Benefit Corporations as a Socially Responsible Business Model: The Role of Accounting

Abstract

Abstract Benefit corporations are a form of incorporation that require management to pursue some specified social goal or benefit, even if this goal requires sacrificing profit maximization. Hence, benefit corporations are considered a new business model that explicitly incorporates a socially responsible component in the corporate mission. This alternative business model may offer investors and customers a more ethical corporate form due to the social responsibility motive. Several states currently allow companies to incorporate as benefit corporations, and more states are considering such legislation. To be successful, benefit corporations will require either investment from the capital markets and/or favorable treatment from government entities. Thus, the potential success of benefit corporations is likely to rely on the general interest of private investors and citizens as well as the ability to communicate operational success. As with the evolution of the for-profit corporate model and of free market economic systems, accounting may be critical to the success of benefit corporations. Accounting systems will need to be able to measure and report both profits and social benefits to the market. Socially conscious investors must have reliable information if they are to choose the benefit corporation model over other alternatives (e.g., maximizing their return from for-profit investments and making individual donations). Citizens must also have reliable information to bring pressure on governments to support this model if it proves viable. It is still too early to determine benefit corporations’ long-term impact on society or even whether this business model will succeed in the marketplace. Our purpose is to offer a basic framework for evaluating benefit corporations relative to current substitutes and to consider characteristics that would contribute to benefit corporation success. Within this context, we consider accounting systems’ role in assessing the social utility of this new business model.