We measured our success not just by how much money we made, but by how much we contributed to the community. It was a two-part bottom line.
Business has the potential to solve social problems and do good in the world. But to do so, it has to be freed from the constraints of current corporate law that requires a single-minded focus on the bottom line. For would-be social entrepreneurs, the requirement to maximize company profits often clashes with their desire to act responsibly.
A famous example is the ice cream company we all know and love, Ben and Jerry’s, which was bought out, in 2000, by Dutch conglomerate Unilever. Founders Ben Cohen and Jerry Greenfield were approached by Unilever with an offer to buy the company, but they didn’t want to sell for fear of compromising their socially and environmentally conscious values. When they couldn’t come up with a counter offer from private investors that topped the price offered by Unilever, its shareholders sued, and they were forced to allow the sale.
Questioning legal requirement to maximize profits
Under standard forms of incorporation, if you are a manager or director of a company, you have the legal responsibility to maximize profits for investors and shareholders. If you don’t, you can be sued. This is what I call the “sociopathic clause” of corporate law. It pretty much says: Forget the environment, the well being of your employees, or the needs of the communities in which you do business. Forget about the long-term health of the company. Focus on money and the bottom line, and make the most you can, right now, for yourself and your shareholders.
This single minded focus on profits enshrined in our corporate law may be creating wealth for the few, but it is impoverishing people here and around the world, as well as destroying the fragile planet on which we live. This business model sends good jobs overseas, creates tax evasion loopholes, and gives us Chinese toys with lead paint. It gives us an environment filled with hundreds of toxic chemicals that are showing up in our blood. And worse, it fuels U.S. military conquests around the world, conducted on behalf of global corporations that require ever expanding markets and resources.
Introducing the benefit corporation
But, what if you could incorporate in a way that allows you to contribute to society while you make money? What you could clean up a river, promote the arts, contribute to your community, help disadvantaged kids, give your employees above average compensation and benefits, or make ice cream in an environmentally sustainable way—even if these activities cut into your shareholder’s profits?
The benefit corporation is a new form of corporation first voted into law in the state of Maryland in 2010. In 2011, benefit corporation legislation has been passed in Virginia, Hawaii, Vermont, and New Jersey, and is pending in Colorado, New York, North Carolina, Pennsylvania, California, and Michigan.
Incorporating as a benefit corporation allows you to expand the purpose of your business beyond making profit for shareholders. You are free to serve the social mission of your company while you make money. For example, as a manager or director of a benefit corporation, you can enhance the social and economic lives of current and retired employees by providing excellent working conditions, benefits and retirement packages. You can choose suppliers that, while not offering the cheapest prices, support and share the social mission of your company. You can make business decisions that consider the best interests of customers and the communities and society in which your company operates, even if this impinges on the bottom line. Under the rules of the benefit corporation, you can promote the arts, sciences or the advancement of knowledge as part of the company’s mission. As a manager or director, you can consider the short- and long-term effects of the company’s operations on the environment and the economy of the state, the region, and the nation. You consider shareholders as well as stakeholders—anyone who is or will be affected by your business. You and the board of directors can do all these things and not be sued for “breach of fiduciary duty” by the company’s investors and shareholders. However, they can sue you for failure to pursue a general public benefit. How cool is that?
Benefit corporation legislation does not require that your social goals outweigh your desire to make a profit. Rather, it requires that your company make a material positive impact on society and the environment as measured by a third-party standard. Currently, the third party setting that standard is B Lab, a nonprofit organization that runs a certification program for socially responsible businesses.