Corporations aren’t people — not exactly. They are a legal system that people use to organize their relationships so they can pursue common goals. This site follows a growing movement that is trying to expand those relationships and make them more fair, so that corporations become a force for good.
BenefitCorpReporter is an independent site that covers a young, evolving movement. While we support its goal of turning business into a force for good, we know that will be easier said than done. We’re hopeful and skeptical. Here are a few of the beats we’re now following:
* How businesses struggle to stay committed to a “triple bottom line” approach as they grow
* Why “greenwashing” happens, and what companies are doing about it
* The $6 trillion “impact investing” market, and how corporations chartered with a social mission are trying to break into it
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Corporations have been around for over 600 years. For most of that time, they have struggled to balance the competing interests of shareholders (who invest capital and receive profits in return) and stakeholders, a broader group that includes the corporation’s directors (who have ultimate authority over corporate decisions and are often major shareholders), employees, vendors, customers, regulators, and anyone else with an ongoing relationship that is essential to the corporation’s existence.
The earliest corporations were formed to build cathedrals, so God was one of their stakeholders. Schools are corporations; students are stakeholders. And a growing number of companies these days are saying that clean air, pure water, and other biological processes are stakeholders, too.
In 1932, a particularly low point for capitalism, two legal scholars got into an argument about which of these groups was most important to corporations. Adolf Berle said that because shareholders have the most money in the game, their interests (mainly, receiving financial dividends) should have “primacy.”
In the 1970s, economist Milton Friedman became a celebrity spokesman for a narrower, meaner version of Berle’s argument, which was dubbed “maximizing shareholder value.” Today, this winner-take-all philosophy is dominant in corporate boardrooms. Financial analysts often talk about the duty of corporate directors to maximize profits for shareholders as if it were an everlasting law of nature. But in reality, things change.
In the 1980s, entrepreneurs started building successful brands that repudiated Friedman. “Socially responsible” businesses like Ben & Jerry’s and The Body Shop emphasized their commitment to fair treatment for all stakeholders. But the movement suffered a setback around the turn of the century when many first-generation “rebel” founders were compelled to sell their companies to the highest bidder, and multinational corporations took them over.
The companies sold because existing laws did not give their directors protection against being sued if they chose not to accept the highest bid. It seemed to many that the commercial success of socially responsible businesses had bred the movement’s failure.
Ten years ago, three young entrepreneurs started B Lab, a not-for-profit auditor that ranks companies according to how well they treat the natural environment and their stakeholders as they also make money for shareholders. This philosophy is known as the triple bottom line, and companies that pass their audit are known as Certified B Corps.
B Lab also started looking for ways to protect socially responsible business owners from those who insisted that they should maximize the profits of shareholders. They devised a new corporate form, the benefit corporation, which was first passed into law in 2010 and has since been passed by 31 U.S. states plus the District of Columbia, Puerto Rico, and Italy.
Benefit corporations are chartered to pursue a triple bottom line, and most states require them to publish social audits done by an independent third party, such as B Lab. The intent of the charter language is to give directors a legal defense if they choose not to sell the company to a high bidder who does not share their values.
Pursuing a triple bottom line grants companies another, bigger advantage. Many rapidly-growing B Corps and benefit corporations are finding that the B Corp seal helps them attract talented employees and loyal customers.
The benefit corporation movement is young, but it’s growing. Etsy, a Certified B Corp, became a publicly-traded company in April 2015. Laureate Education, a B Corp that is also a benefit corporation, is scheduled for an IPO later this year. So far, most benefit corporations and B Corps are relatively new, small, and owned by their founders. That’s changing fast.
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Note: shorter versions of some of these posts also appear on the news site TriplePundit.