The Benefit Corporation: Fashion's Next Top Model

"Fashion is not something that exists in dresses only. Fashion is in the sky, in the street, fashion has to do with ideas, the way we live, what is happening." — Coco Chanel

During Fashion Week, all eyes are on New York, London, Milan and Paris for the newest trends. But one important trend is often missing on many runways: sustainability. This is problematic for the industry in an era when, according to studies, ethical and environmental considerations influence a majority of shoppers

The path to sustainability is not necessarily easy. There are many challenges and issues, from ethical sourcing to pollution control, for which the fashion industry has come under fire in recent years. But a new type of business entity structure — the benefit corporation — may help designers and labels weave social responsibility into their companies in a way that can ensure meaningful change. 

Benefit corporation model successes in fashion
A company that is incorporated as a benefit corporation is required to create a "material positive impact on society and the environment." The benefit corporation structure provides the legal freedom to help businesses achieve these goals.

The benefit corporation is a remarkable and potentially positively disruptive new vehicle. Before its existence, directors and officers of public and private companies were legally obligated to consider shareholder returns above all else. Now, the benefit corporation entity structure enables companies to embrace other important directives in addition to profit. As a result, the structure may be an advantageous model for both public and private companies of all sizes that are looking to grow and operate ethically.

Thread, Urbane + Gallant and All Across Africa are examples of successful benefit corporations, as is main street brand Patagonia, which saw revenues increase by almost one third in the year after registering as a benefit corporation. The success of these and other companies speaks to the market appetite for ethical brands.

How to become a benefit corporation
The ability of benefit corporations to combine individual profits with public good is a model that is gaining in popularity. Numerous states have passed laws to pave the way for benefit corporations, and more states will likely join the fray in future months. Any company incorporating in these states can elect to be a benefit corporation.

As in any forming corporation, companies choosing to become benefit corporations must file articles of incorporation in their respective states. However, they must also stipulate that the corporation is being formed to provide a general public benefit, and in many states, include a designator in the corporation's name that identifies it as a benefit corporation.

Additionally, any company already incorporated can apply to amend its status to become a benefit corporation (in states where such a move is allowed). For both public and private companies, doing so requires shareholder approval — a two-thirds supermajority vote in most states — and articles of incorporation that identify the company as a benefit corporation and outline the general public purpose of the corporation.

After incorporating as a benefit corporation, many states require that companies continually demonstrate their positive public impact by filing an annual, publicly available benefit report on their performance. More information on the incorporation process can be found on the CT website.

In addition, some states are adjusting their laws in ways that may encourage adoption of the benefit corporation structure. Amendments were recently made to the Delaware General Corporation Law, for example, to make it easier for existing corporations to legally adopt a social mission by becoming a benefit corporation. This is significant because the majority of public companies — 64 percent of Fortune 500 firms — and a very large number of private companies are incorporated in Delaware.

As a result of all these changes and as time goes on, it will undoubtedly become easier for companies to adopt the benefit corporation structure.

Additional options for demonstrating sustainability
There are several nonprofit organizations that provide separate or additional certification for companies looking to cement their commitment to making a positive impact. B Lab, for example, is the largest nonprofit to offer free "B Corp" certification, and has so far certified more than 1,300 companies across the world.

While not changing the legal status of a company in the way that the benefit corporation model does, such a certification provides important guidance for a company wishing to integrate social responsibility into its mission, and can credential the company. Reformation, a fashion label that became a Certified B Corp in 2014, is experiencing tremendous growth and success, having seen revenues almost triple between 2013 and 2014.

The bottom line
With the exception of Estethica, the British Fashion Council's sustainability initiative that has run for seventeen seasons in London, socially responsibility has, to date, not taken center stage on the runways of fashion week. Many individual designers such as Stella McCartney, however, are pushing the envelope in this regard by requiring suppliers to meet certain sustainability standards and creating innovations such as "no waste" products. With benefit corporations and other emerging models providing frameworks, guidance and support, perhaps it won't be long before more in the fashion industry follow suit.

As the CMO of the small business segment of Wolters Kluwer CT Corporation, Jen Friedman is responsible for growing revenue through brand, digital and direct marketing. CT Corporation provides formation, incorporation, registered agent and other services to businesses of all sizes, and was the first public registered agent to formally offer benefit corporation entity services.
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