It used to be that if you wanted to start a corporation and the end goal was not to maximize shareholder value (or other typical corporate goals), you’d start a not-for-profit corporation.  That’s no longer the case. Now in New York (and at least six other states) you can form a Benefit Corporation (a “B-corp”) which has other purposes besides making money.  There are also other strategies you can use in a for-profit company to give it more of an egalitarian feel.  We’ll discuss below.

In New York, a B-corp is a for-profit entity which must further certain defined public benefits.  Under NY BCL Article 17, a B-corp can be formed by including in its certificate of incorporation that the B-corp was formed for the purpose of creating “general public benefit” which is defined as “a material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.”

Existing NY for-profit corporations can amend their COI to provide for same with a supermajority of their existing shareholders.

All B-corps must have as a purpose the creation of a public benefit.  If any conflicts exist, between the public benefit, the maximization of shareholder wealth, or a specific benefit of the B-corp (these are discussed below), the public benefit prevails.

In addition to the general public benefit, a  B-corp may also have a specific  public benefit, which may be any of the following (from BCL 1702):

(1)  providing  low-income  or  underserved individuals or communities with beneficial products or services;

(2) promoting economic  opportunity  for  individuals  or  communities beyond the creation of jobs in the normal course of business;

(3) preserving the environment;

(4) improving human health;

(5) promoting the arts, sciences or advancement of knowledge;

(6)  increasing  the flow of capital to entities with a public benefit purpose; and

(7) the accomplishment of any other particular benefit for society  or the environment.

[NY BCL 1706].

B-corps, pursuant to NY BCL 1702(g) require that the B-corp’s activites are measured against a standard created and measured by a third party.  The records must be publicly available and also must detail information about director compensation and and majority shareholder information

B-corps are growing in popularity but are still very new.   There are also other options that have been adopted by regular for-profit corporations.  Some of these are more dependent on the individual values of the employees of the company.

I recently read a great article in Inc. magazine titled the 25 Most Audacious Companies.  One of the companies discussed was Morning Star, the world’s largest  tomato processor.  The company’s founder, Chris Rufer, organized the company so that there is absolutely no management.  It is self-managed or mutually-managed, meaning that employee decisions about what they do is determined by their commitment to other employees – they each sign  a contract (called a colleague letter of understanding (CLOU)) between themselves and the other employees of the company.  The CLOU is what “manages” each individual.

A company called DreamHost (also detailed in the Inc. piece) had its CEO chosen by an election of the employees.  The employees got to screen outside applicants and then vote anonymously for who they wanted to lead the company. The company is now drafting a constitution based on how things work in consensus building concepts used in open source communities. That is democracy.

Lastly, while not as extreme as some of the above there is the concept of giving every employee access to participation in an employee stock ownership plan.  After a certain amount of time at the company, every employee can have the right to participate, giving each of them a more vested interest in the outcome.  The smaller the company the more effective it may be.