Explaining the adoption of benefit corporation laws by the US states

Abstract

Purpose: Over half of the US states have jettisoned an exclusive focus on profit maximization for shareholders and created new corporate structures, called “benefit corporations”, which give equal standing to the achievement of social and environmental objectives. This paper aims to examine the factors leading to adoption of legislation for the business formation of benefit corporations by the US states. Design/methodology/approach: Event History Analysis (EHA), a time-series technique using panel data of non-repeatable events, is used to identify and understand economic, political and diffusion factors that affect the adoption of benefit corporation enabling legislation in the US states. Findings: The results strongly indicate that politics matters – states in which the Democratic Party or liberal ideology controls governmental functions are more likely to pass these laws. There is also evidence that states that are more innovative in their approach to policy-making are more likely to adopt these laws. Otherwise, unemployment, tax burden, political culture, enacted constituency statutes and geographic diffusion have no discernible relationship with the adoption of benefit corporation laws. Practical implications: The paper provides warning signs to firms considering expending costly resources on the establishment of or conversion to benefit corporation status and the related investment in developing skills for the preparation, review and assurance of required annual benefit corporation reporting. Originality/value: The findings suggest future adoption of benefit corporation enabling laws may slow considerably.