This was originally posted at SFGate
Days after completing the biggest deal of his life, Neil Grimmer was about to ask his new employer to do something that could expose it to shareholder lawsuits.
It was June 2013 and food giant Campbell Soup Co. had just paid millions of dollars to buy Plum Organics in Emeryville, the healthy baby food maker founded and led by Grimmer. In his first sit-down with Mark Alexander, president of Campbell North America, Grimmer made his unexpected request.
“I was nervous,” Grimmer recalled. “He was, after all, my new boss.”
Would Campbell allow Plum to change its legal status to a benefit corporation, also known as a B corp? The new designation meant the company would legally be required to offer a benefit to society in addition to generating profits for investors. In theory, at least, shareholders could sue the board of directors and management if they failed to meet these requirements.
Reincorporating Plum into a B corp added an extra element of unpredictability to the acquisition. And generally speaking, major corporations don’t like unpredictability. Or trial lawyers.
Socially conscious firms
Plum is certainly not the first company to try to integrate social good with profits.
California is home to a number of these socially conscious firms, including Clif Bar & Co. in Emeryville and apparel maker Patagonia in Ventura — both of which have adopted B corp designation.
When Grimmer, a former vice president of strategy and innovation for Clif Bar, started Plum Organics in 2007, he wanted to create a company with a commitment to healthy foods and environmental sustainability. But he also wanted to enshrine those ideals into the business’ very being.
“It was really clear to create a true health product, you needed to build a foundation for a healthy company,” Grimmer said.
In 2012, Plum and other like-minded companies started to lobby lawmakers in Delaware — a traditional corporate hub due to its business-friendly laws — to create B corps.
B corps pay taxes just like other for-profit enterprises. But such a designation also legally requires B corps to produce profits and a “positive” benefit to society, such as providing goods and services to low-income neighborhoods, protecting the environment or promoting arts and sciences.
“Having B corps allow investors and officers to create a contract to how the business will be carried out, that company will not prioritize making money over the public benefit,” saidHeidi Christianson, an attorney with Nilan Johnson Lewis law firm in Minneapolis. As chairwoman of the Minnesota Bar Association’s business law section, Nilan helped write Minnesota’s version of B corps.
In some ways, the B corp is meant to legally protect the board of directors and officers from shareholders who might want to sue the company for pursuing a social agenda instead of making money for investors, Christianson said.
On the flip side, shareholders can also sue those companies if they fail to provide those social benefits. But how courts will manage such lawsuits remains an open question.
“As yet, there is no case law addressing the obligations of benefit corporations, and the statutes do not speak to how courts should analyze such claims,” according to a recent article published in the Wake Forest Law Review.
4th largest baby food maker
As Delaware debated B corps, Plum Organics continued to flourish. The company grew into the fourth largest maker of baby food in the United States with gross sales of $93 million in fiscal 2012. Plum’s success attracted the notice of Campbell, which agreed to the buy the company for an undisclosed sum.
But in May 2013, three weeks before the deal was scheduled to close, Grimmer got word that Delaware approved legislation establishing B corps.
Grimmer had not mentioned anything about B corps to Campbell. But after the deal closed, Grimmer decided to immediately broach the subject with Alexander at their first meeting.
“That sounds like something Plum would do,” Grimmer recalled Alexander saying.
Alexander took Grimmer’s request to Campbell CEO Denise Morrison. Three weeks later, Campbell gave him the go-ahead to establish a B corp.
“Campbell was supportive of Plum reincorporating as a Public Benefit Corporation, as their mission-driven business is one of the many attributes that we liked and that we believe made Plum a great match with Campbell,” company spokeswoman Carla Burigatto wrote in an e-mail. “Plus, we’re both consumer-centric companies with deep social responsibility commitments.”
Such a move carries enormous risk for Campbell. Should Plum fail to live up to its obligations as a B corp, shareholders can theoretically sue Campbell. And investors might question why Campbell would operate an arm that doesn’t necessarily put profits first.
“The public benefit commitment and requirement exist along with the business priorities — a Benefit Corporation balances economic interests of shareholders and the public benefit that it names,” Burigatto said.
That said, analysts say B corps can provide a boost to reputation, softening capitalism’s otherwise sharp edges.
Campbell didn’t exactly broadcast the news of Plum’s new structure. But Grimm thinks the move will ultimately pay for both companies.
“Consumers are ready to understand the difference between brands that do good marketing and companies that actually do good in the world,” he said.