Outdoor apparel retailer Patagonia has become one of California’s first “Benefit Corporations,” which gives the company’s directors legal protection to consider social and environmental benefits over financial returns. This new legal status was designed to embed goals into companies’ missions that go beyond profitability but ensure they are legally shielded from civil suits by shareholders. Benefit Corporations are legally required to:
- Have a corporate purpose to create a material positive impact on society and the environment.
- Redefine fiduciary duty to require consideration of the interests of workers, community and the environment.
- Publicly report annually on its overall social and environmental performance using a comprehensive, credible, independent, and transparent third party standards.
The corporation’s obligations to its shareholders has been radically redefined as a result of this. Current law allows shareholders to sue corporate boards for not maximizing profits, requiring them to prioritize financial interests over environmental and sustainable initiatives. However, Patagonia’s shareholders no longer have this legal right.