Benefit companies are a new legal form of business that contribute to local development and the common good in a transparent way.
When great shocks are considered, for instance, wars, pandemics, and earthquakes, we all recognise the essential role of the state in facing the emergency, and of addressing the needs of the affected population. During the earliest period following these types of disruptive events, the only available option is state intervention.
Indeed, people are relying on governments to resolve conflict and to manage emergencies. Besides the fact that occasionally the trust in government could be misplaced, it is relevant to note that the state on its own cannot guarantee stability, peace, or social wellbeing over a long-term period. In fact, considering a medium and long term period, beside the role of the state, the private sector is called upon to create and support development, and to defuse any fragmentation or violent disruption of the community.
Whenever a broader temporal period is considered, the state take on the role of rule-maker and of guarantor of them, while private actors have to operate within the regulatory framework in order to generate a lasting social value, and helping to reshape the rules when it is needed. Among private actors, companies are those playing an important role in this process even though the creation of social value does not come automatically to them. This is given by the fact that the companies goal is to create revenue.
The creation of private revenue does not equate the creation of social benefits, because social wellbeing does not come simply from a sum of private revenues. In addition to that, oftentimes disutility and diseconomies for the community must be accounted for. The former case became clear observing the negative impact on the environment. Companies often generate profit while having a negative environmental impact. In specific cases, disutility generated can impact on founding principles of our society as on human rights, justice, and peace.
The mismatch between social values and revenues does not need to be an unchangeable dynamic. Indeed, companies can play a role adding to their deed of partnership the objective of producing also social and common benefit. Why? Companies have to be aware of the fact that they exist, operate, and scale-up within a given territory, whose wellbeing and prosperity could be considered as an asset for them as well.
When companies contribute to the wellbeing of the territory over which are operating, they are indirectly enriching their own future human and social capital. In this regard, a virtuous nexus among revenues, communal benefit exists, as does and the overtime company survival. Unfortunately, companies embracing this explicit dual goal, are not yet regulated by the legislation.
Related Articles: Is Stakeholder Capitalism Growing? | LKDF Forum Day 2: Green Companies Providing Green Jobs | Regulation A Investment Options Will Benefit Sustainable Startups the Most Next Year
Some years ago, and only in some states of the USA, benefit corporation was introduced, but the very first sovereign nation to establish a specific regulation for these type of firms was Italy in 2016 (Società Benefit). Benefit companies are therefore a new legal form of business, introduced in Italy by law no. 208 (paragraphs 376 to 383 and annexes 4 – 5), which entered into force on 1 January 2016.
The shareholders have to choose a common good to be pursued. Italian law highlights 4 areas of potential social impact and common goods: (i) Governance. Evaluation of accountability and transparency; (ii) Workplace environment for employees (iii) Dialogue, cooperation and relations with stakeholders in the light of a comprehensive vision of local development (iv) Environment and sustainability.
Once chosen the common good to be pursued the management of a benefit company has to choose some metrics to evaluate and measure the social impact. The metrics have to not be developed by the management. In practice, the management – in particular a benefit officer – chooses some metrics which do fit the purpose of the firm from the set of standard metrics developed by research centres, universities or other institutions.
Such impact evaluation has to be added to the economic balance sheet and disseminated. In practice, Benefit companies contribute to local development by pursuing a common good which is transparent and it is also communicated to a community of stakeholders.
Eventually, Italy was then followed by Colombia in 2018, with a law on Sociedades de Beneficio e Interés Colectivo and Eventually by Ecuador and Peru in 2020. In particular, the Colombian case is interesting because it clearly exemplifies what has been discussed so far. Indeed, one of the main causes which have featured the period elapsing from the Colombian civil conflict to the 2016 peace agreement signed with FARC (Revolutionary Armed Forces of Colombia), was the severe level of inequality in wealth distribution, and the consequently high level of poverty affecting a broad section of the population.
The Colombian law on benefit companies sets out objectives concerning the wellbeing of workers, social equality, and environmental protection. The Colombian President on the fall of 2019 stated that these firms can support peacebuilding. In other words, Colombia recognised that the private sector can have the role of changemaker, social improver, and peacebuilder.
Finally, what can be maintained is that the model of benefit companies can therefore contribute to reshaping businesses, hence establishing a novel approach to frame economies also pushing towards social development and peace.
About the author: The article has been written by Professor Raul Caruso – Writer and Economist on Peace, for the Vision of Humanity Editorial staff – brought to you by the Institute for Economics & Peace (IEP). The IEP investigates the impact of COVID-19 and future trends in economics, politics, social dynamics, conflict and development.
Editor’s Note: The opinions expressed here by Impakter.com columnists are their own, not those of Impakter.com. — In the Featured Photo: A woman is working in the control surface department. Featured Photo Credit: Alfred T.Palmer
