Benefit companies: an overview from a corporate perspective
In Italy this model has seen a renewed media interest due to two major Italian pharmaceutical companies, Chiesi Farmaceutici S.p.A. and Aboca S.p.A., recently deciding to become benefit companies respectively in October 2018 and February 2019 respectively (press releases are available at the following websites: Chiesi Farmaceutici and Aboca).
1. Origins of Benefit Corporations and B Lab Model
The benefit corporations model started as a movement aimed at re-shaping the way for-profit corporations can carry out their business in order to create both profit and non-profit benefits.
This model is based on the “B Corp Certification” created and granted by B Lab, a non-profit global private organization. Specifically, B Lab evaluates how for-profit corporations’ operations and business models positively affect their employees, communities, environment and customers and awards its certifications to companies that meet the required high standards of transparency, sustainability and legal accountability. The goal of the B Lab and B Corps movement was to allow the directors of for-profit corporations to manage their businesses not only to the benefit of the shareholders, but also to the benefit of all other stakeholders (such as employees, communities and the environment, etc.) without breaching their fiduciary duties.
B Lab’s unofficial count is approximately 2,655 certified benefit corporations in 60 countries and involving 150 different industries (more information on the industry of each company is available here). Among the most famous benefit corporations in the world are Patagonia, Ben & Jerry’s, BlaBlaCar, Danone and Kickstarter.
Although initially the movement had no legal recognition and was not subject to any specific regulation, as of 2010, certain states in the US issued and implemented specific regulations on benefit corporations. In most of the cases, these regulations replicated the B Lab model, albeit with some adjustments. And starting in the United States, this legal framework has spread to various countries worldwide, including Italy.
2. Benefit Corporations in Italy
Benefit companies have been introduced in Italy with Law no. 208 of December 28, 2015 (Legge di Stabilità 2016).
Italy was the first European country to implement a regulation on benefit companies. According to the B Lab Europe calculation, approximately 200 benefit companies are based in Italy. This calculation does not include companies that have not amended their company name by adding the words “Società Benefit” or “SB” as provided for by the applicable law (therefore, the actual number could be higher). Unfortunately, the B Lab Europe website does not indicate the industry of each company; however, based on the latest news, it seems that companies in the Healthcare and Pharmaceutical industries are looking at this new business model with interest.
2.1 Qualification and corporate purpose of Italian benefit companies
In Italy, a benefit company is not a new type of business organization (such as a limited liability company or “S.r.l.” or a joint stock company or “S.p.A.”), but is a qualification that any type of company (whether a società di persone, a società di capitali or a società cooperativa) can decide to obtain by amending the corporate purpose in its articles of association. This means that a company can become a benefit company without the need to obtain any certification from a public authority or another third party.
The purpose of the Italian law was to promote the establishment and growth of companies that pursue one or more objectives considered to be “common benefits”, in addition to the typical purpose of distributing dividends to its shareholders by carrying out their economic activities. Benefit companies shall operate in a responsible, sustainable and transparent manner vis-à-vis individuals, communities, territories and the environment, cultural and social heritage, entities and associations as well as all other stakeholders. Benefit companies shall pursue one or more positive effects, or the reduction of negative effects, on one or more categories of the above-mentioned stakeholders, in carrying out their business activities.
2.2 Legal structure that applies to benefit companies
The qualification as a benefit company does not involve any benefit or advantage, such as tax incentives or derogations from the applicable corporate law as has been provided for innovative start-ups and PMI or “impresa sociale” under the relevant regulations.
The new regulation only provides for certain requirements and obligations with which a benefit company shall comply.
First, a benefit company shall specify, in their corporate purpose, which objective(s) of common benefit the company intends to pursue and must be managed in a way which balances the interests of the shareholders. The pursuit of the aims of common benefit and the interests of the stakeholders must be performed in accordance with the provisions of the articles of association. Consequently, the shareholders of an S.p.A or the quotaholders of an S.r.l. who have not voted in favor of modifying the corporate purpose shall have the right to withdraw from the company as per the relevant corporate law.
Secondly, benefit companies shall also identify the individual or individuals to be appointed with the role and tasks of pursuing said common benefit. The individual(s) will therefore be personally responsible for following the objectives of common benefit and the rules relating thereto, which have been specified in the articles of association, and at the same time the directors shall comply with their corporate duties as provided for in the articles of association and the applicable law. In other words, in the event of failure to comply with these obligations, the provisions of the Italian Civil Code regarding the liability of directors shall apply to the individuals concerned, depending on the type of business organization that the benefit company has (therefore a different liability regime and relevant remedies will apply if the benefit company is an S.p.A., an S.r.l. or a “società di persone” for instance).
2.3 Company name and annual report: a powerful marketing tool
Benefit companies can add the words “Società Benefit” (i.e. benefit corporation, in Italian) or “SB” next to their company name and use this name in the company’s securities and documentation and in communications to third parties.
The management body of the benefit companies shall draft an annual report detailing the pursuit of common benefit. This report shall be attached to the annual financial statements and shall include, among other items, the description of the specific objectives and actions implemented by the directors in the pursuit of the common benefit and the circumstances which have prevented the achievement of the above objectives (if any) and the new objectives the company intends to pursue in the following fiscal year. The report shall also provide an assessment of the beneficial impact the company has generated, using the external evaluation standard with those characteristics and relating those areas as set forth under the applicable law.
Here you will find, as an example, the annual report drafted by D-Orbit in 2016. The annual report shall be published on the company’s website, if available (provided that certain financial data in the report may be omitted).
Benefit companies that do not comply with the above are subject to the provisions of the regulations on false advertising and of the Italian Consumer Code. Furthermore, the Italian Competition Authority (AGCM – Autorità Garante della Concorrenza e del Mercato) carries out control over such companies.
3. Why Investors are interested in benefit companies
Investors like Andreessen Horowitz, Benchmark and, in Italy, Quadrivio e TT Ventures have invested in benefit corporations.
The analysis of 200 academic research papers demonstrated that 88% of investors highlighted that benefit companies achieve a better performance and higher profits; 80% highlighted that sustainability practices have a positive influence on the investment return.
According to the Global Survey of Institutional Investors carried out by Ernst & Young in 2015, 64% of investors believe that the companies are not adequately transparent on non-financial risks and that almost half of the investors exclude investments based on non-financial information.
Benefit corporations are rethinking their business strategies and objectives and are the pioneers that many other companies in the pharmaceutical field, as well as in other fields, will look to in the future to succeed in implementing a more responsible approach to the significant environmental and sustainability challenges our complex society is facing. At the same, this model could represent a very powerful marketing tool that could help companies to attract new investments, new customers such as the millennials or to increase the loyalty of current consumers.