
The trend continues at Stanford, where one of us now works. The university’s Global Climate and Energy Project is funded by ExxonMobil and Schlumberger. The Project’s founding director is a petroleum engineer, and its current director is a reservoir engineer. Its current director also co-directsStanford’s Precourt Institute for Energy, which is named after (and was co-founded by) the CEO of a natural gas company (now owned by Shell). Across the bay, UC Berkeley’s Energy Biosciences Institute is the product of a $500 million deal with BP – one that gives the company power over which research projects get funded and which don’t.
Fossil fuel interests – oil, gas, and coal companies, fossil-fueled utilities, and fossil fuel investors – have colonized nearly every nook and cranny of energy and climate policy research in American universities, and much of energy science too. And they have done so quietly, without the general public’s knowledge.
For comparison, imagine if public health research were funded predominantly by the tobacco industry. It doesn’t take a neurosurgeon to understand the folly of making policy or science research financially dependent on the very industry it may regulate or negatively affect. Harvard’s school of public health no longer takes funding from the tobacco industry for that very reason. Yet such conflicts of interest are not only rife in energy and climate research, they are the norm.
This norm is no accident: it is the product of a public relations strategy to neutralize science and target those whom ExxonMobil dubbed “Informed Influentials,” and it comes straight out of Big Tobacco’s playbook. The myriad benefits of this strategy to the fossil fuel industry (and its effects on academic research) range from benign to insidious to unconscionable, but the big picture is simple: academia has a problem.
As scientists and policy experts rush to find solutions to the greatest challenge humanity has ever faced, our institutions are embroiled in a nationwide conflict of interest with the industry that has the most to lose. Our message to universities is: stop ignoring it.
We are not saying that universities must cut all ties with all fossil fuel companies. Energy research is so awash with fossil fuel funding that such a proposal would imply major changes. What we are saying is that denial – “I don’t see a conflict,” MIT’s Chairman told the Boston Globe – is no longer acceptable.
Two parallel approaches can help. First, mandatory standards should be established in climate policy and energy research for disclosing financial and professional ties with fossil fuel interests, akin to those required in medical research. And second, conflicts of interest should be reduced by prioritizing less conflicted funding and personnel.
One way or another, the colonization of academia by the fossil fuel industry must be confronted. Because when our nation’s “independent” research to stop climate change is in fact dependent on an industry whose interests oppose that goal, neither the public nor the future is well served.
Dr. Benjamin Franta is a PhD student in the Department of History at Stanford University, an Associate at the Harvard School of Engineering and Applied Sciences, and a former Research Fellow at the Harvard Kennedy School of Government’s Belfer Center for Science and International Affairs. He has a PhD in Applied Physics from Harvard University.
Dr. Geoffrey Supranis a Post Doctoral Associate in the Institute for Data, Systems, and Society at the Massachusetts Institute of Technology and a Post Doctoral Fellow in the Department of History of Science at Harvard University. He has a PhD in Materials Science & Engineering from MIT.
Business Horizons
Volume 60, Issue 4, July–August 2017, Pages 519-528
Accountability and the public benefit corporation
Author links open overlay panelNancy B.KurlandShow morehttps://doi.org/10.1016/j.bushor.2017.03.009Get rights and contentUnder a Creative Commons licenseopen access
Abstract
Can benefit corporations be held accountable for delivering requisite public goods? An oft-cited criticism is that they cannot, but little empirical research exists to support that claim. Based on an in-depth case study of the oldest corporation to amend its governing documents as a public benefit corporation (PBC) under Delaware law, this article suggests that a company can be held accountable for delivering requisite public goods when external mechanisms are accompanied by an organization’s internal commitment to self-awareness, learning, and measurement. In the case in question, the company established a three-pillar structure focused on professional engagement, community support, and charitable giving built on a 6-year-old sustainability initiative, accompanied by an adaptive learning culture, and driven by top-down and bottom-up efforts. Current challenges include measuring impact and branding the PBC to grow the company’s business.
Keywords
Public benefit corporationThird-party certificationCorporate accountabilitySocial enterpriseCorporate social responsibility
1. Benefit corporations: Focus on stakeholders, not just shareholders
A benefit corporation is a new legal form that requires for-profit companies to focus on stakeholders in addition to shareholders when making decisions. Benefit coporations were created and launched by B Lab with the first legislation that passed in Maryland in 2010; 31 states now have approved benefit corporation-related legislation (Benefit Corporation, 2017). Nearly 5,000 companies are incorporated as some version of a benefit corporation (F. Alexander, personal communication, March 3, 2017) and it is the most widely adopted social enterprise statute (Murray, 2014).
While interest in benefit corporations has increased in law journals (Cummings, 2012) and the popular press (Bend & King, 2014), there have been no in-depth, firm-level examinations of how companies have implemented any non-legal changes to accommodate this new legal status and, in particular, of how established firms have changed from a more conventional legal structure to a benefit corporation. The present article begins to fill this gap. It examines an environmental consulting firm’s journey through several structural iterations in its 43-year life before its most recent incarnation as a 100% employee stock ownership plan (ESOP)-owned public benefit corporation (PBC) under the Delaware statute (State of Delaware, 2016). It is the oldest company to date to incorporate as a PBC in Delaware, as most companies become benefit corporations when they first incorporate rather than converting years after their founding. Therefore, focusing on this company’s journey provides insight into how and why an established midsize company might transition to benefit corporation status, along with recognition of key challenges for companies, in general, that incorporate as such.
2. Are benefit corporations held accountable for public benefits?
The ostensible benefits of becoming a benefit corporation include building a distinctive brand; providing clear legal guidance to and protection of a board of directors that wishes to pursue social benefits; protecting a board of directors from an unwanted takeover bid; and avoiding problems associated with other new forms of social enterprises, such as the diminished profit incentive with the low-profit limited liability company (Koehn, 2016). However, these benefits may not materialize because the form relies on managers tending to other-regarding concerns while still retaining corporate incentive structures (Fischer, Goerg, & Hamman, 2015). That is, while companies should be held legally accountable for meeting their multistakeholder public benefits, only shareholders can exercise this accountability. A key challenge in the benefit corporation movement, therefore, is ensuring that managers and directors are held accountable to stakeholders other than shareholders (André, 2015, Reiser, 2011).
Typically, scholars approach this challenge from at least two directions. First, they ask: To what extent will the benefit corporate form enable companies to realize public benefits? The answer to this question relies on, presumably, the interpretation of ‘public benefit’ and whether the new corporate form increases incentives to expand focus to multiple stakeholders (or decreases incentive to restrict focus on shareholders). Second, scholars ask: To what degree are benefit corporations actually held accountable for realization of these public benefits? I address each question below.
To begin, some experts question the degree to which the benefit corporation really leads to public benefits (Koehn, 2016). Whose benefits should the benefit corporation pursue? A bit of background is necessary here. B Lab introduced a model statute, which the majority of adopting states have used (Murray, 2014). One notable departure is the state of Delaware, which distinguishes its benefit corporate form as a public benefit corporation (PBC). There are three primary distinctions between the two legislations (Murray, 2014, Plerhoples, 2014):1.
The Model requires a third-party audit1; the PBC does not.2.
The Model requires annual reporting to the public; the PBC requires biennial reporting and only to shareholders.3.
The Model requires the company to consider at least seven different stakeholder types in decisions, but provides little clarification as to the hierarchy of these considerations (Reiser, 2011). The PBC statute is more precise in that it requires that the PBC “identify within its statement of business or purpose pursuant…1 or more specific public benefits to be promoted by the corporation” (State of Delaware, 2016, §362). These benefits include, but are not limited to, “effects of artistic, charitable, cultural, economic, education, environmental, literary, medical, religious, or scientific or technological nature” (State of Delaware, 2016, §3622).
In short, the question of whose benefit to pursue is subject to wide interpretation in the Model legislation, while the PBC requires that the benefit be specified in the corporate charter.
While some scholars doubt the ability of the form to result in public benefits, others question the degree to which the benefit corporation is actually held accountable. One obvious assumption here is that the benefit corporation will not realize public benefits unless it is properly held accountable, a point to which I return later. Benefit corporations ensure accountability using three main mechanisms: the benefit enforcement proceeding (BEP), evaluation by a third-party certifier, and the annual disclosure/report. If a benefit corporation fails to meet its mission to create a general or specific public benefit, (only) shareholders can initiate a BEP in state courts (Camm, 2012). Thus far, the benefit corporation remains untested in courts, raising speculation as to how well the form will fare if shareholders legally challenge a company that is not meeting its public good goals (Murray, 2014). Moreover, the Delaware PBC statute does not require or even mention a BEP (Plerhoples, 2014), though it does allow for derivative lawsuits (State of Delaware, 2016, §367).
The third-party certifier and annual reporting mechanisms have also been questioned. The Model legislation requires a third-party auditor. Numerous third-party certifiers qualify to conduct assessments (Reiser, 2011), but most companies use B Lab’s Impact Assessment tool. Unsurprisingly, B Lab’s assessment tool is practically tailor-made for this assessment (Reiser, 2011). It has comparability across sectors, both qualitative and quantitative components, and B Lab now has years of experience serving the benefit corporation community. The thousands of companies that have chosen to use the assessment are a testament to the tool’s quality, utility, and scope. However, the B Lab Assessment covers a broad range of societal benefits, which could hamper a company’s ability to focus on delivery of specific benefits that are better suited to its business or culture. Additionally, hiring a third-party certifier to conduct an assessment can be cost-prohibitive for many of the smaller companies making up the vast majority of benefit corporations. In such cases, the responsibility, therefore, falls to the employees of that business, and self-reporting occurs. This self-reporting can diminish the credibility of the produced benefit report.
The PBC avoids these quandaries. Delaware’s statute does not require use of a third-party standard and only requires biennially reporting to shareholders, not to the general public. This leniency has been met with criticism. Delaware, the “recognized pacesetter in U.S. corporate law…seems to have merely consulted the [Model legislation] and created a new social enterprise form called a ‘public benefit corporation’” (Murray, 2014, p. 346). As a result, the literature has suggested that the Delaware statute will have less of an impact because it is more open to interpretation. However, perhaps because of this leniency, it boasts the largest number of benefit corporations.
In addition to cost as a deterrent to the third-party auditing, and resonant with the PBC’s lack of requirement for such, Cummings (2012) questioned, more fundamentally, its efficacy: “disclosure does not necessarily force introspection and internal change…On the contrary,” she argued, “evidence suggests that disclosure requirements, when tied to market pressures or other threats of sanctions, can impede innovation and adaptation” (p. 612) and “are ill-suited to the regulation of social welfare objectives” (p. 578). In short, the third-party standard, while effective in the ideal, may instead impede effective accountability in practice.
The last accountability requirement—publishing an annual or biennial disclosure report—has also met criticism. Despite the legal requirement to do so (Hemphill & Cullari, 2014), benefit corporations frequently fail to post an annual report on the public portion of their websites (Nass, 2014). Thus, this requisite accountability mechanism appears to be popularly flouted, leading critics to further question the legitimacy of the benefit corporate form.
To address the drawbacks of these external accountability mechanisms—the third-party audit and the disclosure report—Cummings (2012, p. 614) advocated for supplementation with an adaptive learning framework that would:
[require] not just regular monitoring of performance against mission, but also habits of observation, reflection, and analysis, a questioning attitude, proactive efforts to seek out hidden problems, the use of failures and mistakes as triggers for action, creativity and innovation, repeated trials and critical scrutiny of…results, acknowledgement of doubt, collaborative inquiry and mission development, conflict management, psychological safety, and robust communication across different levels of hierarchy and occupational specialties and across different peer organizations.
As such, Cummings advocated for a process model based in learning and reflection, whereby the organization holds itself accountable—that is, internally regulates—rather than relying exclusively on external sources.
The present study highlights such efforts of a larger benefit corporation ($100M+) to choose which benefits to pursue, to balance these alongside of shareholder concerns, and to self-audit. The organization created its own system of accountability that includes what resembles Cummings’ vision of an adaptive learning framework.
3. Study methodology
This study began in February 2015 with a general question: How are benefit corporations held accountable to have a positive material impact on the public good? In August 2015, I met the president and CEO (hereafter referenced as “CEO”) of the focal organization at the Academy of Management meetings in Vancouver, British Columbia, in a session on benefit corporations. After signing a nondisclosure agreement (NDA), I gained extensive access to data. The NDA covered disclosure of non-public information, such as internal memos, and not data created as a result of my work product, such as interviews, or that obtained from public sources.
To begin, I conducted a general investigation of the company, interested in how and why the company had become a public benefit corporation, with my attention focused on the interpretation of accountability. Data collection occurred between December 2015 and June 2016 and included more than 250 internal emails and personally received emails, as well as company slide presentations, internal memos, historical company documents, and interviews with 13 members of the company’s leadership and one outside member, all of whom the CEO identified as key change agents.
I used a semi-structured format and adapted questions depending on the interviewee. For example, I asked the vice president of a business unit specific questions about how he chooses which projects and clients to pursue. On average, the interviews lasted 60 minutes, resulting in over 400 pages of transcripts. General questions included: “What is your role with the company? What are you responsible for? What values describe your organization best? How has your job/role changed as a result of the ESOP/PBC status changes? Why did the company become a benefit corporation?” I also recorded the CEO’s remarks as a guest speaker to my senior undergraduate corporate responsibility seminar in March 2016.
Following each interview, I noted my first impressions of the data. To become even more grounded in the data, I recorded the interviews, had them professionally transcribed, and reviewed each transcript carefully. I reviewed all emails and internal materials at least twice, and often more. To help clarify and fill in gaps of my understanding, I emailed regularly with the CEO. To ensure accuracy, I asked the interviewees to review their attributed quotations and the CEO and executive team members to provide feedback on the complete manuscript.
4. Study site
The focal company, EA Engineering, Science, and Technology Inc., PBC (EA), is a consultancy specializing in environmental services for government and industry. It was founded in 1973 by a limnologist (fresh water biologist) who was at the time a faculty member at Johns Hopkins University in Baltimore, Maryland. In response to growing client demand to address the then-recently passed Clean Water Act, the founder decided to leave his tenured academic position to start the firm. It grew rapidly along with the demand for environmental services. The company went public in 1986 but reprivatized in 2001, with the founder assuming majority control (51%) and an outside investor, an architecture and engineering (AE) firm, taking the remaining 49% share. The company became a partial ESOP in 2005. Then, in 2014, through retained earnings and debt, the company purchased back the AE firm’s share and, under the direction of the CEO and CFO, converted to a 100% ESOP and PBC.
Headquartered in Baltimore, Maryland, and incorporated in the state of Delaware, today the company grosses over $100M in revenues, employs approximately 500 employees, and maintains 25 offices in 17 U.S. states and territories. Its core purpose is “improving the quality of the environment in which we live, one project at a time.” The company “provides environmental, compliance, natural resources, and infrastructure engineering and management solutions to a wide range of public and private sector clients” (CEO, personal communication, May 10, 2016) and largely employs natural and physical scientists, such as geologists, environmental scientists, ichthyologists, chemists, and engineers.
Companies EA’s size or larger that are first-movers in the benefit corporation space tend to be those that already have a national reputation for corporate responsibility (e.g., Patagonia). EA is different in that (1) it did not consider itself a first-mover type of organization (according to multiple interviews) and (2) it had not branded itself as socially conscious before (as compared to Patagonia, for example). So what was it about the benefit corporate legal form, and the PBC in particular, and the timing that prompted EA to switch its legal form yet again? The answer is that the company first considered becoming a full ESOP for the favorable employee empowerment, company independence, and tax consequences (CEO, CFO, General Counsel, personal communications, May 13, 2016), and only later realized that the timing was such to also allow the adoption of PBC status.
Beginning in 2012, the CFO, and then the CEO, considered transitioning to a full ESOP and a PBC. An ESOP is a “tax-qualified retirement [plan] created as part of the Employee Retirement Income Security Act (“ERISA”) in 1974 that enable[s] broad-based employee ownership” (Gilbert & El-Tahch, 2012). As of 2015, the National Center for Employee Ownership (2017) estimated that there were nearly 7,000 ESOPs covering about 13.5 million employees.
But where the ESOP restructures ownership, the PBC redefines social responsibility: “[B]efore, [the goal was] make money for the shareholders. Now, it’s make money for the shareholders and do a social good. [The social good part] wasn’t there before. It is now. It’s a fundamental change” (CEO, remarks to undergraduate senior CR seminar, March 31, 2016). In addition, given rampant consolidation in the environmental consulting industry, PBC status could help protect the company from an unfriendly takeover and further solidify its independence. Also, adopting the ESOP and PBC simultaneously illustrated the company’s prudence: “As with all times of change, it is often easier to make other changes simultaneously” (CEO, personal communication, March 15, 2016).
5. The five phases of change: Becoming a public benefit corporation
The company’s process to becoming a PBC consisted of five phases: awareness, inquiry, legal, implementation, and measurement. Table 1 details each phase, emphasizing implementation and measurement, which best capture the organization’s strategy for accountability.
Table 1. The company’s PBC transformation process
5.1. Phase 1: Establishing the conditions for awareness
The first phase (1973–2014) was the period during which the conditions for awareness of the PBC were established. During its 43-year history, the company experienced several structural iterations. From the company’s founding in 1973 to 1986, the founder maintained close control of the business. The experience of being beholden to external shareholders after going public in 1986 reinforced the company’s need to be independent. The founder referred to going public as “the biggest mistake I ever made” (Founder, interview, February 26, 2016). Others referenced it as a “near-death experience” (multiple interviews). As a public company, the firm’s decision-making responsibilities now included addressing the needs of faceless external shareholders. While the first few years in the public market were successful, the 1990s were not. During this period, the company experienced two failed attempts to install an outside president as profits sagged below analyst expectations. In addition to stock price and employee morale decline, the period culminated with U.S. Securities and Exchange Commission (SEC) accounting compliance problems caused by an accounting manager who compromised the company’s exacting standards for integrity. As a public company, EA had faced the need to prioritize short-term commercial activities. While the company was not legally a social enterprise at the time, the reaction of the company’s leaders to this period of its history echoes what Ebrahim, Battilana, and Mair (2014, p. 82) observed to be a risk of the social enterprise: “the consequence of mission drift for social enterprises…threatens their very raison d’etre.” Going public made it difficult for EA to maintain its reputation as integrating “the leading-edge science and technology and…tried and tested science and engineering” (Founder, interview, February 26, 2016). Their credibility—which “is what we sell” (Founder, interview, February 26, 2016)—was at stake.
5.2. Phase 2: Inquiry
The second phase on the road to benefit corporation adoption consisted of a three-part inquiry during which the company’s leadership questioned whether joining the benefit corporation movement aligned with the company’s mission. First, the CEO and CFO investigated the concept to determine if it was the right thing for the company—would the change in status match their business culture and mission? As a consensus-based organization, the CEO sought buy-in from his executive team as well as from the board.
Second, the company engaged in a period of intense questioning and research to determine if becoming a public benefit corporation was a viable option. As part of its determination, the company floated the idea by clients and employees to gauge reaction. Reactions came back neutral or positive (clients), or only positive (employees).
Given the conclusion that PBC adoption was right and viable for EA, the last question was how difficult would it be to reverse course if leadership changed their minds. The decision to “take the plunge” hinged in part on the fact that “the risk was mitigated…by our assessment that it wouldn’t be terribly difficult to undo our decision, should something very negative theretofore unforeseen develop” (CEO, email to author, March 19, 2016).
In short, this first phase extended over 2 years, during which the idea was vetted both internally and externally, with the lion’s share of the vetting happening once the AE firm’s deal to sell back its stake in the company was on the table. The company agreed to pursue PBC status adoption because it aligned with the company’s mission, and there was an exit strategy if necessary.
5.3. Phase 3: Legal
The third phase focused on determining how actually to reincorporate. EA was forced to move quickly, necessarily completing the transition in fewer than 4 months. The company spent about $750,000 on outside legal and advisory services to make the transition to the full ESOP and PBC, with about 10%–20% of those funds devoted directly to the PBC transition (CFO, CEO, email to author, May 10, 2016). On December 12, 2014, the company filed as a public benefit corporation with the state of Delaware. Compared to phases one and two, phase three transpired in a sixth of the time. However, had the company not been prepared to act, having laid the conceptual groundwork through casual investigation and introspection, the quick legal transaction would likely not have happened.
5.4. Phase 4: Implementation—Structural transformation
In the fourth phase, implementation, leaders asked: What does being a PBC actually mean on the ground? The answer unfolded in three steps: clarifying the corporate social responsibility (CSR) structure, gaining employee buy-in, and branding.
5.4.1. Step 1: Clarifying the CSR structure
After a year of strategic activities, including “on-the-road communication” and “8 months of assessment and plan formulation” (CEO, email to author, May 13, 2016), EA developed a “framework by which the Company will achieve its specific and tangible public benefits” (PBC Announcement Memorandum to Employees, December 23, 2015). The key aspects of this framework consisted of three pillars—professional involvement (the company’s everyday business), community support, and charitable giving—and was built on its existing sustainability foundation (PBC Announcement Memorandum to Employees, December 23, 2015).•
Pillar One: Professional involvement. The question about which “public benefit”—protection of the natural environment—to pursue was considered a ‘no-brainer’ (multiple interviews) because EA was already doing it. It just gave the company’s existing actions a label (multiple interviews).•
Pillar Two: Community support. The second pillar was the company’s goal to support its communities. The company measured inputs in terms of company support (e.g., lunch, t-shirts), mission-aligned volunteer events, STEM education, and paid employee volunteerism, which included developing a (paid and unpaid) volunteer time tracking system.
The company sought to highlight its commitment to volunteer time with an intranet reporting site. However, the company experienced pushback from employees who worried how management would use the data—even though the organization was “not specifically interested in the details of individual volunteerism activities or how many hours an employee may have posted in a given year, but more [that] as an organization this is the collective good…we provided” (COO, interview, June 2, 2016; email to author, June 3, 2016). Here, there appeared to be a lack of alignment between the perceptions of the leadership team and employees regarding the reporting program. These misalignments are not unexpected (Rodell & Lynch, 2016); what is more interesting for the purposes of the present article, and indicative of the company’s commitment to reflection and learning, was the CEO’s response to this challenge. He tackled the question head on by searching academic literature for answers and requesting input from key colleagues to help understand the nature of the resistance (CEO, email to company’s PBC Committee, April 11, 2016):
“The attached paper (Rodell & Lynch, 2016), just published in the Academy Of Management Journal, might have some relevance regarding our nascent volunteering program…It’s a heady paper—suggest you get through the theory development sections and the conclusions minimally. Specifically on our volunteer program, I have heard some push-back on any form of ‘contest’ to motivate volunteering…with some questioning whether this info could/would be used to judge employees by ‘management.’ (On that last one in particular, even though it may be frustrating for us management who were once not management, I think skepticism is a natural behavior especially given our scientific culture.) This article alludes to some possible reasons for those kinds of reactions…I could…see how our volunteer reporting system with employee names listed could be viewed negatively, especially by the more skeptical.”
This process of reflection, proactive effort, and internal regulation to seek out hidden problems resonates with Cummings’ (2012) adaptive learning framework, which I discuss later.•
Pillar Three: Charitable giving—Water For People. For its third pillar, the corporation chose to expand its commitment to a broader stakeholder community by committing to a single charity. In the past, charitable donations were not corporate-wide commitments, “but…efforts…localized to our offices” (CEO, email to author, May 10, 2016). The leadership team used four criteria to select a charity: “environmental mission; absence of advocacy activities which could conflict with our clients; be national or international in scope; and well-rated by third-party charity rating systems” (Draft Framework For EA’s Specific Public Benefits, Internal memo to Board of Directors, From PBC Committee, 2 November, 2015). In the end, they chose Water For People, a charity devoted to providing “access to reliable and safe drinking water and sanitation” globally (Water For People, n.d.). With its commitment to Water For People, corporate giving transitioned from a one-off process to a company-wide, annual charitable giving program in order to have a purposefully greater impact through a unified, company-wide effort.•
Other structural changes. The three pillars are among several strategic and structural changes the company implemented in order to meet its internal expectations as a newly crafted PBC. The leadership team created a PBC committee, co-chaired by the COO and the senior vice president in charge of EA’s client programs. They created the new role of director of corporate social responsibility. They merged the mandated PBC biennial report with the current CSR report, making it less dense, shorter, and with more infographics to make it more appealing to readers (VP & Service Line Manager & Director of Corporate Social Responsibility, interview, March 11, 2016).
The structure also empowered an internal company program, the Sustainers—employees from across the company who “serve as a point-of-contact for sustainability data” and a “conduit for distribution of sustainability guidance and materials,” among other like responsibilities (SVP & COO, Sustainability at EA; Opening Session: Welcome, Introduction, and General Information; Project Manager Training presentation, March 3, 2016, slide 21). This Sustainers Program had emerged in 2010 as part of the company’s sustainability efforts.
The company also involved employees in project-focused working groups, such as one to generate engagement with Water For People and another to create less-environmentally impactful marketing documents. With the engagement of the Sustainers and ad hoc working groups, the company effort became bottom-up, in addition to top-down, thereby evoking more employee participation.
5.4.2. Step 2: Employee buy-in
Leadership asserted that their responsibility was first to clients and second to employees, exemplified in such comments as “I’ve always felt that my first job was to our clients and second was to our employees” (Founder, interview, February 22, 2016). However, they also recognized early on that it was important to the PBC’s success to get employee buy-in first: “At the end of the day, if we’re not keeping the employees motivated, it’s next to impossible to serve anybody” (COO, Interview, June 2, 2016). Therefore, the structural changes outlined above were designed to operationalize CSR to engage employees.
5.4.3. Step 3: Branding
The third focus of implementation is branding to customers and prospective employees. Here the company’s concern is outward-focused to ensure both the movement’s success and that the company’s efforts in becoming and implementing changes as a PBC are not for naught. This includes the need to ensure EA’s status as a first mover, and explains why they allowed this author access for this project. Moreover, the outward focus is not only about justifying the transition as a business decision: It is about justifying it as the right direction for for-profit companies in general.
5.5. Phase 5: Execution and measurement
One impediment to expanding the benefit corporation movement is the lack of effective measures for success. Building on Ebrahim’s research (Ebrahim, 2010, Ebrahim and Weisband, 2007), Cummings (2012) argued that in comparison to disclosure through mandatory reporting, a more effective way for an organization to be held accountable is through an adaptive learning framework. This framework “is concerned with assessing, first and foremost, an organization’s capacity for organizational learning” (p. 614).
Reinforced by strong leadership, EA’s culture evinces strong internal regulation. The CEO regularly observes, reflects, and analyzes the company’s performance. He is known for voluble emails, often with academic articles attached. He seeks out disconfirming voices among his advisors. EA might be considered a learning organization, given its multiple structures. The company has a legacy of repeatedly trying and, when failing, trying again to achieve the structure that fits its strategy. Through this extensive dynamic of internal regulation, the challenge the company now faces is how to measure success as a PBC effectively.
As discussed earlier, the PBC form has been criticized for its perceived lack of accountability (Plerhoples, 2014) and because, while it does require companies to report biennially, it does not require a third-party audit. The assumption underlying this criticism is that a third-party audit allows for greater objectivity and, therefore, is a stronger mechanism of accountability,3 although some scholars have questioned that assumption (Hatanaka, Bain, & Busch, 2005; Hatanaka & Busch, 2008). Implicit here is that an organization needs an external force to hold it accountable. For without this external force, the social enterprise is more likely to experience mission drift.
Important to the discussion of mission drift is understanding what exactly can potentially drift. That is, for what is the company being held accountable? And to whom? How does one measure accountability success? This last challenge returns us to a criticism of the benefit corporation discussed earlier: To what degree is the PBC held accountable for the realization of its identified public benefit?
A logic model is one tool organizations use to measure the impact of their actions (Ebrahim & Rangan, 2014). The key components of the basic logic model are linking the inputs, activities, outputs, outcomes, and impacts (Ebrahim & Rangan, 2014). The difference between outcomes and outputs relates to proximity. More specifically, outputs are immediate results and relate to significant changes in people’s lives (Ebrahim & Rangan, 2014), outcomes are medium to long-term results that are “lasting results achieved at a community or societal level,” and impacts are effects on root causes—sustained significant change—and are measured in terms of communities, populations, and ecosystems (Ebrahim & Rangan, 2014, p. 121, Table 1).
The challenge for EA is how to link inputs to activities to outputs to outcomes in order to measure impacts on communities, populations, and ecosystems. Table 1(Phase 5) applies this model to EA. Ebrahim & Rangan (2014, p. 119) argued that:
It is not feasible, or even desirable, for all organizations to develop metrics at all levels of a results chain…The more important challenge is one of alignment: designing metrics and measurement systems to support the achievement of well-defined mission objectives.
While the company has made progress in assessing outputs and has begun to put in place metrics for outcomes, measuring impacts may be more elusive. For example, in terms of professional involvement, the company might follow the long-term impact of their clients’ projects. However, because the company does not own the project, long-term, systematic assessment may be difficult. Such efforts appear as more of a one-off: A project manager keeps tabs on a project she or he found particularly interesting. In terms of charitable giving, the CEO has joined Water For People’s Leadership Council, a body that reviews WFP’s strategy and progress, and will thus be better able to observe the impact of the charity on the ground. For the volunteerism initiative, impact might be more visible in terms of employee morale and recognition. Here, the company has increased its focus on employee volunteer efforts at its quarterly All Hands meetings, making volunteerism a more significant part of the organization’s ongoing conversation.
6. Implications for managers of prospective benefit corporations
This company’s experience and current challenges provide insights for others who might consider becoming a legal benefit corporation. First, becoming a PBC required a high level of trust in the top management team, a shared identity, and a strong and committed leader. Second, it required a thorough vetting process to determine whether the new corporate status would reinforce or transform the organization’s identity. Third, it allowed a greater intentionality about what the company did and why, which included figuring out what being a PBC meant to EA, and, in effect, refined the company’s understanding of its identity. Fourth, it required a measurement strategy. What was the company already doing? How could it then measure inputs, create new monitoring systems, and develop metrics to assess the benefits that the company provided or could provide stakeholders?
Fifth, the company needs to brand—externally and internally. Being a benefit corporation is not a significant differentiator yet; it is not clear when or if this status will benefit the company’s bottom line. And, while the board faces the legal accountability to consider non-shareholder concerns and report the company’s progress as a benefit corporation to its shareholders, the company is also accountable internally. If it does not deliver on its commitments, the company loses credibility with employees. Lastly, because of the speed with which the company initially had to implement the PBC, and because of the newness of the PBC structure itself, managers must expect that challenges will arise, as EA faced around communicating the changes to employees.
In short, the benefit corporation transformation requires both top-down and bottom-up driven efforts that lead to clearly articulated and measurable goals that are communicated so clients and employees understand how the changes affect their everyday work. This system—built on internal and external mechanisms—enables a company to hold itself accountable to its stated public good.
Acknowledgments
I would like to extend my appreciation to the company for allowing me access to write this article; to Douglas Hill, Ian MacFarlane, Peter Ney, and Frank Aquino for their comments on earlier drafts; and to Mario Williams for his help with background research on benefit corporations. All errors are my own.
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“It might be confusing to refer to the requirement under the Model as an ‘audit.’ While use of a third party standard is required, there is no verification or assurance requirement; the company can apply the standard itself” (F. Alexander, personal communication, October 9, 2016).2
“While the Delaware statute does require a specific benefit, it also requires consideration of impact on anyone materially affected by its conduct, and this matches up to the general public benefit requirement in the Model” (F. Alexander, personal communication, October 9, 2016).3
For example, see American National Standards Institute (2017) and Tanner (2000) regarding third-party certifications.© 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc.
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