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Delaware Moves Toward B-Corporation Choice

David Callahan

About half of all public companies are incorporated in Delaware, and that state has long been synonomous with a race to the bottom when it comes to corporate responsibility. So many companies incorporate in Delaware because it has famously lax standards for corporate behavior. And tiny Delaware has no incentive to raise those standards because incorporating companies is a key part of the state's economy. 

Today, though, more new companies are interested in incorporating as benefit corporations, which have a higher set of standards for corporate behavior that includes being responsive to multiple stakeholders (e.g., employees and the community) as opposed to merely the bottom line. So-called B Corps are supposed to have "create a material positive impact on society and environment." A dozen states have enacted legislation to allow companies to incorporate as B Corps. Another 20 states are considering such legislation. 

And now Delaware is getting on that bandwagon, too.

Last week, Governor Jack Markell proposed a benefit corporation law to the legislature. The proposed law is not ideal, according to B Lab, a group that promotes benefit corporations, but Delaware's step in this direction is major development given its historic role of lowering corporate standards.