Minnesota businesses could soon be able to 'do well and do good'

Sunrise Bank
Tiffany Jackson, a customer service representative, works at the front desk at Sunrise Bank Thursday, Feb. 20, 2014 in St. Paul.
Jennifer Simonson/MPR News

President Calvin Coolidge is credited with saying "the business of America is business." But who should a business benefit?

An obvious answer would be shareholders.

When Minnesota legislators head back into session Tuesday, some will take up the cause of businesses that benefit society as well as investors.

A few lawmakers plan to introduce a bill that would create a new kind of corporate structure for Minnesota companies that want to do more than just make a profit.

Take the case of Sunrise Banks, a family-owned lender with branches in Minneapolis and St. Paul. It largely serves low and moderate income customers.

Sunrise Bank
Commercial banker Khue Yang, left, and realtor Billy Xiong discuss some home closings Thursday, Feb. 20, 2014 at Sunrise Bank in St. Paul.
Jennifer Simonson/MPR News

The bank aims to make a profit, but that's not its only goal, CEO David Reiling said.

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"Do well and do good," Reiling said of the bank's philosophy. "We're living proof that those concepts are not mutually exclusive."

Reiling points to the bank's joint venture with Lutheran Social Services, a program that caters to low-income residents on St. Paul's east side. Sunrise Banks makes money off the prepaid debit cards it may sell to those customers. But the program also includes financial counseling.

"There's a decision on behalf of how we want to facilitate good financial education to a particular community -- so they make right choices -- that is not going to be a big money maker," he said. "But it's the right thing to do for us."

Reiling and other socially-minded business owners want the chance to legally establish their companies as benefit corporations, or B-corporations. The new kind of corporate charter first appeared in Maryland four years ago. Now, about 20 states allow it.

Under this structure, profits alone don't drive a company's decisions. The general betterment of society, the environment or some other specific goal receive equal consideration.

The retailer Patagonia is one of the better known examples of a benefit corporation. The company tries to limit its environmental footprint.

"If the number one goal is to maximize the return to their shareholders, they wouldn't choose this," said Sen. John Marty, DFL-Roseville. He plans to introduce a bill this week that would establish benefit corporations in Minnesota.

In the House, state Rep. Linda Runbeck, a conservative Republican from Circle Pines, plans to co-author a similar bill.

Previous proposals also have had bipartisan support.

The Senate majority and minority leaders both said they did not know enough about the proposals yet to endorse or question them. Marty said benefit corporations wouldn't get any special tax breaks. But they would receive legal protections against shareholder lawsuits for not putting profits first.

"Do well and do good...we're living proof that those concepts are not mutually exclusive."

"Right now, under the current form of incorporation, a shareholder could sue, saying, 'Look, your obligation's to me, the owner,' " he said.

Under Marty's proposed bill, that threat goes away. Shareholders would have to agree to form a benefit corporation. They and the public would be charged with holding firms accountable to their social missions. Companies would submit an annual report on their efforts to the Secretary of State. But the state wouldn't police them.

But some say allowing benefit corporations could prove problematic.

"Basically, what it does is it creates a management that's accountable to no one," said Charles Elson director of the Weinberg Center for Corporate Governance at the University of Delaware.

Elson said executives who fail to turn a profit could hide behind the "social mission" of a benefit corporation. Unethical companies might masquerade as do-gooders, he said.

"Because what is public benefit? To one person, one activity might be public benefit," he said. "To someone else, it might be something quite different."

Elson thinks many of the companies that want to incorporate as benefit corporations should be non-profits.

But that's not an option for Jacquie Berglund, founder and CEO of Finnegans, a craft beer maker in Minneapolis. She wants to save the world, one beer at a time.

When Berglund set up shop 14 years ago, she wanted to run the business as a non-profit with a mission of feeding the hungry. But Berglund said the Internal Revenue Service said "not so fast."

"They wrote back and said, 'you can't do that," she said. "Your number one activity is manufacturing beer; it isn't actually charitable.'"

Bergland found a complicated work-around to make sure her profits would indeed feed hungry bellies. She thinks the benefit corporation structure would've made that task a lot easier. If the concept becomes a reality in Minnesota, she may try it.