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Shaking Up The Corporate Structure To Go Beyond The Profit Motive

A company that can give up profits to increase its value to society and not get slammed by stockholders—it could happen.

Socially responsible corporations are always performing a balancing act, trying to maximize the amount of good they do while not alienating shareholders who want to make sure the bottom line goes unharmed.

That act is starting to get easier, thanks to the growing number of states (including Delaware, home to over half of all traded companies) that have legalized benefit corporation status, which requires participating companies to consider their impact not just on shareholders, but on the environment, workers, and the community—and which prevents shareholders from suing if a company fails to maximize profit.

When Delaware changed its law, organic baby food brand Plum Organics quickly became one of the first benefit corporations in the state. Hundreds of private companies have already become benefit corporations. But Plum, which was recently acquired by Campbell’s Soup, is unique: it’s the first benefit corporation to exist under a public company umbrella. The next milestone: A public company adopts the status.

It will take time for a fully public company to convert to benefit corporation status, says Jay Coen Gilbert, cofounder of B Lab, the nonprofit behind B Corporation certification (B Corporations are different from benefit corporations; they have to meet a set of corporate social responsibility standards laid out by B Lab).

Now that benefit corporations are legal in corporation-heavy Delaware, says Gilbert, "We begin the process of socializing this concept among the large institutional investors, pension funds, insurers, and regulators that ultimately drive the public capital markets. It's going to take more than a minute to get from ‘Never heard of it’ to ‘Heard of it, sounds scary’ to ‘Oh wow, that could potentially be interesting.’"

The first public company to convert to benefit corporation status might just be a B Corporation. Just under a third of all benefit corporations (there are no official numbers, but Gilbert estimates that there are about 400) are also B Corporations. Rally Software, a B Corporation, went public in 2013. But it’s not a benefit corporation—yet. Gilbert believes that more B Corporations will go public in the next few years.

Getting a fully public company to convert is a bigger challenge. "I think that will happen, but I don't think that will happen in the next 12 months. That's a longer term process that I think will likely be preceded by successful IPOs, more M&A activity, and work on supply chain," says Gilbert.

When a public company finally becomes a benefit corporation, it will mark the beginning of an era when corporations can have a conscience and not worry about falling apart. "It's a mile marker on the road to shared and durable prosperity," says Gilbert. "Having a corporate structure that's hard-wired to deliver on that is a big deal."

[Image: Abstract via Shutterstock]

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  • Very encouraging to read. Organizational structure all too often holds back good intentions, and seldom is the creation of value (rather than financial returns only) embedded in the "company DNA".

    To see that there are good examples around is always good, and gives strengths to go forward.

  • Danny Macias

    This is very encouraging news. Since reading The Real Wealth of Nations (Eisler), I've been pretty much convinced that aiming single-mindedly at profit may be, in fact, indirectly self-defeating and unsustainable. Thank you for the article.