Promoting a new type of socially responsible business in Rhode Island

Tanzi bill would allow ‘benefit corporations’ in R.I.

STATE HOUSE – Rep. Teresa Tanzi has introduced legislation that would give legal protection to Rhode Island for-profit corporations that have social and environmental missions.

The legislation (2013-H 5720) would create a voluntary option for businesses that have a mission other than profit to allow them to pursue that mission appropriately without risk of lawsuits from shareholders. Such “benefit corporation” laws currently exist in 12 states, including Massachusetts, Vermont and New York, and are being considered in 13 other states (besides Rhode Island), including Connecticut, this year.

For-profit corporations are responsible to their shareholders to dedicate themselves to one thing above all else: maximizing profits. While corporations can pursue activities that have a social or environmental benefit, such as making donations to community organizations, these actions must always be in the long-term interest of profit. If shareholders believe a director is devoting too much effort or expense on something that does not result in higher profits, they can seek the removal of that director or sue the company.

But benefit corporations, with the support of their shareholders, formally commit not only to turning a profit, but also to considering society and the environment in every aspect of their decision-making process. Examples of well-known benefit corporations include Vermont-based King Arthur Flour Company, an employee-owned company committed to environmental sustainability and volunteerism, and California’s Patagonia, Inc., a high-end outdoor clothing outfitter that funds environmental causes.

Allowing benefit corporations to incorporate in Rhode Island would encourage business growth and investment in Rhode Island, help attract socially conscious entrepreneurs to the state, provide high-quality jobs and provide businesses with freedom to help solve problems in society, said Representative Tanzi (D-Dist. 34, South Kingstown, Narragansett).

“We are all looking for ways to increase Rhode Island economic development opportunities. This is a great way we can give entrepreneurs more options and attract socially responsible or environmentally driven businesses to the state,” said Representative Tanzi. “Not only would we benefit from a tax revenue and jobs perspective, but Rhode Island would also likely be the beneficiary of the mission of these companies. Maybe they’d encourage more volunteerism in our communities and schools, or help bring innovation to our economy. We have nothing to lose and plenty to gain by inviting benefit corporations to make their home here in Rhode Island.”

Allowing benefit corporations in Rhode Island would come at no cost to the state, since the designation does not provide any tax break and has no effect on traditional corporations.

 Under the bill, businesses would need the support of two-thirds of all classes of their shareholders to convert into (or out of) benefit corporation status. Once a company becomes a benefit corporation, it is accountable to those shareholders both for making a profit and for pursuing its mission. Benefit corporations must produce, in addition to their annual financial reports, an annual benefit report that analyzes their impact on society and the environment that year, using one of several acceptable third-party reporting standards.

The adoption of the legislation would provide businesses more freedom and options, said Representative Tanzi, because benefit corporation status is entirely optional and because it would mean that companies that wish to pursue a mission in addition to profits would have the legal backing to do so without risk, if shareholders agree.

The legislation, which is cosponsored by Rep. Christopher R. Blazejewski (D-Dist. 2, Providence), Rep. Edith H. Ajello (D-Dist. 1, Providence), Rep. Jeremiah T. O’Grady (D-Dist. 46, Lincoln, Pawtucket) and Rep. Larry Valencia (D-Dist. 39, Richmond, Hopkinton, Exeter), had a hearing before the House Corporations Committee April 3.