Are we edging toward a moment when a business’ purpose becomes as important as its profits?
[REITs]Last week, on Jan. 23, the Progressive Policy Institute recommended that the lowest corporate tax rate be reserved for companies that undertake responsibilities as good corporate citizens. For example, they would award the rate to companies that become “benefit corporations,” a new type of entity that rejects the notion that for-profit businesses must pursue financial return at any cost.
The PPI recommendation comes on the heels of the Jan. 5 call to action by BlackRock’s Laurence D. Fink, who wrote, in part, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
The PPI report quotes Rick Alexander, Head of Legal Policy at B Lab, a nonprofit working to help business become a force for good, and author of the newly-released Benefit Corporation Law and Governance: Pursuing Profit with Purpose.
PPI recognizes that government has limited tools with which to address some of the chronic issues facing the U.S. workforce. PPI concludes that freeing corporations from the rules that limit their pursuit of social good may be a better solution.
While it’s certainly the case that more regulation could also help improve workers’ lot, by mandating better minimum standards such as fairer wages and benefits, too prescriptive an approach can invite both evasion and resistance…. Rather, companies should be encouraged to reform themselves as well. The result could be a newly vibrant corporate culture that realigns company interests with that of their workers, creates good jobs to support the middle class and even strengthens the ability of companies to compete in a global marketplace.
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The burgeoning benefit corporation movement provides both an ideal framework and leverage point for nudging American companies back from the brink of short-termism and toward a philosophy of responsible corporate citizenship.
Rick offers more commentary and news on benefit corporations below.
Rick Alexander
Head of Legal Policy, B Lab
Author, Benefit Corporation Law and Governance: Pursuing Profit with Purpose
Benefit corporations are a rapidly growing new governance model that create opportunities for investors and the business community to make a positive impact by balancing competitive financial returns with the needs of our economic, social, and environmental systems.
The root cause of corporations’ failure of social purpose is not a lack of strategic vision on the part of managers. Rather, it is the cramped set of alternatives available, even to ethical managers, in a system dominated by shareholder primacy – the mandate that corporations prioritize maximizing profits, regardless of the social and environmental costs. We cannot effectively address corporate misbehavior without addressing its root cause—our failed corporate governance model. If we are to realize the vision articulated in the BlackRock letter and PPI’s tax rate recommendation, executives need a tool to counter shareholder primacy.
Since the first benefit corporation legislation was enacted in 2010, more than 5,000 benefit corporations have formed in the United States. They have raised more than $1.5 billion from investors in dozens of financings.
Last year saw the creation of the world’s largest benefit corporation, DanoneWave, with more than $6 billion in sales, and the first IPO of a benefit corporation, Laureate Education.
In 2018, expect to see more innovative, society-focused companies use the benefit corporation form to raise capital without becoming prey to the value maximization credo. In the final weeks of 2017, Lemonade, an innovative insurer organized as a Delaware benefit corporation, announced a $120M C round led by SoftBank, while Luna DNA, a Delaware benefit corporation focused on blockchain technology for DNA announced a seed round from the founders of Illumina and Prelude capital.
Here are a few other examples of benefit corporations:
- Kickstarter and Wefunder (crowdfunding)
- Patagonia (outdoor clothing company)
- King Arthur Flour (baking products)
- Greyston Bakery (baked goods)
- Lemonade, My Strong Home (insurance)
- Ripple (consumer packaged goods)
- Yerdle (recommerce)
- Plum Organics (baby products)
- Lung Biotechnology, Beta Bionics, Luna DNA (biotech)
- OpenInvest (Fin Tech)
- MPower (finance)
More about Rick Alexander
Frederick (Rick) Alexander is Head of Legal Policy at B Lab, a non-profit organization dedicated to enabling people to use business as a force for good. In this role, he works with other lawyers, company executives, investors, legislators, and regulators around the world, seeking to create corporate governance structures that lead corporations to contribute to a healthy, stable society and planet.
With 30 years’ experience in law, Alexander was named as one of the 10 most highly regarded corporate governance lawyers worldwide by The International Who’s Who of Corporate Governance Lawyers 2012. Prior to coming to B Lab in 2105, Alexander was the managing partner of Morris, Nichols, Arsht & Tunnell in Wilmington, Delaware, and prepared the initial drafts of both the Delaware public benefit corporation legislation and the ABA Benefit Corporation White Paper.
