Corporate

Incorporating 'public benefit' values brings rewards

By AdvocateDaily.com Staff

Canada’s corporate law regime provides a welcoming environment for the growing number of businesses recasting themselves as public benefit corporations, says Toronto corporate lawyer Peter Murphy.

B Lab, the organization that administers the B Corp certification bestowed on for-profit companies that demonstrate a commitment to sustainability and environmental responsibility, reports that there are now more than 200 Canadian companies operating in accordance with its values.

To gain B Corp certification, B Lab requires companies to alter their articles of incorporation to reflect a commitment to certain societal values, as well as a number of further assessments that score businesses for their accountability and transparency. They are then subject to recertification every two years and a failure to satisfy B Lab they are keeping up their end of the bargain could result in decertification.

But Murphy, a partner with Shibley Righton LLP, says companies don’t necessarily need the B Lab endorsement in order to reap the rewards of presenting themselves as a “public benefit corporation.”

“When a company hardwires social and environmental concerns into its DNA, it can help attract and retain customers and employees, and, in some cases, it may also have the effect of attracting additional investment,” he tells AdvocateDaily.com. “There are external benefits, but it may also have legitimate internal benefits by bringing these issues into the boardroom.

“People expect businesses to be looking at broader concerns than pure profit-making,” Murphy adds.

He says the development of “public interest corporation” has its roots in the United States, where it was controversial due to the requirement in U.S. law that corporations act in the best interests of shareholders.

By contrast, he says the Supreme Court of Canada has affirmed that the general duty of company directors to act in the best interests of the corporation may extend beyond the best interests of shareholders to encompass broader stakeholders.

“Essentially, the Supreme Court held that directors can consider factors other than maximizing corporate profits when making decisions in the best interests of the corporation, which is closer to the public benefit corporation model than the general duty of directors under U.S. law,” Murphy explains.

As a result, he says Canadian for-profit corporations can embrace the public interest corporation model by amending their articles of incorporation to include language “expressly permitting directors to consider the interests of other stakeholders in addition to those of the shareholders when acting in the corporation's best interests.”

Murphy says this permissive approach mitigates the risk of legal action accusing directors of straying beyond their mandates when considering issues other than profit in the course of corporate decision-making.

“I don’t think directors are looking for greater levels of risk, because they already face pretty significant accountability with derivative actions and oppressive remedies that provide strong means for various stakeholders to assert themselves,” he says.

"By taking a permissive approach, a public benefit corporation can establish that the directors shall consider the interests of the broader community, including the environment, when making decisions that are in the best interests of the corporation."

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