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Maryland adopts new socially aware corporation law

Maryland has become the first state to adopt legislation creating a new type of corporation - one required to perform social good as it works to make a profit.

Maryland has become the first state to adopt legislation creating a new type of corporation - one required to perform social good as it works to make a profit.

State lawmakers there say substantial credit goes to a Berwyn nonprofit organization and a Philadelphia lawyer, with Philadelphia's City Council playing a supporting role, in what is being hailed as a significant milestone for the sustainability movement.

With a few pen strokes this week, Gov. Martin O'Malley signed legislation making so-called benefit corporations official in Maryland. Under the new law, which takes effect Oct. 1, directors of registered benefit corporations will have the legal protection to consider employees, the community, and the environment in addition to shareholder value when they make operating and liquidity decisions.

Within Pennsylvania's legal and legislative community, momentum is building for a similar measure, though action by the General Assembly is not expected before next year.

"It's a wonderful milestone and great first step in a much longer journey to create a new sector of the economy that is more inclusive and more sustainable," said Jay Coen Gilbert, cofounder of B Lab, the Main Line nonprofit group that lobbied Maryland to enact benefit-corporations legislation. B Lab acts as a third-party certifier of "B" corporations and advocates for them.

Coen Gilbert attended the bill signing in Annapolis with fellow B Lab principals Bart Houlahan and Andrew Kassoy. He said Wednesday that he hoped it was the first of many enactments of benefit-corporations legislation.

Similar measures are under consideration in at least seven states, with Vermont being the furthest along, said their author, William H. Clark Jr., a partner in the Corporate and Securities group of Center City law firm Drinker, Biddle & Reath L.L.P. Clark also drafted the Maryland legislation.

Clark was encouraged by action closer to home Wednesday: The business-law section of the Pennsylvania Bar Association voted to seek approval for the benefit-corporations concept from the full membership's policy-setting arm at a May 14 meeting.

If approved, "we would then move to the phase of introducing legislation . . . that would probably happen in the fall," Clark said, adding that its passage "will certainly be a high priority next year."

State Sen. Daylin Leach (D., Montgomery) said Wednesday that he had been exploring the possibility of bipartisan sponsorship of benefit-corporations legislation with State Sen. Mary Jo White, a Republican from Western Pennsylvania who heads the Environmental Resources and Energy Committee.

Leach called the idea of benefit corporations "terrific," in part because currently, if corporate leaders consider "anything other than the bottom line, they risk a derivatives lawsuit from shareholders."

In Maryland, the benefit-corporations measure passed unanimously in the state Senate and with just five "no" votes in the state Assembly.

"From the minute I heard about it, I saw the logic in it," said Maryland Sen. Jamie Raskin, a Democrat and the bill's prime sponsor. The intent was to "build a public ethos into the DNA of a corporate entity," he said.

Coen Gilbert credited Philadelphia's City Council for B Lab's success in Maryland, citing its decision in December to give a business-privilege tax credit annually to companies meeting B Lab certification standards.

Philadelphia became the first city in the nation to do so, he said, which "helped pave the way" for the Maryland legislation by giving "institutional credibility to this effort."