Emory Knoll Farms Becomes one of Maryland’s First Benefit Corporations
Businesses sign up to do good while doing well
Businesses register as benefit corporations under first-of-its-kind law
By Lorraine Mirabella, The Baltimore Sun
7:04 PM EDT, October 4, 2010
When a law took effect Friday allowing Maryland businesses to organize as “benefit corporations,” a hybrid of for-profit and nonprofit models that aims for public benefits as well as profits, John Shepley lined up early at the state tax office hoping to be a trailblazer.
For Shepley, who amended the charter of his wholesale nursery business in Street, Harford County, the transformation to a B corporation is largely symbolic.
“We’re a for-profit business, but our mission is very socially and environmentally oriented,” said Shepley, co-owner of Emory Knoll Farms Inc., which grows plants for green roofs. “There’s a big environmental benefit to green roofs. Since we started, we’ve always intended to run it as a socially and environmentally conscious company.”
Maryland is the first state in the nation allowing this new class of company. Under legislation signed into law in April, B corporations pay taxes and have shareholders but are shielded from shareholder lawsuits if the company chooses to channel some profits to benefit stakeholders, such as employees, customers, suppliers, the community or the local and global environment. A benefit corporation could share profits or make donations to improve the welfare of employees or suppliers or promote causes such as the environment or the arts.
“What we’re doing here is creating an opportunity for a company to be organized this way,” said Del. Brian J. Feldman, a Montgomery County Democrat who sponsored the House bill. “It’s an opportunity for corporations to brand themselves a certain way and a signal to consumers and investors that a corporate entity is prepared or would like to engage in activity to benefit the general welfare of the community.”
In some situations, he said, “the bottom-line profit is not going to be the single determining factor in dictating what a corporation may or may not do.”
Vermont this past spring passed similar legislation, which is not yet in effect. Nearly a dozen other states either have introduced bills or are expected to propose similar measures next year. Maryland B corporations won’t get tax breaks or any procurement benefits — yet. But supporters are hopeful that the movement will grow and eventually lead to such incentives.
For now, proponents hope businesses will think more about how they can not only make money but serve a public mission. Others say the designation could help attract investors seeking socially responsible businesses, or even bring new business to the state. Owners would have more negotiating room when selling a business because they could consider offers that made sense not only to shareholders but to other stakeholders as well.
The new law “provides corporations a Good Housekeeping seal — ‘we are socially conscious’ ? and it provides a board of directors a little more latitude in assessing business transactions,” said William A. McComas, a corporate lawyer and partner at Shapiro Sher Guinot & Sandler in Baltimore.
Shepley, the co-owner of Emory Knoll, which he and a partner started in 2004, says the new designation validates his business model. The B corporation idea, he says, simply makes good business sense.
In a traditional company, investments in ventures such as habitat restoration or solar energy would be viewed as detracting from the bottom line. But as a B corporation, “we’re not only allowed to do those things, we are encouraged, and our directors are protected from potential lawsuits,” though that is less of a concern for small businesses where shares are closely held, Shepley said.
“A for-profit company that operates in a socially responsible manner has an advantage over a business that doesn’t,” he said. “The investments we’ve made in socially responsible and environmentally responsible practices provide a positive effect on our bottom line.”
Shepley says his company pays a living wage and offers its employees generous benefits, practices that have resulted in low employee turnover. And he says investments in alternative and renewable energy, including solar-powered irrigation systems and heat generated by used cooking oil from restaurants, have shaved as much as half off the company’s fuel costs.
On Friday, the first day for the new certification, 11 people registered their businesses as “benefits corporations” with the charter division of the state Department of Assessments and Taxation, said Robert E. Young, the department’s acting deputy director. B corporations are required to file an annual report outlining public benefits.
Registering Takoma Park-based Blessed Coffee as a “benefit corporation” on Friday was “a dream come true” for Tebabu Assesa. The native of Ethiopia is establishing a business in which he will import coffee from a cooperative of small coffee growers in Ethiopia to roast and sell wholesale. He plans to give half his profits to the co-op for programs such as clinics and schools, a business model he believes will help attract investors.
“My whole idea to get into business was to promote economic sustainability,” he said. “Mixing business and social development previously was not compatible. But business can make a difference.”