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Socially Responsible Business

People’s Choices Matter

Although new corporate forms like B Corps make it easier to pursue a social mission, it turns out that you don't need one to do so.

Corporations are gaining more power every day, and the leaders of these organizations aren’t always using it to promote the social good. The US Supreme Court decision Citizens United v. Federal Election Commission, granting corporations the same rights as people to participate in political speech, is wreaking havoc with the electoral process. And major corporations continue to violate laws and the public trust. The recent news that Barclays (and perhaps other banks) manipulated the LIBOR interest rate to boost their profits is a particularly egregious example.

So it’s no surprise that more and more people are trying to redirect the behavior of corporations and harness their power for good. Bill Gates has talked about the need for “creative capitalism,” and Muhammad Yunus has promoted the idea of a “social business.” On a more pragmatic level, US activists, entrepreneurs, and lawyers have created several new corporate legal forms that are designed to encourage business to pursue social good as well as profit.

These new legal forms—benefit corporations, low-profit limited liability companies (more commonly known as L3Cs), and flexible-purpose corporations—are in place in several US states. Benefit corporations, for example, must publish annually a report detailing their social and environmental performance. L3Cs are required to pursue a social mission, though many of the details are left up to the founders and investors to determine.

Although these new corporate forms make it easier to pursue a social mission, it turns out that you don’t need one to do so. In fact, it’s possible for a regular old corporation—such as a C corporation or an LLC—to pursue the same social mission as one of the new corporations.

That’s the assertion that Antony Page and Robert Katz make in “The Truth About Ben & Jerry’s,” on page 38 of this issue of Stanford Social Innovation Review. Most people believe that the story of Ben & Jerry’s is a classic tragedy. Two well-meaning hippies from Vermont started an ice cream company dedicated to doing well and doing good. The business thrived, but their mission was hijacked when the multinational corporation Unilever came along and made a takeover offer that the founders were legally required to accept. It turns out that this narrative is wrong.

Even though Ben & Jerry’s was a publicly held company, the company had constructed an impenetrable wall of defenses that gave the firm’s leaders the ability to reject any takeover offer, including the one from Unilever. Some of these defenses—like creating a separate class of stock with super-voting rights—are similar to those that Facebook and Google have. Other defenses—such as giving the company foundation control over an unusual class of preferred stock with veto power over unwanted takeovers—were more unusual.

In the end, Ben, Jerry, and the other executives in charge chose to sell the company. The lesson is that no matter what type of legal structure you have, it’s still up to the people in charge to do the right thing. A corporation can have all of the legal constraints and internal rules it wants, but these are for naught if the people leading the company choose to ignore them.

Read more stories by Eric Nee.

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