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B-corporations can put social purpose over profits

Tiffany Jackson, right, a customer service representative, works at the front desk at Sunrise Bank in St. Paul, Minn.

Commercial banker Khue Yang, left, and realtor Billy Xiong discuss some home closings at Sunrise Bank in St. Paul, Minn.

Come January, when companies in Minnesota can officially register as benefit corporations, Sunrise Banks hopes to be one of the first in line.

This new class of company lets firms declare that a higher social purpose is as important as profits. The idea has only been around for a few years but a growing number of states now offer the classification.

Sunrise Banks is a Twin Cities-based, family-owned firm. Chief executive David Reiling says the company has always had a social mission to help unbanked and underbanked people get better access to capital.

“What the means from a local standpoint is over 60 percent of our loans are made each year in low and moderate income communities,” he says.

Reiling thinks that's consistent with the idea of a benefit or b-corporation. The concept involves putting a goal, like improving the community or environment, on equal footing with profit-making.

Patagonia is one of the best known examples of a benefit corporation. It sells outdoor gear while trying to limit its environmental footprint.

David Reiling thinks the designation could boost Sunrise Banks' brand -- and profitability.

"We see it actually increasing and expanding because we're a b-corporation," he says.

B-corporation status also affords some legal protections. They'd apply less to a firm like Sunrise, where Reiling and his parents are majority owners, and more to publicly held companies.

If shareholders sue because social goals overtake profit goals, management has a defense: the company was set up with a social mission.

Critics of benefit corporations still expect plenty of lawsuits.

"Because ultimately there will be disputes between shareholders and management on the appropriate course,” says Charles Elson, a corporate governance expert at the University of Delaware. “[It’s] fabulous for the courts. Lousy for the investors."

Elson thinks firms that fail to turn a profit could hide behind their social missions, or unethical companies could masquerade as do-gooders. 

"I think it's one of these things that sound great, but when it's developed it creates a lot more problems than solutions," he says.

Right now it's a problem a growing number of companies are willing to have. Twenty-two states have adopted laws allowing b-corporations, and legislation is sitting on the governor’s desks in three more.

About the author

Annie Baxter covers education.

Commercial banker Khue Yang, left, and realtor Billy Xiong discuss some home closings at Sunrise Bank in St. Paul, Minn.

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