Benefit Corporations – A Move Away From Capitalism?

Published on: by Michelle Baker Category:SOCIAL ENTERPRISE

 

Benefit Corporation

Last month, North Carolina’s legislature rejected a benefit corporation bill, asserting that it would be a “move away from capitalism.” This reasoning seems misplaced. If our own history tells us anything about capitalism, it’s that its form is both dynamic and changing.

The Oxford Dictionary defines capitalism as “an economic and political system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state.” Benefit corporations fit squarely within this understanding of what constitutes capitalism. Indeed, benefit corporations mirror traditional corporations in all essential ways—they are for-profit entities owned by private individuals, operated by a board of directors for the benefit of their shareholders. The major difference between benefit corporations and traditional corporations of course is that a benefit corporation’s business mission requires it to strike a balance between profits and people and/or the environment. To those who narrowly believe that a corporation exists solely to maximize shareholder profits, such a concept seems completely contrary to the principles of capitalism.

But think of the Industrial Revolution and its exploitation of the working class—the stories of factory workers being forced to work in oppressive working conditions for little pay. The workers rose up, they formed unions, and the government created laws to protect workers’ rights, including wage and hour laws and workplace safety regulations that are the norm today. Considering the welfare of workers instead of focusing solely on profits could have similarly been viewed as a move away from capitalism. However, these regulations helped improve the lives of millions of working class people and continue to do so today. Arguably, these changes helped to create the modern consumer economy, with better-paid workers finally earning enough to buy the products they helped to make. If anything, capitalism was strengthened by these rules.

Likewise, creating the way for benefit corporations is not a move away from capitalism; rather, it is an evolution of capitalism, what some call “conscious capitalism.” Conscious capitalism refers to a system in which a company has a triple bottom line that requires it to consider three “Ps” when making business decisions: profit, people, and the planet. To be sure, a benefit corporation cannot ignore its profit —making money is a good thing—but attending to people and the environment is also good business. This is the current lesson that the benefit corporation captures.

Consider the example of California’s first benefit corporation, Patagonia, which converted to this legal status in 2012. It has successfully operated for the past 40 years as a mission-driven company balancing profits and the environment by making quality products using processes that are more earth-friendly. Patagonia is proof that a purpose-driven company can drive a lot of business. Since 2008, including the time of the great recession, Patagonia has doubled its revenue and tripled its profits. Last year, the company enjoyed $530 million in sales. Its executives claim that people are willing to pay more for Patagonia products because they are manufactured in an earth conscious way.

Another highly profitable mission-driven company is Method Products, a certified B corporation since 2007. Started in California in 2001, Method initially offered biodegradable cleaning products, later expanding on its commitment to the environment with eco-friendly packaging in 2008. Recognized as one of the fastest growing privately held companies in the U.S., by 2009, Method’s annual sales had reached over $100 million, and its products can be found in many major retail stores, such as Target. Last year, it was sold to Ecover—Europe’s largest green cleaning company—for an undisclosed amount. Not bad for a company that started with 4 cleaning products at Mollie Stones, a San Francisco Bay Area grocery store.

Not every corporation has to make social responsibility the core of its business model, but there should be laws that protect companies that choose to do so. Benefit corporation laws protect mission-driven capitalists from derivative lawsuits by shareholders who would seek to have the company abandon its non-profit-based mission. To date, more than 1/3 of the states in the U.S. allow benefit corporations. These states recognize the importance of providing companies the freedom to take a triple bottom line approach in their operations. North Carolina rejects this new form at its own peril. Benefit corporations are not a move away from capitalism, but instead represent a shift into “conscious capitalism.” There is nothing anti-capitalistic about that.

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Michelle Baker is a San Francisco-based attorney interested in social enterprises.