Changes to corporate law allowing the creation of a "benefit company", a form of corporation whose business, in addition to aiming to generate profits, promotes one or more public benefits, will come into force in British Columbia on June 30, 2020. The legislation, discussed in our June 2019 blog post and the first of its kind in Canada, allows new benefit companies to be formed and for companies that already exist to convert into benefit companies. How broadly this new variation on the corporate form will be adopted in Canada, by those starting businesses and by established business seeking a different vehicle, remains to be seen, but current trends of increasing commitments to corporate sustainability and purpose augur some enthusiasm.
A benefit company is still a corporation, still governed by the Business Corporations Act (British Columbia) (the "BCBCA"), and that act will apply to benefit companies similarly to the way in which it applies to other permitted variations on the corporate form, such as the "unlimited liability company" and the "community contribution company". However, B.C.'s new benefit companies differ from their counterparts in the two key areas of governance and disclosure.
As to governance, benefit companies must include in their Articles – the governing document of a BCBCA company – a provision that sets out the public benefits the company will promote1 and a commitment to promote those public benefits and to conduct the company's business in a "responsible and sustainable" manner. Conducting business in a responsible and sustainable manner means, under the BCBCA, taking into account the well-being of persons affected by the operations of the benefit company and endeavoring to use a fair and proportionate share of available environmental, social and economic resources and capacities. In other words, unlike a regular limited company, the purpose of the benefit company is enshrined in its constitution, along with a promise that the purpose will be pursued sustainably and responsibly.
To give teeth to these commitments, the BCBCA creates a new duty for directors and officers of benefit companies to act honestly and in good faith with a view to conducting the business in a responsible and sustainable manner and promoting the public benefits specified in the Articles. This duty must be balanced with the duty to act honestly and in good faith with a view to the best interests of the company.
Notably, and consistent with the fundamental principle of Canadian corporate law that a director's and officer's duty is to the corporation itself, not to any one group of stakeholders, directors and officers of a benefit company have no duty to a person whose well-being may be affected by the company's conduct or to a person who has an interest in one of the company's enumerated public benefits. In other words, while corporate leaders must aim to achieve the benefit company's purpose by sustainably promoting its public benefits, and in doing so must ensure that they have considered the interests of all affected stakeholders, their duty remains solely to the benefit company itself. Further, this new duty may only be enforced by shareholders, and only for non-monetary relief.
As with governance, disclosure for benefit companies is tied to purpose and sustainability.2 Benefit companies will be required to produce and publish a "benefit report" each year with both qualitative and quantitative elements of disclosure. First, the report must disclose how the company demonstrated its commitment to conducting its business in a responsible and sustainable manner and promoted the public benefits specified in its articles. Second, the report must disclose the directors' assessment, against a third-party standard that must meet prescribed requirements, of the company's performance in carrying out those commitments. The prescribed requirements have not yet been released, but the number of third party standards for sustainability disclosure that have recently gained traction are likely to be useful to benefit companies in crafting their benefit reports.3
A Vehicle for Contemporary Capitalism
A recent article by three influential commentators encouraged major corporations in the United States – particularly those receiving government subsidies, but extending to any that have stood for a more stakeholder-centric governance and commitment to corporate purpose – to convert to benefit corporation status, and for institutional investors to support those conversions.4 Their reasoning is that while statements of corporate purpose and integrated reporting have proliferated, boards and executives are not bound under traditional corporate law in the United States to adhere to them. Converting to a benefit corporation, they say, would make "the corporation's duty to fulfill its Statement of Purpose, and respect stakeholders and society, binding."
The new benefit company provisions in the BCBCA are slightly different than in Delaware and, in Canada, the advantage of a benefit company as a purpose-driven vehicle over the traditional form of corporation is less stark.5 Nonetheless, the strains of our time, not just in the corporate governance discourse, would be well-served by a vehicle that explicitly aligns the interests of those who have invested financial capital with those of others who have a stake in corporate decision-making. In that sense, as western capitalism proceeds through the crossroads at which it finds itself, the time of the benefit company may have come.
1. Under the BCBCA, a public benefit means "a positive effect, including of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature, for the benefit of (a) a class of persons, other than shareholders of the company in their capacity as shareholders, or a class of communities or organizations, or (b) the environment, including air, land, water, flora and fauna, and animal, fish and plant habitats." In other words, it can encompass just about any lawful purpose, so long as that purpose can be pursued responsibly and sustainably.
4. Purpose With Meaning: A Practical Way Forward, posted by Robert G. Eccles (Oxford University), Leo E. Strine (Harvard Law School) and Timothy Youmans (Federated Hermes), on the Harvard Law School Forum on Corporate Governance, on Saturday, May 16, 2020.
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