Newsmakers June 27-July 10: Gessler rule stifles B corp signups

Many Colorado companies failed to register as public benefit corporations, despite a new law providing for the socially responsible designation, because Secretary of State Scott Gessler office has said it would require those companies to disclose their financials.

Earlier this year, just 55 companies had registered as public benefit corporations in Colorado, according to Gessler’s office. By contrast, 250 businesses registered in the first four months after a similar law was passed in Nevada. Colorado’s public benefit corporations law took effect April 1.

The designation, which safeguards businesses from shareholder lawsuits when they engage in socially responsible activities that don’t necessarily help maximize profits. In the past, businesses have been legally obligated to maximize shareholder returns and profits. Under this new classification, however, they can do such things as pay higher wages to employees or invest in environmental programs, for example, instead of devoting all their cash to the bottom line.

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Under a new law, businesses can register with the Secretary of State’s Office to attain recognition as a public benefit corporation. Gessler’s office, however, has said it may require companies that register to also file under the state’s Charitable Solicitations Act, which forces them to disclose their revenue and charitable contributions.

No other states require companies to register as a charity in order to be designated as a public benefit corporation.

Gessler’s rule has dissuaded larger, private companies from registering because they are wary of sharing their financial performance, said Erik Trojian, director of policy for Wayne, Pa.,-based B Lab. The nonprofit certifies what it calls “B Corporations,” or companies that meet its standards of social and environmental performance, accountability and transparency.

UPDATE

Gessler decided not to run for a second term as secretary of state, and that’s probably just fine with B corps supporters, who likely will look to incoming Republican Wayne Williams for a more favorable interpretation of the B corps law. More than two-dozen states as well as the District of Columbia have authorized B corps.