Kentucky's 'B corp' law seen as boon for companies with social mission
A new law will legally recognize so-called public benefit corporations in Kentucky, allowing them to identify a specific social, environmental or other purpose in their incorporating documents. It would take more than 90 percent of a company’s shareholders to make any changes.
LOUISVILLE, Ky. (WDRB) – Scott Koloms’ commercial cleaning company was certified as a “B corporation” last November, a designation that recognizes Facilities Management Services’ goal of doing more than simply making money.
FMS aims to pay its employees for 3,000 hours of volunteer time, reduce vehicle emissions and increase the use of “green” chemicals in the office buildings, schools and other facilities it cleans. Among other things, the company seeks to pay its employees a living wage by the start of 2018.
And unless 75 percent of the goals are met, Koloms said, FMS executives don’t get raises or bonuses.
“We’re embedding, within the way we do business, a social mission,” he said. That mission involves providing educational and other opportunities to its employees.
There are more than 2,000 such companies worldwide that are certified by the nonprofit B Lab, including Ben and Jerry’s, Patagonia and Etsy. FMS is one of two in Kentucky.
But starting in July, it and other companies can take those mission statements a step further.
A bill passed by the Kentucky General Assembly and signed into law by Gov. Matt Bevin last month will legally recognize so-called public benefit corporations.
As a result, they will be able to identify a specific social, environmental or other purpose in their incorporating documents. It would take more than 90 percent of a company’s shareholders to make any changes.
Koloms said his company plans to reorganize as a public benefit corporation once the law takes effect, allowing it to maintain its mission even if he leaves or some investors push for a more profit-driven approach.
“Maybe I decide to go write a book and quit and somebody else comes in and becomes majority owner,” he said. “It protects the social mission, so those investors that invested because they appreciate the way we do business now have a legal stance to say, ‘Well, wait a minute. We need to keep doing what we said we were going to do.’”
Advocates for the bill, such as the Greater Louisville Inc., chamber of commerce, believe the change will make Kentucky more business-friendly and attract new companies, employees and entrepreneurs, especially younger workers and investors.
GLI began pushing for a change in the law several years ago at the urging of entrepreneurs, said Sarah Davasher-Wisdom, the chamber’s chief operating officer. At the time, about 30 states had laws recognizing such corporations.
“If you were in a state that allowed them, you were going to be far more likely to grow businesses,” she said.
Kentucky state Rep. Jerry Miller, a Republican from Eastwood in Jefferson County, sponsored House Bill 35 and said the measure will allow certain companies to have more than one purpose without the risk of shareholder lawsuits.
“There’s a lot of interest in starting and working for socially responsible businesses, and it’s particularly popular among Millennials,” he said. “There is an entire group of investors now referred to as ‘social-impact’ investors that they want to invest in that type of company.”
“What this does is it gives Kentucky a seat at that table, a seat when we’re competing for those investment dollars,” Miller said.
He noted that companies' public benefits could encompass a wide range of social concerns, including religious purposes.
In Henry County, Ky., Victory Hemp plans to emphasize its commitment to Kentucky agriculture when it becomes a public benefit corporation this year, founder Chad Rosen said.
The hemp products company now buys hemp seeds from six farmers in Henry, Oldham and Shelby counties, but pays 20 percent more than typical market prices, Rosen said. That’s because Victory Hemp wants to support Kentucky agriculture and is willing to pay a premium.
But he envisions a scenario in which future investors press for cheaper seeds from overseas or out-of-state suppliers. Incorporating under the new Kentucky law is one way to preserve the company’s commitment to local farmers.
“It aligns with our values in that it’s going to give some kind of protection to follow our core mission statement,” Rosen said.
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