"Imagine a legislated brotherhood of business where favored businesses
get to go to the front of the line for permits, licenses and
opportunities merely because they agree to advance the principles of
Sustainable Development and Agenda 21."
Benefit Corporations: Expansion of the Public-Private Fascist State, Part 1
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By Stephen Poole
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| Friday, 12 August 2011 14:48 |
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This four-part series was written in April and
May of 2011 to inform North Carolina residents about Senate Bill 26, known as
the “North Carolina Benefit Corporation Act,” so they might voice their
opposition to what is essentially a stealth implementation of many Agenda 21
principles. It was originally published at North Carolina Freedom (ncfreedom.us.)
Although the legislation appears to have died in
committee, it is important that activists across the country become fully aware
of the “benefit corporations” strategy because the sponsoring nonprofit B Labs
Corporation is introducing the same boilerplate legislation in all 50 states.
Indeed, such legislation has already been passed in Maryland, Vermont, New
Jersey (home of “conservative” and global-warming believer Chris Christie),
Virginia, and Hawaii. And the same tactics that were used successfully in those
states will be employed elsewhere, beginning with glowing news stories about
how these new corporations will be all about creating societal benefits
rather than raking in cash -- which the following articles will prove is an
outright lie.
As is so often the case when federal or state legislative
bodies are in session, the 2010-2011 NC General Assembly has set
about promulgating new decrees at a breakneck pace. To be fair,
some of the proposed laws aim to repeal or push back the
oppressive and soviet-style measures taken by earlier
assemblages. But even putative Republican conservatives seem to
joining in the push for more regime control over private
enterprise at a time when their primary goal should be repealing
current tyrannical legislation. Case in point: Senate Bill 26,
known as the “North Carolina Benefit Corporation Act,”
sponsored and/or co-sponsored by two Democrats and two
“Republicans.”
Although it’s currently in
committee and might not make it to the floor for a vote, its mere
presence is a dire warning for what we can expect in future
proposals to dictate our business affairs and our personal lives.
As with most legislation, SB 26 is a confusing mess…but
quite profitable if you’re in on the game. I beg your
patience as I take time to explain this bill’s meaning and
its ultimate implications. By necessity, this will be a
multi-part post. [Note: all bolds are mine -- I just want
to make sure you see the intentional deception at work.]
SB 26 would create a new type of corporation called a
“benefit corporation” (BC). The bill reads:
“A domestic corporation, including a domestic
corporation incorporated upon a conversion effected pursuant
to Part 1 of Article 11A of this Chapter, may be incorporated
as a benefit corporation by including in its initial articles
of incorporation a provision providing that the
corporation shall be a benefit corporation governed by this
Article. The articles of incorporation must also
include an identification of any specific public
benefit purpose or purposes as required by G.S. 55
18 30 and must include all provisions required by, and may
include any provision permitted by, G.S. 55 2 02.
Before we break down the details of the bill, let’s take
a look at how the “press” is describing it. In a March
3, 2011 blog post on the Raleigh News & Observer Web site,
John Murawski gushes:
Advocates of socially responsible capitalism are hoping
North Carolina becomes one of the few states in the nation
that gives businesses legal permission to fulfill
moral obligations — to the poor or to the environment
— at the expense of their own shareholders.…Legislation
recently introduced in the N.C. General Assembly could get
its first vote as early as Tuesday in a Senate judiciary
committee. The bill would allow a business to turn idealistic
mission statements into legally enforceable documents by diverting
company profits to humanitarian goals.
A more honest appraisal regarding a BC’s profits can be
found in the online version of the Durham
Herald-Sun in a piece of fluff/stenography called
“Proposed law for ‘good’ business” written by
a bankruptcy lawyer (at least they used quotes around
“good”).
A proposed state law, S26, which would enact the North
Carolina Benefit Corporation act, is just the experiment and
will test whether businesses can be diverted from
striving towards the profit motive as their sole goal.
That’s a nice bit of wordsmithing right there —
because the apparatchik was clever enough to put in the adjective
“sole” in front of “goal.” As we read more
about SB 26 in this piece of agitprop, pay attention to the
bolded words:
…the benefit corporation legislation does not
require social goals to outweigh a profit motive.
Rather, it requires that the benefit corporation make a
material positive impact on society and the environment as
measured by a third-party standard….
In other words, if you don’t have the
shareholder’s pecuniary interest as your overriding goal
as a corporate director or officer, you open yourself to
lawsuits. This proposed legislation opens the door to
relaxing the requirement.”
The author, Jeremy Todd Browner, deserves credit for admitting
that the bill “does not require social goals to outweigh a
profit motive.” As far as relaxing the corporation’s
requirements to shareholders, I think it’s in this section:
Section 55-18-40. Standard of conduct for
directors.
(a) In discharging
their duties as directors of a benefit corporation, directors
shall consider the effects of any action or decision not
to act upon the following:
(1) The
shareholders of the benefit corporation.
(2) The
employees and workforce of the benefit corporation, its
subsidiaries, and suppliers (there are several other
items listed, but you get the idea).
So there is no mandate that profits must be sacrificed, only a
provision that they may be sacrificed. With that falsehood
exposed, let’s see what the proposed law really says.
A corporation can now start up or transition to a
“benefit corporation,” and they must identify “any
specific public benefit purpose or purposes.”
Let’s read the definition of “corporate
purposes,” which is the way a corporation qualifies
for BC status:
Section 55 18 30. Corporate purposes.
(a) A benefit corporation shall have as one of its corporate purposes the creation of a
general public benefit. A benefit corporation may include in its articles of incorporation other
corporate purposes, including the purpose of
engaging in any lawful business.
(b) A benefit corporation may include as a
corporate purpose in its articles of incorporation one
or more specific public benefit purposes in addition
to its purposes under subsection (a) of this section.”
A little more of the maze revealed. So the BC must have
“the creation of a general public benefit“as
one of its “corporate purposes,” but it has the option
of other corporate purposes — some that do create public
benefits, others that don’t so long as they involve a lawful
business practice. It also has the option of
including a “specific public benefit purpose.”
Not much help, I know. So let’s try to discern what these
phrases really mean.
“General Public Benefit” is defined as “a
material positive impact on society and the environment, taken as
a whole, as measured by a third party standard, from the
business and operations of a benefit corporation.” The
“specific public benefit purposes” include but are not
limited to (gotta love that “not limited to” loophole!)
- Providing low-income or underserved individuals or
communities with beneficial products or services.
- Promoting economic opportunity for individuals or
communities beyond the creation of jobs in the normal
course of business.
- Preserving or improving the environment.
- Improving human health.
- Promoting the arts, sciences, or advancement of
knowledge.
- Increasing the flow of capital to entities with a
public benefit purpose.
Three takeaways here, all very important. First, almost any
business activity would qualify as having a “material
positive impact on society.” You could make the case that a
whorehouse has a “material positive impact on society”
in that it creates high-paying jobs and facilitates the creation
of other employment opportunities and business creation such as
hotels near to and limousine services to and from said brothel.
On a more serious note, couldn’t any business that ended up
hiring unemployed people claim that it had made a “material
positive impact on society?” Of course it could — but
note that the wording is “society and the
environment, taken as whole.” That’s the sticky wicket.
It’s also what makes this bill more about “sustainable
development” and the implementation of Agenda 21 than might
seem apparent at first blush.
Ergo, the second point: Who decides if a business meets this
forked-tongue qualification? The text doesn’t say: It merely
refers to a “third-party standard.” Who sets and
administers that standard through business audits?
Lastly, a company that cobbles together a “general public
benefit” can then add as a “specific public
benefit” the financing of other BCs.
In Part 2, we’ll examine why that codicil opens up a
whole can of crony-capitalism schemes and take a look at
who’s really behind this bill, what they stand to gain from
it, and why it could be very bad for you and me.
Here are the links to Part 2, Part 3, Part 4.
As a graduate of Wake Forest University,
Stephen Poole emerged from that institution as a zombified
collectivist incapable of critically analyzing the socialist
shibboleths with which he'd been indoctrinated. After awakening
to the untenable nature of his "beliefs," he's now an
individualist who believes in truly free markets,
Constitutionally limited federal government, the eminence of
personal liberty, and unalienable rights granted by God.
Source: Freedom Advocates
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B Lab's Benefit Corporations Won't Benefit You
| By Wynne Coleman
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| Thursday, 11 August 2011 |
Imagine a legislated brotherhood of business where favored businesses
get to go to the front of the line for permits, licenses and
opportunities merely because they agree to advance the principles of
Sustainable Development and Agenda 21.
SB26, the North Carolina Benefit Corporations Act contains boilerplate legislation from B Labs. View
B Labs Statement of Purpose and Declaration of Interdependence here.
The following points are applicable to activists or concerned citizens
who want to understand why they should oppose Benefit Corporation
legislation in their States.
One of the goals of Agenda 21 is to create a system of corporations
that partner with governments to achieve Sustainable Development
objectives. Across the nation, model legislation is being proposed to
the individual States by a pro-Sustainable Development organization (B
Lab) for the purpose of creating a “new type” of corporation that will
support Public Private Partnerships (PPPs) and Sustainability
objectives. Those objectives are anti-liberty and anti-free-enterprise.
The corporation is called a “Benefit Corporation” (B Corp). The
originators of this legislation are so ambitious that their plans
include the vision to create a public stock exchange for B Corps.
The North Carolina version of this model legislation is SB 26, The
North Carolina Benefit Corporation Act. Although the word “sustainable”
is not found in the bill, the concepts are clearly there. This bill can
be traced back to the key advocates and creators of Agenda
21-Sustainable Development. As of January 2013 California, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, South Carolina, Vermont, and Virginia had all passed legislation allowing benefit corporations. States that are currently considering legislation include: Alabama, Arizona, Colorado, Connecticut, Florida, Georgia, Iowa, Michigan, Nevada, New Mexico, North Carolina, Oregon, and Texas. Washington, D.C. is also considering legislation.
To see the list of States where B Corp legislation has been proposed or
passed go to:
http://www.bcorporation.net/publicpolicy
Benefit Corporation Statement of Purpose and Declaration of Interdependence
http://www.freedomadvocates.org/images/pdf/benefit%20corporation%20purpose.pdf
Read why SENATE BILL 26, The North Carolina Benefit Corporations Act MUST BE STOPPED!
http://www.freedomadvocates.org/images/pdf/bcorp%20sb26.pdf
Source: Freedom Advocates
~~~~~~~~~~~~~~~~~~~~
3Qs: Benefit corporations
raise new questions on business, civics
December 17, 2012 by Matt Collette
Several states across the nation have considered or approved the
creation of a "benefit corporation," a class of corporation that
gives special status to companies like King Arthur Flour, ensuring
that their corporate values can be protected in the event of sales or
mergers. But the classification may not necessarily be good for
business, consumers or even democracy, warns Rae André, a professor
of organizational behavior and theory in the D'Amore-McKim School of
Business, who wrote about the topic in a paper published this year in
the Journal of Business Ethics.
What is a benefit corporation? Why would a company choose to incorporate
as one?
A benefit corporation is a new form of business corporation
dedicated to improving corporate social responsibility. Most are
private businesses without stockholders. Even though they are a
separate corporate classification, they must obey all the same
laws as traditional corporations.
The way this works is that benefit corporations are certified by
an independent third-party evaluator, in many cases the nonprofit
organization B Lab, which is the thrust behind most of the benefit
corporation legislation that has passed in the United States.
Benefit corporations pay a fee to B Lab and, in return, they're
given a questionnaire that reflects certain values of these
organizations and how they are certified. Often they are asked
complex questions such as, "Is your supply chain designed to address
issues of poverty alleviation and job creation for underserved
populations?" and companies answer simply yes or no.
I suppose these companies believe that becoming a benefit
corporation provides some benefit legally. I don't see it that way,
though, and this has not been tested in the courts. I see them more as a
public-relations effort and a way to network with other companies
that share their values.
You describe benefit corporations as businesses that fall within a new
"gray sector." What do you mean by that?
As citizens, we always have to be looking at questions such as, 'Who
does our certification?' We have to understand who is doing the
regulating and why, and we have to keep on top of these
corporations and organizations. Groups like B Lab, which benefit
corporations pay on a sliding scale for certification, fall into
what I call the gray sector and that's hard to monitor.
Traditionally, the organizational universe consists of
businesses, nonprofits and governments—three very separate
sectors. But certifiers like B Lab fall somewhere between business
and nonprofit, and in fact act on behalf of the government, serving
in the place of our representative government. It's very hard for
citizens to keep track of these organizations and what they're
really doing. I don't like to see citizens lose control of the
organizations in their society.
We assume that something called a benefit corporation is going to
be something for the benefit of society. But what if the
organization that is doing the evaluating of the benefit
corporation is diametrically opposed to the goals of society? What
if it's not green, for example? I as a citizen have no control over
the "independent third-party provider," who legislatures have
empowered to certify benefit corporations; there aren't any
specific criteria for them involved in that legislation.
What are the dangers of blurring the line between government and private
groups like the ones certifying benefit corporations?
The way to think of benefit corporations and their relationship
with B Lab is that they're a trade association, and that's fine.
Trade associations often keep businesses on a straight path, which
is good for institutional marketing. But the question is: Why do we
need government to do that? In my mind, we don't. Benefit
corporation legislation outsources citizen values to an
unelected third party.
When B Lab, which is the primary evaluator involved in this right
now, gives out its questionnaire, it's essentially substituting its
own values for that of society's. We voted for the legislation that
covers these topics, or at least for the lawmakers behind them; we as
citizens do not, however, get a vote with these organizations.
They disenfranchise citizens.
This should not be something the government is involved in. Part of
my concern is that benefit corporations going forward will get tax
benefits because, after all, they're supposed to be doing some
broader good. But why should my tax dollars go to members of this
organization that we as citizens did not certify and that we did
not select? And why should benefit corporations get tax preference
over traditional corporations?
This would totally change the competitive playing field. What is also
important is that this separate classification also implies that
other corporations are not doing good and that's simply not true.
Traditional corporations give to charities, create foundations
and support employment, and creating a separate benefit category
creates a distinction where I don't think one exists in reality.
Provided by Northeastern University search and more info
Read more at:
http://phys.org/news/2012-12-3qs-benefit-corporations-business-civics.html#jCp
3Qs: Benefit corporations
raise new questions on business, civics
December 17, 2012 by Matt Collette
Several states across the nation have considered or approved the
creation of a "benefit corporation," a class of corporation that
gives special status to companies like King Arthur Flour, ensuring
that their corporate values can be protected in the event of sales or
mergers. But the classification may not necessarily be good for
business, consumers or even democracy, warns Rae André, a professor
of organizational behavior and theory in the D'Amore-McKim School of
Business, who wrote about the topic in a paper published this year in
the Journal of Business Ethics.
What is a benefit corporation? Why would a company choose to incorporate
as one?
A benefit corporation is a new form of business corporation
dedicated to improving corporate social responsibility. Most are
private businesses without stockholders. Even though they are a
separate corporate classification, they must obey all the same
laws as traditional corporations.
The way this works is that benefit corporations are certified by
an independent third-party evaluator, in many cases the nonprofit
organization B Lab, which is the thrust behind most of the benefit
corporation legislation that has passed in the United States.
Benefit corporations pay a fee to B Lab and, in return, they're
given a questionnaire that reflects certain values of these
organizations and how they are certified. Often they are asked
complex questions such as, "Is your supply chain designed to address
issues of poverty alleviation and job creation for underserved
populations?" and companies answer simply yes or no.
I suppose these companies believe that becoming a benefit
corporation provides some benefit legally. I don't see it that way,
though, and this has not been tested in the courts. I see them more as a
public-relations effort and a way to network with other companies
that share their values.
You describe benefit corporations as businesses that fall within a new
"gray sector." What do you mean by that?
As citizens, we always have to be looking at questions such as, 'Who
does our certification?' We have to understand who is doing the
regulating and why, and we have to keep on top of these
corporations and organizations. Groups like B Lab, which benefit
corporations pay on a sliding scale for certification, fall into
what I call the gray sector and that's hard to monitor.
Traditionally, the organizational universe consists of
businesses, nonprofits and governments—three very separate
sectors. But certifiers like B Lab fall somewhere between business
and nonprofit, and in fact act on behalf of the government, serving
in the place of our representative government. It's very hard for
citizens to keep track of these organizations and what they're
really doing. I don't like to see citizens lose control of the
organizations in their society.
We assume that something called a benefit corporation is going to
be something for the benefit of society. But what if the
organization that is doing the evaluating of the benefit
corporation is diametrically opposed to the goals of society? What
if it's not green, for example? I as a citizen have no control over
the "independent third-party provider," who legislatures have
empowered to certify benefit corporations; there aren't any
specific criteria for them involved in that legislation.
What are the dangers of blurring the line between government and private
groups like the ones certifying benefit corporations?
The way to think of benefit corporations and their relationship
with B Lab is that they're a trade association, and that's fine.
Trade associations often keep businesses on a straight path, which
is good for institutional marketing. But the question is: Why do we
need government to do that? In my mind, we don't. Benefit
corporation legislation outsources citizen values to an
unelected third party.
When B Lab, which is the primary evaluator involved in this right
now, gives out its questionnaire, it's essentially substituting its
own values for that of society's. We voted for the legislation that
covers these topics, or at least for the lawmakers behind them; we as
citizens do not, however, get a vote with these organizations.
They disenfranchise citizens.
This should not be something the government is involved in. Part of
my concern is that benefit corporations going forward will get tax
benefits because, after all, they're supposed to be doing some
broader good. But why should my tax dollars go to members of this
organization that we as citizens did not certify and that we did
not select? And why should benefit corporations get tax preference
over traditional corporations?
This would totally change the competitive playing field. What is also
important is that this separate classification also implies that
other corporations are not doing good and that's simply not true.
Traditional corporations give to charities, create foundations
and support employment, and creating a separate benefit category
creates a distinction where I don't think one exists in reality.
Provided by Northeastern University
Source: Phys.org
Several states across the
nation have considered or approved the creation of a "benefit
corporation," a class of corporation that gives special status to
companies like King Arthur Flour, ensuring that their corporate
values can be protected in the event of sales or mergers. But the
classification may not necessarily be good for business,
consumers or even democracy, warns Rae André, a professor of
organizational behavior and theory in the D'Amore-McKim School of
Business, who wrote about the topic in a paper published this year in
the Journal of Business Ethics.
Read more at:
http://phys.org/news/2012-12-3qs-benefit-corporations-business-civics.html#jCp
Several states across the
nation have considered or approved the creation of a "benefit
corporation," a class of corporation that gives special status to
companies like King Arthur Flour, ensuring that their corporate
values can be protected in the event of sales or mergers. But the
classification may not necessarily be good for business,
consumers or even democracy, warns Rae André, a professor of
organizational behavior and theory in the D'Amore-McKim School of
Business, who wrote about the topic in a paper published this year in
the Journal of Business Ethics.
Read more at:
http://phys.org/news/2012-12-3qs-benefit-corporations-business-civics.html#jCp
~~~~~~~~~~~~~~~~~~~~
Several states across the
nation have considered or approved the creation of a "benefit
corporation," a class of corporation that gives special status to
companies like King Arthur Flour, ensuring that their corporate
values can be protected in the event of sales or mergers. But the
classification may not necessarily be good for business,
consumers or even democracy, warns Rae André, a professor of
organizational behavior and theory in the D'Amore-McKim School of
Business, who wrote about the topic in a paper published this year in
the Journal of Business Ethics.
Read more at:
http://phys.org/news/2012-12-3qs-benefit-corporations-business-civics.html#jCp
Several states across the
nation have considered or approved the creation of a "benefit
corporation," a class of corporation that gives special status to
companies like King Arthur Flour, ensuring that their corporate
values can be protected in the event of sales or mergers. But the
classification may not necessarily be good for business,
consumers or even democracy, warns Rae André, a professor of
organizational behavior and theory in the D'Amore-McKim School of
Business, who wrote about the topic in a paper published this year in
the Journal of Business Ethics.
Read more at:
http://phys.org/news/2012-12-3qs-benefit-corporations-business-civics.html#jCp
Several states across the
nation have considered or approved the creation of a "benefit
corporation," a class of corporation that gives special status to
companies like King Arthur Flour, ensuring that their corporate
values can be protected in the event of sales or mergers. But the
classification may not necessarily be good for business,
consumers or even democracy, warns Rae André, a professor of
organizational behavior and theory in the D'Amore-McKim School of
Business, who wrote about the topic in a paper published this year in
the Journal of Business Ethics.
Read more at:
http://phys.org/news/2012-12-3qs-benefit-corporations-business-civics.html#jCp
The Dangers of Quasi-Capitalism
In the aftermath of the 2008 financial
crisis, America has largely been spared a full ideological assault on
the legitimacy of capitalism. While past economic and financial
calamities have produced vocal anti-capitalist movements — and though
the antics of Occupy Wall Street have generated headlines — principled,
substance-based critiques of the essential elements of a free-market
system have not materialized. That such criticisms have been blunted is
surely related to the dismal experience of anti-capitalist regimes: As a
result of the failure of socialism in the 20th century, many have come
around to the belief that there is simply no viable alternative to an
economic system rooted in the basic principles of free markets. Such
widespread acceptance, even if only the result of all other
possibilities having been exhausted, would seem to offer comfort to
those concerned about capitalism's future.
But that comfort would be too easily taken. While critics of
capitalism may have resigned themselves to its endurance, they have not
given up trying to eradicate its perceived flaws. In doing so, they have
launched a movement that, in seeking to address these flaws, risks
changing the essential character of the market economy. This movement
does not seek to dismantle the foundations of capitalism, but rather to
transform its goals and basic purpose by proposing new, alternative
corporate forms that might best be called "quasi-capitalist." There is a
variety of such forms, but they have in common a key underlying
assumption: that firms neither motivated nor measured purely by
financial profit will be more effective than traditional profit-driven
corporations in creating benefits for society at large.
The quasi-capitalist "movement" — really a series of philosophically
related but independent initiatives — is premised on the notion that
today's business structures serve an overly narrow purpose, with the
benefits accruing primarily (or even exclusively) to private individuals
and interests. If our economy is to work to the advantage of the
general public, the reasoning goes, businesses must instead pursue what
is known as a "triple bottom line." It is not enough for firms to be
judged merely by returns for investors: They must also meet specific
social goals such as safeguarding the environment or improving the lots
of disadvantaged populations. Under the quasi-capitalist ideal,
producing all three kinds of benefits — economic, environmental, and
social — would replace the traditional balance sheet as the measure of
corporate success. Indeed, profits would be justified only insofar as
they served as means to the realization of the broader social good.
Recent years have seen the development of different organizations and
mechanisms to advance the "triple bottom line." Some — such as the
simple donation of corporate profits to social causes — are relatively
innocuous-seeming and in keeping with the longstanding tradition of
corporate community philanthropy. Others represent a more radical break.
These include pressure on companies — exerted by self-appointed
arbiters of right-thinking — to demonstrate "corporate social
responsibility." Still others — principally "hybrid businesses" and
"benefit corporations" — establish alternative corporate forms that pose
a direct challenge to traditional free-market, for-profit structures.
By implication, they are a threat as well to the private philanthropy
that business profits have historically fueled.
The most damaging outgrowth of the new quasi-capitalism, however, may
be the degree to which it lends credence to the notion that the
traditional model of private enterprise produces no benefits to society
at large. As researchers Julie Battilana, Matthew Lee, John Walker, and
Cheryl Dorsey argued in the Summer 2012 issue of the
Stanford Social Innovation Review,
hybrid businesses represent a "blend of social value creation and
commercial revenue," providing "products and services that, when
consumed, produce social value." The obvious implication is that the
traditional commercial model does
not produce such social benefits, and so should be replaced by one that does.
But the experience of societies with robustly capitalist systems
belies this assertion. From scientific and technological innovation and
medical advances to widespread employment, generous philanthropy, and
higher standards of living across all income groups, economies oriented
around profit do in fact create "social value." To the extent that we
seek to change the defined purposes of the corporate structures central
to a free-market economy and to replace them with untested alternatives,
we risk undermining the broad benefits that capitalism can be shown to
provide. It is therefore worth examining the rise of
quasi-capitalism — the alternative corporate forms and practices it
seeks to spread, as well as the thinking that animates it — in order to
better understand the threat it poses to America's economy and society.
PROFIT-DIVERSION CAPITALISM
Critiques of the social ills caused by capitalism are, of course, far
from novel. But the idea of marrying the revenue that profit-making
businesses earn to the needs of social causes is a relatively recent
variation, traceable to a few specific figures and their ideas.
One is William Drayton, the one-time federal environmental official
who, in 1980, founded Ashoka: Innovators for the Public. The
organization was predicated on the idea that society's most pressing
needs might be best addressed not by governments or businesses, but by a
cohort of so-called "social entrepreneurs." Ashoka supports these
entrepreneurs through (among other efforts) seed funding for
non-profits; the group has developed a broad reach, supporting some
3,000 "fellows" in 70 countries since its launch. It has also widely
popularized the term "social entrepreneur": That label is now taken to
mean not only people who establish and lead non-profit service
organizations and advocacy groups (the definition I have used in my own
work on the subject), but also those who push for-profit companies to
work with non-profits in order to benefit the poor. (The underlying
assumption, naturally, is that for-profit firms would otherwise neglect
this population.) Drayton's labeling is key: By describing people who
facilitate public benefits as "
social entrepreneurs," he implies that traditional entrepreneurs are self-interested or even anti-social.
Another key figure in the evolution of quasi-capitalism is John
Elkington, founder of the British environmentalist consulting firm
Sustainability and author of a 1994 paper in which he coined the term
"triple bottom line." In that paper, Elkington put forward the idea that
the traditional profit-loss bottom line should be augmented with two
others: a "people's account" and a "planet account." The idea was meant
to be transformative, wholly reframing the way business had been
understood and practiced for centuries. As Elkington explained in his
contribution to the 2004 book
The Triple Bottom Line: Does it All Add Up?:
In the simplest terms, the [Triple Bottom Line] agenda focuses
corporations not just on the economic value that they add, but also on
the environmental and social value that they add — or destroy.
With its dependence on seven closely linked revolutions, the
sustainable capitalism transition will be one of the most complex our
species has ever had to negotiate. As we move into the third millennium,
we are embarking on a global cultural revolution. Business, much more
than governments or non-governmental organizations (NGOs), will be in
the driving seat.
Paradoxically, this will not make the transition any
easier for business people. For many it will prove grueling, if not
impossible.
Today, the far-reaching quasi-capitalist vision expressed by Drayton
and Elkington manifests itself in different forms, the most limited of
which is commonly termed "profit-donation capitalism." It might as well
be called "profit-diversion capitalism": Firms practicing
profit-donation capitalism simply redirect capital from private
interests to public ones, donating surplus revenues to organizations
offering the social benefits that traditional businesses are assumed to
be incapable of providing.
At a superficial level, profit-diversion capitalism resembles the
most common form of "corporate citizenship" — corporate philanthropy.
Both practices involve companies using their profits for some public
purpose. At the smaller end of the scale, this might involve a local
bank underwriting a concert series in the park or a grocery store
sponsoring a Little League team. For larger corporations, the scale of
such "citizenship" can be enormous: The
Chronicle of Philanthropy has
reported that, in 2011, 13 companies donated more than $100 million
each (of these firms, the largest contributor was Walmart, which donated
$342.4 million). Such donations may just be cynical marketing ploys;
they may also be rooted in the communitarian assumption that businesses
have an interest in fostering healthy communities. Whatever the motive,
this "corporate citizenship" funnels enormous revenues to organizations
like the Red Cross, United Way, Salvation Army, and local schools every
year.
Indeed, according to Giving USA, overall 2011 corporate
philanthropic donations of all kinds totaled $14.55 billion.
But it would be a great mistake to confuse this corporate giving with
profit-diversion capitalism. Like all philanthropy, corporate giving is
the collateral benefit of the traditional, for-profit business model.
Profit-diversion capitalism, on the other hand, represents a different
model entirely. It is premised on the basic assumption underlying
quasi-capitalism: that businesses produce broad social benefits only if
they support organizations that explicitly assert public interests as
their
raisons d'être.
The distinction is clarified by looking at the best exemplars of
profit-diversion capitalism: the handful of firms that pledge to donate
not some but all profits to charitable causes. One example is NIKA, a
bottled-water company based in La Jolla, California. In 2009, NIKA
pledged to donate "100% of our profits to support clean water projects
in areas lacking access to clean water" in countries like Sri Lanka,
Kenya, Ethiopia, and Ecuador. The aim, according to the firm, was to
express a commitment both to "ending the cycle of poverty" and to
encouraging "smart consumerism."
The most famous example is surely Newman's Own, the food-products
company founded in 1982 by the late actor Paul Newman and writer A. E.
Hotchner. In 30 years of selling sauces, snacks, beverages, and salad
dressings, the company claims to have donated more than $330 million to
thousands of charities (the most prominent of which is a camp Newman
founded for children suffering from cancer and other serious illnesses).
Newman's Own certainly sees itself as occupying corporate America's
moral high ground: Newman and Hotchner co-wrote a memoir tellingly
titled
Shameless Exploitation in Pursuit of the Common Good.
Though Newman's Own is a familiar and celebrated business model, few
companies have climbed aboard the "100% donation" bandwagon. Still,
there are reasons to be concerned about even this sort of
quasi-capitalism. While a firm like Newman's Own may increase charitable
donations, the company does little more than allow consumers to use a
foodstuffs manufacturer as a charitable-giving proxy — a poor substitute
for both traditional philanthropy and traditional capitalism. In the
case of traditional philanthropy, after all, donors can give their money
directly to organizations that they know share their priorities,
values, and interests. And in the case of traditional capitalism,
profits are returned to investors, who can exercise similar control over
the direction of their surplus dollars. Profit-donation capitalism
allows for neither: Both a firm's customers and its investors forgo some
amount of money they would otherwise control, simply trusting that it
will eventually make its way to some good cause.
Furthermore, it is not difficult to see how the work of serving as a
de facto charitable foundation might not be done well by a company
fundamentally dedicated to other purposes — like bottling water — or how
it might distract from and come at the expense of the company's
profit-generating activities. The model of profit-donation capitalism
thus risks undermining the nimbleness and efficiency of both
straightforward charity and for-profit capitalism.
Nor is the profit-donation model enough for people ambitiously
seeking to launch a wholesale revolution in socially responsible
capitalism. It has not attracted large legions of followers. It does not
require whole new ways of doing business. Newman's Own has, for
instance, neither called for nor implemented changes in the manufacture
or distribution of salad dressing to make its production more socially
or environmentally beneficial. For changes of this sort, activists have
turned elsewhere: to the movement for so-called corporate social
responsibility.
CORPORATE SOCIAL RESPONSIBILITY
The push for corporate social responsibility (CSR) represents a much
more far-reaching effort to overhaul the everyday operation of business.
It seeks not merely to redirect the fruits of capitalism, but to
fundamentally transform its practices and processes. This movement thus
stands to have a much greater effect on the character of our free-market
system, and so poses a much greater threat to the innovation and
prosperity that system has tended to provide.
The fundamental premise of the CSR movement is the belief that
corporations should adhere to a variety of performance standards adopted
not for their effects on productivity or income, but because they are
inherently worthy moral goals. These standards could include paying
"living wages" to employees or vendors in a firm's supply chain or
offsetting the carbon emissions yielded during a firm's production
process. The assumption, again, is that unless a company explicitly
incorporates social or environmental concerns into its way of doing
business, that company will not create benefits for the public at large.
The definition provided by the Corporate Social Responsibility
Initiative at the Harvard Kennedy School's Center for Business and
Government sums up well how this particular form of quasi-capitalism is
understood and how it operates:
Corporate social responsibility encompasses not only what companies
do with their profits, but also how they make them. It goes beyond
philanthropy and compliance and addresses how companies manage their
economic, social, and environmental impacts, as well as their
relationships in all key spheres of influence: the workplace, the
marketplace, the supply chain, the community, and the public policy
realm....[T]hroughout the industrialized world and in many developing
countries there has been a sharp escalation in the social roles
corporations are expected to play. Companies are facing new demands to
engage in public-private partnerships and are under growing pressure to
be accountable not only to shareholders, but also to stakeholders such
as employees, consumers, suppliers, local communities, policymakers, and
society-at-large.
The approach articulated by Harvard has been some three decades in
the making. One of the earliest episodes in its development came in the
1970s, when activists launched an international boycott against the
Nestlé corporation. By promoting the use of its infant-formula products
as a substitute for breastfeeding, the critics claimed, Nestlé was
directly responsible for sickness and death in poor countries without
sanitary water supplies (needed to make the formula). In 1974, the
organization War on Want published a pamphlet titled "The Baby Killer"
in an effort to expose Nestlé's alleged wrongdoings; the ensuing
campaign led to World Health Assembly restrictions on the promotion and
marketing of formula. To this day, Nestlé faces CSR pressure over its
alleged failure to practice business ethically. As recently as 2011, 19
NGOs boycotted a Nestlé competition — which would have awarded half a
million dollars for, as one report put it, "outstanding innovation in
water, nutrition, or rural development projects" — because of the
company's marketing of baby formula in Laos.
It wasn't until the early 1990s, however, that the CSR model really
gained prominence. The case of Nike brought demands for socially minded
business practices to the fore after widespread protests against labor
practices in the company's supply chain. (Critics alleged that the shoe
maker used sweatshops in countries like China, Indonesia, and Vietnam.)
By 2005, the
Economist, in an extended special report on CSR,
would write that "over the past 10 years or so, corporate social
responsibility has blossomed as an idea....CSR commands the attention of
executives everywhere...and especially that of the managers of
multi-national companies headquartered in Europe or the United States."
So it was that Coca-Cola — as a major user of fresh water — came to
collaborate with environmental organizations to conserve freshwater
river basins. General Electric launched its "Ecomagination" campaign,
emphasizing its use of renewable energy and efforts to reduce carbon
emissions. Starbucks initiated what it called C.A.F.E. standards, aimed
at supporting the "sustainable" production of coffee. Novo Nordisk, a
Danish company that manufactures insulin, went so far as to include the
idea of the triple bottom line in its corporate articles of association.
One of the foremost exemplars of CSR is Ben & Jerry's ice cream,
which trumpets a supply chain built around "family farmers," "caring
dairy," and "cage-free eggs." The firm uses environmentally friendly
hydrocarbon freezers and recycled packaging; on its web site, it
explains: "We continue to devise and pursue plans to reduce our
greenhouse gas emissions to respond to the challenge of climate change,
which is real, which, in our opinion, humans are clearly creating, and
which isn't going away anytime soon." As co-founder Ben Cohen explained
in a 1995
Los Angeles Times article: "At Ben and Jerry's...we see
ourselves as somewhat a social service agency and somewhat an ice cream
company." The company even publishes an annual "Social and
Environmental Assessment Report" to evaluate how well it is upholding
its "social mission goals."
Today, virtually no major firm can afford
not to have some
demonstrated commitment to CSR. This, in turn, has spawned an extensive
management literature and related university centers at a host of
business schools. Indeed, the Aspen Institute provides a list of what it
calls the "Top 10 business schools," ranked for "integrating Corporate
Social Responsibility" into their curricula.
CSR has become so fashionable, and indeed so expected, that champions
of quasi-capitalism have developed several certifications to help
companies prove they are truly committed to a triple bottom line. One
thinks here of the Fair Trade certification regime, which avers, through
its branding, that products such as coffee, tea, and fruit have been
grown in environmentally "sustainable" ways (not, for instance, through
slash-and-burn agriculture) and that their producers have been paid a
"living wage" (often above market). Many CSR certifications are
environmental, such as the near-ubiquitous LEED labels identifying that
business takes place in "green buildings." Others focus on human
resources, such as Social Accountability International's SA8000
standard. That label, according to the organization, attests that a
firm's "management system supports sustainable implementation of the
principles of SA8000: child labor, forced and compulsory labor, health
and safety, freedom of association and right to collective bargaining,
discrimination, disciplinary practices, working hours, remuneration."
Complementing this certification of business practices is a group of
self-proclaimed socially responsible investment funds — which, one could
argue, exist as unofficial enforcers of CSR. As
Congressional Quarterly
has put it, such institutions "[combine] financial goals with the aim
of improving society through stock screening, shareholder activism and
other methods." These funds certainly avoid owning stock in firms that
are widely viewed as producing goods of questionable or negative value,
such as tobacco products. But they also use the proxy-motion process to
influence corporate behavior at a wide range of major firms — by, for
instance, using shareholder power to limit executive compensation or to
champion specific environmental objectives.
One such fund is Walden Asset Management, which describes itself as
"the socially responsive investment division of Boston Trust &
Investment Management Company." Walden has been an active enforcer of
CSR at the companies in which it invests, targeting a diverse array of
Fortune 200 firms. In 2006, for instance, the fund filed a shareholder
resolution with Coca-Cola effectively accusing the company of hypocrisy
regarding the environment. Walden's resolution acknowledged that
"Coca-Cola Company has repeatedly emphasized its commitment to
environmental leadership," but blamed the company for the fact that "the
majority of Coca-Cola beverage containers in the U.S. continues to be
landfilled, incinerated or littered, thereby contributing to
environmental pollution, and reducing the U.S. supply of recycled
plastic." As a solution, Walden requested that Coca-Cola's board of
directors "review the efficacy of its container recycling program and
prepare a report to shareholders...on a recycling strategy that includes
a publicly stated, quantitative goal for enhanced rates of beverage
container recovery in the U.S."
In 2012, Walden joined with a large group of mainline Protestant
organizations and Catholic religious orders to file a shareholder
resolution calling on ExxonMobil to incorporate "greenhouse gas
reduction goals" into its operations. And it urged the Walt Disney
Company and Johnson & Johnson to permit shareholders "say on
pay" — in other words, to review executive compensation to ensure that
it is not too great in relation to the pay earned by lower-level
employees. Walden's other targeted firms include household names like
UPS, Pepsi, IBM, and General Electric, as well as financial behemoths
like Goldman Sachs. (A helpful database of such proxy motions may be
found at
proxymonitor.org.)
One particularly revealing Walden motion was filed in 2007 with Home
Depot. Though Walden's aim was to achieve a desired social
practice — increased hiring of racial minorities — Walden framed its CSR
pressure campaign as an effort to increase profitability. Citing
settlements reached with the federal Equal Employment Opportunity
Commission over alleged employee discrimination, Walden called on Home
Depot to seek a more "diverse" work force. The premise was that, because
American customers are increasingly diverse, a representative work
force would be more likely to anticipate and respond effectively to
consumer demand.
Walden's activism, and the Home Depot case in particular, highlight
some of the dangers of the CSR movement. To begin, CSR is often pushed
as an inevitable requirement of doing business in an age of socially
conscious investors and consumers (as Walden argued about Home Depot's
"diversity" problem). Companies invest significant resources in CSR
compliance — both in altering their business practices and in obtaining
the various proofs of their good-heartedness — on the notion that the
public will be more inclined to invest in them or buy their products
because the company is seen as sharing their values.
But as David Vogel of the University of California, Berkeley, has
argued, this argument is "misinformed." There is little evidence to link
companies' CSR records with the returns they offer investors; "for most
firms, most of the time, CSR is largely irrelevant to their financial
performance," Vogel explains. The same is true, Vogel argues, of
socially responsible investment funds (like Walden), whose long-term
performance "has been no better, or worse, than those of funds that use
other criteria to predict future shareholder value." Consumption
decisions, he notes, are still made overwhelmingly on the basis of
price, convenience, and quality. Even for those consumers who represent
the "niche" for ethical products, a company's true CSR record can be
difficult to ascertain: Merck distributes a drug to cure river-blindness
free of charge, but withholds information about the safety of Vioxx.
"The belief that corporate responsibility ‘pays' is a seductive one: Who
would not want to live in a world in which corporate virtue is rewarded
and corporate irresponsibility punished?" Vogel argued in an article
for
Forbes. "Unfortunately, the evidence for these rewards and punishment is rather weak."
The incident between Walden and Home Depot also illustrates how CSR
is often imposed from without, through pressuring mechanisms (like proxy
motions) and the threat of embarrassment. Companies may be forced to
change their practices to implement policies that reflect outside
activists' beliefs, but not the firms'. And to the extent that companies
design their business practices to avoid bad publicity rather than to
generate returns for shareholders, they are likely to be distracted from
their core purposes and are unlikely to be using their resources as
efficiently as possible. Even when firms do consciously desire to build
their businesses around CSR practices, those practices can hinder
profitability and growth. As the 1995
Los Angeles Times article
about Ben & Jerry's noted, when the firm wanted to expand, its
various CSR commitments imposed major obstacles to additional production
and distribution. And in order to attract a new CEO capable of managing
"the daily machinations of a $150 million company [that] had grown too
complex" for its founder to run, the Ben & Jerry's board had to
abandon the celebrated seven-to-one salary cap, sacrificing "values" to
reality.
The Home Depot case also shows how the CSR regime can be used to
layer restrictions on corporate functions atop existing laws and
regulations — a sort of hyper-regulation of corporate activity. Recall
that Home Depot had already settled with the EEOC when Walden launched
its proxy motion: The fund was calling on the building-supplies company
to take additional steps toward a "diverse" work force beyond those
required by the terms of the settlements. In this sense, Walden was
serving as an extra-regulatory enforcement arm of government.
This is one of the primary threats posed by the CSR apparatus: that
it allows critics of traditional capitalism to impose their ideal
regulatory regimes without having to enact them through our
well-established lawmaking processes. One of the most dangerous
instruments for imposing such added burdens is the United Nations, which
has developed a keen interest in CSR. The U.N. has in fact sought to
codify corporate social responsibility in its "Global Compact," through
which more than 7,000 corporate signatories in 145 countries have
pledged to uphold "universal principles in the areas of human rights,
labor, environment and anti-corruption" while aiming "to mainstream
these...principles in business."
The Global Compact's web site takes pains to stress that
participation is purely voluntary, and companies may withdraw as they
please (though companies failing to "communicate progress for two years
in a row are de-listed and the Global Compact publishes their name"). In
this sense, participating firms consent to follow extra rules and
regulations not necessarily required by the laws of their own countries.
But this isn't to say that the United Nations doesn't want more. In
2011, the U.N.'s special representative for business and human rights
released "guiding principles" for how businesses and states can "[take]
practical steps to address business impacts on the human rights of
individuals." Among the suggestions were calls for states to more
aggressively monitor and regulate the overseas business activities of
corporations "domiciled" within their borders to ensure that the firms
adhere to the U.N.'s preferred CSR standards. As the document noted,
"States should not assume that businesses invariably prefer, or benefit
from, State inaction, and they should consider a smart mix of
measures — national and international, mandatory and voluntary — to
foster business respect for human rights." The U.N.'s statements and
activity point to how today's largely informal CSR apparatus — the
various international guidelines, compacts, pressure campaigns, and
unofficial enforcement mechanisms — might easily result in binding
regulations on global business.
To be sure, there are some serious arguments in favor of compelling
firms to abide by the standards of CSR. They are particularly relevant
in the context of weak states, where even rudimentary regulatory
standards might not exist or be enforced, or where such basic regulation
might be subverted by corruption. It is certainly possible that
industrial operations in weak or corrupt states can produce what
economists call negative externalities — air pollution, water
contamination, human-rights abuses — and that the pressure of an
international CSR organization might help matters. But this is clearly
not the situation in the United States and in other advanced industrial
economies, where CSR is, in effect, seeking to bypass the give-and-take
of the political process (through which the compromises of regulations'
costs and benefits are sorted out).
It should be no surprise, moreover, that prominent, brand-name firms
tend to support CSR demands. These firms are not only more vulnerable to
public pressure because of their prominence: They are also in a better
position to afford the expense of adhering to extra-legal operating
standards. The spread of CSR demands thus puts large, established firms
at a competitive advantage over smaller start-ups. In this way,
quasi-capitalism lays the groundwork for concentration and barriers to
entry, sapping the dynamism of true capitalism. It is one of many ways
in which those who seek to cleanse our free-enterprise system of its
perceived stains risk throwing the baby out with the bathwater.
BENEFIT CORPORATIONS
As greatly as the corporate social responsibility movement threatens
to change our system of free enterprise, it still doesn't go far enough
for people who seek a different version of capitalism entirely. Or, as
Clive Crook put it in the
Economist in 2005, CSR advocates are,
despite their ostensible success, "oddly enough...disappointed. They are
starting to suspect that they have been conned....When commercial
interests and the broader social welfare collide, profit comes first."
So it is that the push has continued for a version of capitalism in
which social benefit is realized not through ongoing struggle with a
system seen as providing primarily private benefits, but rather as the
explicit core goal of enterprise. To put it another way, a corporation's
producing chiefly social, rather than private, benefits would no longer
be the exception, but rather the rule.
One model of this alternative capitalism is the "hybrid business." As
Nardia Haigh and Andrew Hoffman describe them in an article for
Organizational Dynamics,
Hybrid organizations can exist on either side of the
for-profit/non-profit divide; blurring this boundary by adopting social
and environmental missions like nonprofits, but generating income to
accomplish their mission like for-profits. Hybrids are built on the
assertion that neither traditional for-profit or nonprofit models
adequately address the social and environmental problems we currently
face. Entrepreneurs of hybrids seek to build viable organizations and
markets to address specific social and environmental issues.
Hybrids can thus take a variety of forms. It is easiest to understand
them, however, as non-profits that attract philanthropic funds while
also earning significant revenues by operating businesses that are
themselves predicated on social purposes (like environmental improvement
or lifting up the poor). The quintessential incubator of such
organizations is the Roberts Enterprise Development Fund, launched in
1997 by George Roberts, the billionaire co-founder of the pioneer
leveraged-buyout firm Kohlberg Kravis Roberts & Co. Based in San
Francisco, REDF describes itself as "provid[ing] equity-like grants and
business assistance to a portfolio of nonprofits in California to start
and expand social enterprises." Its well-known Juma Ventures, for
instance, hires low-income Bay Area youths to work at concession stands
at the city's sports stadiums, selling products manufactured by
CSR-minded firms (Ben & Jerry's ice cream, Tully's Coffee, Tazo
Tea). It funds similar enterprises in fields such as landscaping and the
retrofitting of buildings to meet environmental goals, employing
disadvantaged youth or those with a history of mental illness.
The model of the hybrid organizations supported by REDF has spread.
In New York, for example, Hot Bread Kitchen hires poor, immigrant women
to bake and sell artisanal breads; the Doe Fund employs ex-offenders to
staff a business that recycles used cooking oil from restaurants. To
some extent, these hybrid organizations are new versions of what used to
be called "sheltered workshops" — such as those that employed
developmentally disabled people in making and selling handicrafts. As
non-profits, they can be viewed as essentially philanthropic
enterprises.
But they are not to be confused with a far more ambitious and
alarming hybrid form, combining an ostensible for-profit model with
social causes. The main vehicle for this more aggressive form of
quasi-capitalism has been dubbed the Benefit Corporation, also known as
the B Corp. The Philadelphia-based organization B Lab — a 501(c)3 that
certifies B Corps — describes the firms this way: "B Corps are a diverse
community with one unifying goal....We support entrepreneurs who
use business as a force for good"
(emphasis added). To be certified as such, benefit corporations must
not only "create a material positive impact on society and the
environment" but effectively accept a redefinition of
profit — specifically to "expand fiduciary duty to require consideration
of the interests of workers, community and the environment." A flow
chart in the B Lab's 2012 annual report explains the B Corps' quadruple
bottom line: Offering Quality Jobs, Building Strong Communities,
Championing Healthy Environments, and Alleviating Poverty.
It would be a mistake to view B Lab and its supporters as a fringe
movement. Two of the organization's founders (Jay Coen Gilbert and Bart
Houlahan) built and sold AND 1, a major basketball footwear and apparel
business, before founding B Lab. B Lab, in turn, has attracted financial
support well beyond the founders', including grants greater than a
million dollars each from the Rockefeller Foundation, Deloitte LLP, the
Prudential Foundation, and federal taxpayers (through the U.S. Agency
for International Development). Other prominent supporters include the
Robert Wood Johnson and Annie E. Casey foundations. And the philosophy
of "social enterprise" animating B Lab seems likely to spread: It has
been embraced by U.S. business schools, including (among others)
Harvard, Berkeley, and New York University, which include benefit
corporations in their high-profile business-plan competitions.
According to the B Lab, there are now 650 firms that have already
secured B Corp certification; they collect $4.7 billion in revenues in
19 countries. One of the more prominent B Corps is the long-established
apparel maker Patagonia, which, according to its mission statement,
seeks "to build the best product, cause no unnecessary harm, and use
business to inspire and implement solutions to the environmental
crisis." Most B Corps, however, are small start-ups — often traditional
small businesses augmented with a "green" goal. Examples include
gDiapers, Green Building Services, Piedmont Biofuels, and Guayaki
Sustainable Rainforest Products.
The B Corp movement could be dismissed as little more than a
marketing posture if its advocates didn't aim to overhaul the entire
capitalist system — to lead "a global movement to redefine success in
business," as B Lab puts it. To this end, a major aim of the B Lab is to
enshrine the benefit corporation as a new corporate form recognized by
law in all 50 states. The B Lab's web site features a map titled
"Creating a New Kind of Corporation for a New Economy," which tracks the
status of benefit-corporation legislation in each state. Model
legislation developed by a major corporate law firm — Drinker Biddle
& Reath — has been passed into law in 11 states, including
California and New York.
The legislation envisions more than some sort of general seal of
approval. Rather, it offers (its drafters hope) important legal
advantages and protections for these new quasi-capitalist enterprises.
As William H. Clark, Jr., and Larry Vranka note in their white paper
"The Need and Rationale for the Benefit Corporation: Why It is the Legal
Form That Best Addresses the Needs of Social Entrepreneurs, Investors,
and, Ultimately, the Public," the benefit-corporation designation, once
awarded by a state, "serves to protect against the presumption that the
financial interests of the corporation take precedence over the public
benefit purposes, which maximizes the benefit corporation's flexibility
in corporate decision-making." This implies significant protection
against shareholder suits, hostile takeovers, and other investor actions
based on traditional concerns about profitability and the judgment and
acumen of firm executives. As the B Lab rightly puts it, these are
apparently "little things" that are actually "game changers" in how
corporate activity is conducted, and to what ends.
Perhaps most notable, however, is the elaborate questionnaire-based
scoring system developed to assess the performance of B Corps. The "B
Impact Assessment" form scrutinizes every aspect of a business
enterprise's goals and operations, divided among five major areas
(governance, workers, community, environment, and "socially and
environmentally-focused business models"). Questions posed to
respondents include not only whether the firm's leaders have "clear
statements of your mission, its goals, and the change you seek," but
whether they offer "quantifiable results from your mission (e.g., lbs of
carbon offset)." The section on employees inquires not only about
compensation — the survey asks, "Is an hourly living wage paid to all
full-time, part-time, and temporary workers?" and notes that this
criterion is "heavily-weighted" in developing the firm's final numerical
score — but also about the presence of an employee ownership plan.
In effect, the assessment is an elaborate list of what B Lab
considers best practices: labor policies that include flex-time work
schedules and job sharing; products and services that "address an
economic inequality," "[preserve] the environment," or "improve health";
attention to supplier and employee diversity (the assessment asks,
"What [percentage] of workers resides in low-income communities?"); and
ownership patterns implicitly critical of the multi-national firm ("Is
the majority...of the company's ownership located locally to at least
two-thirds of your workforce?"). No detail is too small when considering
whether a firm provides social benefit, including its use of low-flow
toilets. And if all this might be taken to imply an alignment with at
least some protectionist and organized-labor interests, it should not
surprise that the questionnaire inquires as to whether the firm is a
member of such organizations as the Fair Labor Association or
International Labor Association.
While currently used to provide a seal of approval for niche firms,
this B Lab evaluation system could foreshadow a regulatory schema that
might, should the opportunity arise, be applied across businesses more
broadly. The implications would be vast: Such regulation would,
crucially, allow firms to hide inefficiency behind service to good
causes. Indeed, it would tend to render moot the price signals that not
only drive efficiency but also serve to allocate societal resources more
broadly. In short, it implies just what B Lab — and its well-heeled
philanthropic supporters — promise: "a new sector of the economy that
will redefine success in business."
The worry, of course, is that this redefinition will not be confined
to its own corner. And that worry is justified, in no small part because
of the tendency of the quasi-capitalist model to claim the moral high
ground and demonize traditional business. As the B Lab explains in its
2012 report, "B Corps demonstrate that we can create a both/and
economy — not just an either/or economy." In other words, traditional
capitalism is deficient: Under the existing system, a firm may produce
either
profit or social benefit — but these are mutually exclusive, and so
entrepreneurs cannot provide both. The B Corp — both its existence and
philosophy — is a stinging indictment of that system.
In addition to concerns about how quasi-capitalism undermines the
perceived legitimacy of traditional capitalism, there are also reasons
to worry about its practical effects on the broader economy. Recall that
we have already seen models of regulation-driven capital allocation
based on the sort of social-justice criteria embedded in the hybrid or B
Corp models. The Community Reinvestment Act, for instance, requires
banks to invest in low-income geographic areas or to extend credit to
disadvantaged households. People can argue whether the CRA played a
significant role in precipitating the housing bubble and the 2008
financial crisis. What is not open to question, however, is that
regulators issue banks' CRA ratings (crucial to determining whether the
banks can expand or merge) based not on the performance of such loans,
but on the volume of them. Put another way, the CRA sees using corporate
resources to extend credit to the poor as an end in itself, regardless
of financial viability. The same was true (on a much larger scale) of
the affordable-housing mandates of Fannie Mae and Freddie Mac.
Benefit corporations must also be seen as a threat to traditional
philanthropy. Indeed, the same must be said of quasi-capitalism more
broadly: Profit-donation firms embed philanthropy in consumer purchase,
diverting revenue and reducing the money available to traditional
service groups seeking public support. Corporate social-responsibility
demands divert funds from those corporate community-citizenship projects
not tied to flavor-of-the-month crusades.
And the diktats that come with B Corp status imply that certain
business approaches — for instance, the use of low-volume toilets — are
moral goods, inherent to the pro-social form of capitalism. In reality,
however, these practices may well represent more costly approaches to
the production and purchase of goods or services, or even to personnel
policies (as in the case of a firm that must pay above-market wages, or
that cannot lay off an underperforming worker, because of the terms of
its triple bottom line). Of course, the quasi-capitalist movement exists
to encourage firms to sacrifice profit in the name of the environmental
and social goals favored by activists. But if firms did not forgo these
profits, they would instead be able to direct them to the full range of
philanthropic ideas and causes.
Ultimately, it is the profit flowing from successful businesses that
allows for the combination of revenue, discretion, and creativity that
makes possible philanthropic feats like those of Rockefeller, Carnegie,
and Gates. Profit-donation firms, CSR campaigns, hybrid businesses, and
benefit corporations thus exist at the expense of the traditional
charitable sector — which affords donors infinitely more choices than
the narrowly defined aims of B Lab, and which has a much longer and more
demonstrable track record of success.
IN DEFENSE OF TRADITIONAL CAPITALISM
Pointing out the inherent pitfalls of the quasi-capitalist approach
is necessary in order to debunk it, but not sufficient. Those who would
defend traditional capitalism must also address this new movement's
central assumption: that traditional capitalism is an anti-social
activity predicated on private gain at public expense.
This defense must of course begin with Adam Smith. In oft-quoted lines from
The Wealth of Nations,
Smith clearly described (and championed) a system of enterprise and
commerce that served broad social needs without anyone's
self-consciously setting out to do so: "It is not from the benevolence
of the butcher, the brewer, or the baker, that we expect our dinner, but
from their regard to their own interest," he wrote. "We address
ourselves, not to their humanity, but to their self-love, and never talk
to them of our own necessities, but of their advantages." In a less
well-known passage, Smith addressed the issues engaged by the
quasi-capitalists even more directly. In discussing the business owner,
he wrote: "By pursuing his own interest, he frequently promotes that of
the society more effectually than when he really intends to promote it. I
have never known much good done by those who affected to trade for the
public good. It is an affectation, indeed, not very common among
merchants, and very few words need be employed in dissuading them from
it."
Defending against the encroachment of quasi-capitalism requires more
than theory, of course. There are important points to be drawn from
history as well. The rise of quasi-capitalism demonstrates the extent to
which the general increase in living standards since the advent of the
modern market economy is very much taken for granted as a natural and
inevitable state of affairs. But as Yeshiva University's James Otteson
has observed, the benefits of capitalism are a departure from historical
norms. In his essay "An Audacious Promise: The Moral Basis for
Capitalism," Otteson writes,
Since 1800, the world's population has increased sixfold; yet despite
this enormous increase, real income per person has increased
approximately 16-fold. That is a truly amazing achievement. In
America, the increase is even more dramatic: in 1800, the total
population in America was 5.3 million, life expectancy was 39, and the
real gross domestic product per capita was $1,343 (in 2010 dollars); in
2011, our population was 308 million, our life expectancy was 78, and
our GDP per capita was $48,800. Thus even while the population increased
58-fold, our life expectancy doubled, and our GDP per capita increased
almost 36-fold. Such growth is unprecedented in the history of
humankind. Considering that worldwide per-capita real income for the
previous 99.9 percent of human existence averaged consistently around $1
per day, that is extraordinary.
What explains it? It would seem that it is due principally to the
complex of institutions usually included under the term "capitalism,"
since the main thing that changed between 200 years ago and the previous
100,000 years of human history was the introduction and embrace of
so-called capitalist institutions — particularly, private property and
markets. One central promise of capitalism has been that it will lead to
increasing material prosperity. It seems fair to say that this promise,
at least, has been fulfilled beyond anyone's wildest imagination.
Yet as impressive as they are, even these broad descriptions of
increased general wealth and diminished poverty do not adequately rebut
the claims of the quasi-capitalists. This is partly because
quasi-capitalism is rooted in the specific: It seeks to advance very
particular causes (such as reduced carbon outputs) or serve very
particular populations (low-income immigrant women) using methods and
practices that the quasi-capitalists themselves codify and strictly
monitor.
But traditional capitalism has its own specific stories to tell.
Consider, for instance, the 2007 analysis by University of California,
Los Angeles, economist Robert Jensen (then at Harvard) of the
introduction of cell phones to the fishing industry in the Indian
coastal state of Kerala. Historically, the fishermen catching sardines
in the Arabian Sea faced a conundrum: They had no way to know at which
of many commercial ports their competitors had already sold their catch,
and thus no way to know where they might get the best price. Indeed,
they often had no way to know where to sell their catch at all before it
spoiled: Between 5% and 8% of the catch was typically wasted.
But in his paper "The Digital Provide," Jensen found that the simple
introduction of cell phones — technology developed in the robust
for-profit sector, and distributed through traditional commercial
channels — changed the situation dramatically. Armed with mobile phones,
fishermen could call ahead to ports and determine where their catches
would fetch the best prices, thereby increasing their incomes and
avoiding waste of environmental resources. As Jensen explained it,
"Using microlevel survey data, we show that the adoption of mobile
phones by fishermen and wholesalers was associated with a dramatic
reduction in price dispersion, the complete elimination of waste, and
near-perfect adherence to the Law of One Price. Both consumer and
producer welfare increased." The Kerala example illustrates, in other
words, how traditional capitalism is capable of producing profits
and social and
environmental benefits, contrary to the quasi-capitalists' claims.
The
Economist looked at Jensen's findings in the context of
work by the London Business School's Leonard Waverman, who in 2005 found
that (as the
Economist put it) "an extra 10 mobile phones per
100 people in a typical developing country leads to an additional 0.59
percentage points of growth in GDP per person." Moreover, the article
explained, these social benefits are provided not in spite of
traditional capitalism, but because of traditional capitalism — and
only
because of traditional capitalism. The profit motive is what makes
these gains possible. "Mobile-phone networks are built by private
companies, not governments or charities, and are economically
self-sustaining," the
Economist noted, citing Jensen. "Mobile
operators build and run them because they make a profit doing so, and
fishermen, carpenters and porters are willing to pay for the service
because it increases their profits. The resulting welfare gains are
indicated by the profitability of both the operators and their
customers, [Jensen] suggests. All governments have to do is issue
licenses to operators, establish a clear and transparent regulatory
framework and then wait for the phones to work their economic magic."
Absent from the discussion was any reference to multiple stakeholders
and bottom lines, or alternative criteria for assessing how the
practices of mobile-phone companies help underserved populations. The
benefit to all parties involved can be clearly measured by one data
point: profit.
The Kerala example is revealing, but one does not have to seek out
exotic locales in developing nations for similar case studies. In
another example involving mobile technology, George Mason University's
Thomas Hazlett used the fifth anniversary of the launch of Apple's
iPhone to examine the device's impact. He noted how popular it had
become and how lucrative the phone had been for Apple: While the company
sells just 9% of all cell phones, it garners 73% of the industry's
profits, and Apple's market capitalization has vastly increased since
the iPhone first went on sale.
But Hazlett also pointed out the iPhone's benefits to small tech developers, for whom (as he wrote in the
Wall Street Journal)
it is "opening fantastic opportunities." He went on to explain:
"Downloads from the proprietary Apple App Store reached 30 billion this
year, with 650,000 applications available. Independent software
developers who create those apps are feasting in the Apple ecosystem.
They receive 70% of store revenues, so their share is more than $5
billion thus far." This doesn't even take account of the gains enjoyed
by users of those applications — to spend less time in traffic and get
to meetings on time, or to take photographs of a factory the firm wants
to rent and send them to a partner overseas to get his opinion and hear
his concerns while the facility visit is still taking place. It is
daunting to even begin to consider the social benefits Steve Jobs
created — without explicitly aiming to (as the quasi-capitalists would
require), and all while pursuing profits.
CAPITALISM'S UNCONSCIOUS GOOD
There was once a time when business leaders themselves were willing
to assert unabashedly that their enterprises led to social benefit, as
Andrew Carnegie did in "The Gospel of Wealth." Today sensibilities have
changed, and few executives are willing to follow in Carnegie's
footsteps. But by failing to stand up for our existing system of free
enterprise, these executives do a disservice to more than themselves,
their companies, and their shareholders. They fail to appreciate the
lessons taught by both Adam Smith and the story of the fishing industry
in Kerala: that a great deal of social good can be realized
"unconsciously" through traditional capitalism and that, in many cases,
the scale of these social and environmental benefits cannot be matched
by any organization not driven by the pursuit of profit.
This is not to say that there are no new ideas about business and social benefit worth considering. For example, writing in the
Financial Times,
Alexander Friedman, the chief investment officer at UBS, and Patty
Stonesifer, a former Gates Foundation CEO, have proposed that investment
advisors and financial institutions routinely guide clients to allocate
0.1% of their assets to philanthropy — and to identify high-performing
social programs to which to direct such funds. They estimate that this
approach would increase philanthropic giving by some $100 billion
annually. "The financial intermediary," they write, "would make
philanthropy as easy for clients as buying a share of stock or investing
in a mutual fund." It's a well-conceived proposal that, in effect,
relies on an in-kind contribution of a firm's time and expertise — in
keeping with the tradition of corporate community contributions.
The key here — and for any proposal that might seek to direct
financial resources to organizations undertaking good works — is a
recognition that business and philanthropy are essentially distinct.
Confusing and confounding their goals risks undermining the efficacy of
both. Quasi-capitalists are right that markets cannot meet all
needs — especially the needs of individuals who lack the skills and
habits to participate in those markets. They are profoundly wrong,
however, to assert that the fruits of private enterprise are solely
private, and that traditional capitalism meets no social needs at all.
Our system of free enterprise has, over the years, evolved to produce
broad prosperity and high standards of living unimaginable for most of
human history. Should the quasi-capitalists succeed in undermining or
supplanting the structures that have made those benefits possible, they
will surely harm the very people and causes they claim to help — not to
mention the rest of society. Quasi-capitalism thus presents a very real
threat to our innovative economy and dynamic way of life. We fail to
take it seriously at our own peril.
Source: National Affairs
~~~~~~~~~~~~~~~~~~~~
Benefit Corporations: Twelve States and Counting
09 January 2013
On December 1, a
new benefit corporation statute went into
effect in Massachusetts, making the state
one of twelve that have enacted
legislation allowing for the formation of this new form of
corporate entity.
Benefit corporations are similar to traditional for-profit
corporations but they differ in one important respect. While
directors and officers of traditional for-profit corporations must
focus primarily on maximizing financial returns to
investors, the directors and officers of benefit corporations
are expressly permitted to consider and prioritize the social and
environmental impacts of their corporate decision-making.
States that have passed legislation include:
California, Hawaii, Illinois, Louisiana, Maryland, Massachusetts,
New Jersey, New York, Pennsylvania, South Carolina, Vermont, and
Virginia.
States that are currently considering
legislation include: Alabama, Arizona, Colorado, Connecticut,
Florida, Georgia, Iowa, Michigan, Nevada, New Mexico, North
Carolina, Oregon, and Texas. Washington, D.C. is also considering
legislation.
Approximately
200 benefit corporations are estimated to
have been formed across the country in the last 18 months.
Under the newly-adopted Massachusetts legislation, the
boards of directors and officers of benefit corporations are
required to consider the effects of their corporate decision-making
on the following:
- The shareholders of the benefit corporation;
- The employees and workforce of the benefit corporation;
- The interest of clients;
- Community and societal factors, including those of each
community in which offices or facilities of the benefit corporation
are located;
- The local, regional and global environment;
- The short-term and long-term interests of the benefit
corporation; and
- The ability of the benefit corporation to accomplish its
general and specific public benefit purposes.
The Massachusetts legislation allows for the establishment of
new benefit corporations, as well as for the conversion of existing
corporations to benefit corporation status. A
guidance document recently
released by the Massachusetts Secretary of State's
office provides the following example of the possibilities provided
by benefit corporations:
[T]he directors of a traditional for-profit corporation faced
with financial difficulty may opt to build up cash reserves by
laying off employees in order to fulfill their fiduciary duty to
prioritize returns to investors. A benefit corporation's
directors faced with similar economic circumstances could
prioritize retaining the corporation's workforce through hard
times, opting to dip into cash reserves to do so, in order to
pursue the corporation's public benefit goals.
Benefit corporations should not be confused with "Certified
B Corporations" (or "
B Corps") which are for-profit
corporations, LLCs, partnerships and other business entities
(including benefit corporations) that have been certified
by
B Lab, an independent nonprofit as having met certain social,
environmental, and governance standards. While benefit corporations
and B Corps are not the same thing, B Lab has been a
strong advocate for the enactment of benefit
corporation legislation.
Benefit corporations should also not be confused with nonprofit
corporations even though both types of organizations may have
similar public benefit purposes. The assets and earnings of
nonprofit organizations must generally be used for the benefit of
the public whereas a benefit corporation operates as a for-profit
entity and may distribute earnings to shareholders and otherwise
operate for the benefit of its investors.
Benefit corporation statutes in some states have been criticized
for leaving open the possibility that directors and officers could
be attacked by shareholders for not doing enough to benefit the
public. The new Massachusetts law provides specific protection for
officers and directors from this kind of attack by specifying that
directors and officers of benefit corporations organized under the
legislation are not personally liable for monetary damages for any
"failure of the benefit corporation to pursue or create
general public benefit or a specific public benefit."
Even though directors and officers of a benefit corporation are
not personally liable for a failure of the corporation to pursue or
create public benefit, the new statute does include procedures by
which directors or shareholders may initiate so-called benefit
enforcement proceedings against a benefit corporation that fails to
pursue its public benefit purposes.
SOURCE: JDSUPRA LAW NEWS
~~~~~~~~~~~~~~~~~~~~
Also see related article by Stephen Poole - Benefit Corporations: Expansion of the Public-Private Fascist State
August 30, 2012 Radio Update: B Corporations and Agenda 21 Dr. Mike Beitler interviews Wynne Coleman
Massachusetts companies create socially responsible 'benefit corporations'
November 28, 2012 The Benefit Corporation Movement
Jan. 9, 2013 Benefit Corporations, 12 States and Counting
Related Links:
Benefit Corp
