New way to mix private gain, public good

January 21, 2014 4:37 pm

New Way to Mix Private Gain, Public Good Posted: 7:06 am Mon, December 30, 2013 By Art Hughes   Volunteers (left to right) Stanley Taylor, Jaye Quarterman, and Robert Martinez unpack donated items at the Groveland Food Shelf at Minneapolis’ Plymouth Congregational Church. Finnegans Inc. donates profits from its beer sales to help Minnesota food shelf […]

New Way to Mix Private Gain, Public Good

Posted: 7:06 am Mon, December 30, 2013
By Art Hughes

 

Volunteers (left to right) Stanley Taylor, Jaye Quarterman, and Robert Martinez unpack donated items at the Groveland Food Shelf at Minneapolis’ Plymouth Congregational Church. Finnegans Inc. donates profits from its beer sales to help Minnesota food shelf operations, including Groveland. (Staff photo: Bill Klotz)

When Chris Hanson formed his company thedatabank in 1998, he wanted a way to reflect what he considered dual missions — one for making a profit and another for doing good things for society.  The business develops software that helps nonprofits raise money, among other things.

Hanson found, however, there is no legal means in Minnesota for profit-making companies to also hold themselves accountable to a publicly beneficial standard.

That could change with legislation heading for the coming session to create a new business category that straddles both for-profit and nonprofit designations. The draft statute would insert a new business category called a public benefit corporation, sometimes known as a B-corp.

“It provides legal protection for business owners and board members,” Hanson said. “They don’t have to make decisions based just on shareholder returns.”

Minnesota is just now getting up to speed on the idea. Twenty other states already have legislation enabling public benefit corporations. Minnesota’s pending legislation is unique among them because it gives an option of two different types of B-corp businesses. One would provide a general benefit, like improving the environment. The other would provide a specific benefit, like supporting Latino-owned startups through mentoring and consulting programs.

The current draft legislation is the second attempt in Minnesota. A similar bill was introduced last session, but opposition from the Minnesota Bar Association, among others, halted progress.

Since then, backers have enlisted the Bar and others in a series of discussions to refine the language.

“The new draft is more comprehensive,” said Heidi Neff Christianson, an attorney with Minneapolis-based Nilan Johnson Lewis and vice chair of the business law section of the Minnesota Bar Association. “It clears up language about how to transition in and out of public benefit corporation status.”

The language also creates a standard of conduct for the officers that, according to the legislation draft, “may not give regular, presumptive or permanent priority to … the pecuniary interests of the shareholders.”

What the legislation does not do is give a tax break or other public incentive for do-good businesses. So why do it?

“It’s a fantastic idea,” said Jacquie Berglund, CEO of Finnegans Inc., a for-profit beer brewing enterprise that donates its profit to its nonprofit food bank operation. “Everybody wins. [The B-corp law] positions the state to be a leader in entrepreneurship for the public good.”

Berglund believes it’s also a means to attract a growing number of investors who have the drive to give back while also making money. The New Hope-based Emergency Foodshelf Network calculates Finnegan’s donations put 86,000 pounds of fresh, local produce in the hands of hungry Minnesotans in the past year. The business has similar operations in Wisconsin, North Dakota and South Dakota.

“The structure will open a lot of doors,” Berglund said. She doesn’t anticipate changing the status of her current business, but hopes to incorporate a new incubator for socially beneficial businesses under the new law.

“Is this an earth-shattering change? No,” said Sen. John Marty, DFL-Roseville, who intends to introduce the legislation this session. “It’s sending a message to companies that want to make money — but also don’t just look at their bottom line — that we want them to come to our state.” Marty introduced the first attempt to establish B-corp legislation along with now-former Sen. Chris Gerlach, R-Apple Valley.

The new business category may have unintended down sides. Finnegan’s Berglund worries the lack of tax incentives could hamper donations to otherwise promising causes. Thedatabank’s Hanson also thinks the current structure allows companies too much leeway in setting what they think is publicly beneficial.

“I don’t think it has enough teeth to it yet,” he said. He sees a scenario in which a company could call itself a B-corp while providing little, if any, public benefit.

Backers say that may happen, but the new draft law requires B-corps to file an annual report with the secretary of state and allows a legal remedy if anyone thinks the company is not living up to its promise to help the public.

 

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