Robin Hood, CEO?

February 28, 2011 2:58 PM

Will shareholders want to invest in companies that don't have a laser-like focus on profit?" "In one US state, they've just brought in a new law which protects companies who put social responsibility before making money [companies referred to as "benefit corporations"]. . . . Shareholders can't [sue] if the company takes decisions to, for example, protect the environment or buy locally, even if that hurts the bottom line" [7:30 BBC audio report]. One way for entrepreneurs to walk the socially responsible walk is to get certification from B Lab, a non-profit that issues trust marks [the "B Corporation" label] for entire companies, not just individual products: "The B Corporation legal framework bakes your values into the DNA of the company so they can better survive new management, new investors or even new ownership."

What is the difference between "benefit corporations" and "B Corporations"? Benefit corporations are generic, recently developed legal entities; "B Corporation" is a certification brand that B Lab has given to over 300 companies including business suppliers, law firms, service companies like Untours, and consumer product manufacturers like Dansko and Numi Tea.

But [is there] a demand side to this equation that [B Corporation doesn't] address and that the Benefit Corporation Laws won't address[?]

posted by cybercoitus interruptus (37 comments total)

Small Dog, which is 15 years old, operates e-waste drives that recycle hundreds of tons of discarded electronics. It also matches customer donations to charities and pays 90% of its workers' health premiums. It even covers some veterinary care.

It's a socialist front, funded by George Soros. Think about it! Small Dog. SD. Sicherheitsdienst's acronym was... you guessed it! SD! Do your research sheeple!!

On a tangent, I have a box full of sawtooth memory. I'll report back on whether they take it or give me the finger. If I'm feeling lucky, I have two PowerMac Cubes in my attic. Ohboyohboyohboy.... judging by this profile, these guys gotta be suckers...

or Nazis.
posted by Bathtub Bobsled at 3:13 PM on February 28, 2011

This just doesn't makes sense for a variety of reasons. It's a nice idea but what is the profile of a potential shareholder for whom a Benefit Corp (BC) would be a good idea?

1. Middle-class retirement accounts:
a. People in this category rarely pick stocks directly, they stick with mutual funds and usually within plans. Some employer qualified plans make individual stock selection difficult or impossible.
b. People in this group have two distinct goals: growth of assets (young) and preservation of assets (old). BCs accomplish neither.

2. Charitably minded wealthy individuals:
a. No charitable tax deduction benefits, which (trust me) are eminently important to wealthy clients.
b. Why do this instead of start their own charity, or joining an existing charitable group as a major donor? BC provides none of the control or prestige.

3. Mutual funds:
a. No MF would pick a BC except as a stunt. There may come a time when a MF has a pool of BCs but again it would not be in the best interest of the MF's clients at any level of wealth. If you see a MF start listing a BC fund, it's part of their marketing plan.

4. Pension Groups/large institutional investors:
a. The BC simply does not belong in a well allocated portfolio if there are similar companies that are not thusly constrained. Institutional Investors (for the most part) have no business making charitable decisions.

5. Endowment Funds:
a. EFs exist to make as much operating income as possible for the organization they represent. That's it. Endowments generally fund charitable endeavors but the charitable decisions are not made by the fund manager.
posted by 2bucksplus at 3:35 PM on February 28, 2011 [3 favorites]

Hm, great post. I hadn't heard of this before, and it seems like a very useful adaptation. There's a vast middle ground between non-profit work and traditional for-profit corporations, which I've become more familiar with lately looking into innovative work in Africa. There are the traditional charities, dedicated to just giving stuff out for free, and there are the Pfizers, which continue the exploitation of the colonial era into the present. And then there are business-like projects which seek to fulfill social and environmental needs using a financially sustainable business model. (A great place to see this kind of work is through D-Lab (MIT, UC Davis), which is developing a great number of such projects. Full disclosure: I don't interact directly with D-Lab, but have a friend who's an instructor for the Davis D-Lab.)

As with many developing world innovations, these types of things have a hard time existing in the US's legal and financial environment. At the housing cooperative I live at, for example, we wanted to host a composting toilet for Engineers Without Borders, which had been building such toilets in Africa and wanted a local copy to gather data from. Environmental Health and Safety regulations kept that project from going forward; what's helpful in Africa couldn't be implemented in Davis.

Which illuminates one of the key points of the last link: The 'stick' approach to environmental and social justice is broken. Our regulations simultaneously keep innovative research from being applicable in the US and fail to really do much of anything about the problems caused by pure-profit mega-corporations.
posted by kaibutsu at 3:41 PM on February 28, 2011 [1 favorite]

3. Mutual funds:
a. No MF would pick a BC except as a stunt. There may come a time when a MF has a pool of BCs but again it would not be in the best interest of the MF's clients at any level of wealth. If you see a MF start listing a BC fund, it's part of their marketing plan.

I'm not entirely sure about this; if a group of potential clients exist who wish to invest primarily in BCs then the MF is economically rational in serving that need (possibly via a specialist fund).
posted by jaduncan at 3:42 PM on February 28, 2011 [1 favorite]

"No MF would pick a BC except as a stunt."

There are, in fact, already mutual funds specifically geared towards investment in socially responsible businesses. This niche, and the demand for it, already exists.
posted by kyrademon at 3:53 PM on February 28, 2011 [1 favorite]

I consider this link obligatory.

"Shareholder value" doesn't mean "short-term stock performance".
posted by kenko at 3:55 PM on February 28, 2011 [8 favorites]

No MF would pick a BC except as a stunt

There are "socially responsible" mutual funds. According to this article, they have returned slightly less than regular mutual funds, but people still invest in them.
posted by Triplanetary at 3:57 PM on February 28, 2011

Profits are social responsibility expressed in dollar terms. You make profit by meeting people's needs. That's responsible. What's irresponsible is deciding that YOU know what people need, and forcing them to take it. The profit motive is pure by comparison to the sanctimonious bullying of "social responsibility". Samuel Johnson said, "a man is never more innocently employed than when he's making money." The desire for profits is clean and transparent. The desire for "social responsibility" is the echo of some damaged ego, some hurt child wanted to work his or her will on the world.
posted by Faze at 4:05 PM on February 28, 2011 [1 favorite]

Actually, an endowment can be sued for NOT investing according to its mission statement. So can a lot of non-profits. Amnesty International is not going to want their investments to pay for war crimes or human rights violations. (Most) unions don't want to invest in companies that union bust.

Some SRI (Socially responsible) mutual funds do worse than the overall universe of mutual funds, and some have done better. They run the gamut. They do tend to underperform during war, which is perpetual these days, and when fuel prices are high, because many won't invest in any drilling.

A purely market rationale behind them is that that by not owning gross polluters (as an example) you aren't exposed to the risk of fines and lawsuits that go with that.

There are also socially responsible funds whose mission is to own shares so that they have access to the shareholder meetings and can file shareholder actions, which has gotten much more effective since the Obama administration took over the SEC. As I understand it, the Bush administration's SEC basically promised corporations that they could ignore shareholder actions with impunity. This is a privilege that the SEC is allowed to hand out, but its original aim was to minimize business distruptions by spurious shareholder resolutions, like demanding a horse be on the board, etc.
posted by small_ruminant at 4:06 PM on February 28, 2011 [2 favorites]

The desire for "social responsibility" is the echo of some damaged ego, some hurt child wanted to work his or her will on the world.

Faze, I know you live to be provocative, but this seems like a strange way to look a the world, even with that in mind.

I don't want to own slaves, even by proxy. I don't want to own private, profit-driven prisons, and the subsequent "tough on crime" laws that are pushed by those corporations destroy communities. I don't want to own companies that produce 2-story-high, weaponized bulldozers designed to knock down people's ancestoral homes. Profit is a false metric of what's good, right and worth living for. You are mistaking the symbol (of whatever money stands for in your life: security? freedom?) for the real thing.
posted by small_ruminant at 4:15 PM on February 28, 2011 [5 favorites]

Profits: Clean and transparent.

Or, uh, not.
posted by gracedissolved at 4:20 PM on February 28, 2011 [1 favorite]

You make profit by meeting people's needs. That's responsible.

Even the most rabid of free-market economists understands that externalities exist. Allowing US corporations to also recognise this fact is hardly going to destroy the profit motive. Your right to be greedy and shortsighted will not be infringed upon.
posted by pompomtom at 4:22 PM on February 28, 2011 [3 favorites]

The desire for "social responsibility" is the echo of some damaged ego, some hurt child wanted to work his or her will on the world.

I like it when sociopaths put their cards on the table. It's an indication that they're not likely to be one of the successful ones, the kind who can blend in with properly functioning humans.
posted by verb at 4:23 PM on February 28, 2011 [14 favorites]

Non socially responsible businesses make moral and ethical decisions all the time, and would force them upon me were I a shareholders. I believe that many corporations would go quickly bankrupt if they were required to pay for their currently unexamined environmental and health costs. I do remember reading that if large scale factory pig farms were forced to merely obey existing laws governing the disposal and handling of waste, they would not be able to be significantly cheaper than small scale farms. Not sure if this is really the case now but it's not that unthinkable. Many corporations make profits through exploitation or corruption. If at any point the government decided to do something about that those corporations would be in trouble.

Of course, this means that non socially responsible investing is going to do just fine for the foreseeable future.

Still, I personally prefer to invest as if there were some real hope for the future, which means IMHO sustainable investing.
posted by Deathalicious at 4:31 PM on February 28, 2011 [2 favorites]

Oh and let's not forget that the entire recent financial crisis was caused by people who were motivated by short term profit who made decisions at odds with even the shoddiest moral compass.
posted by Deathalicious at 4:36 PM on February 28, 2011 [1 favorite]

I am the type of potential shareholder for whom a Benefit Corp (BC) would be a good idea.

I am the type of person who donates some good money to worthy causes, expecting no personal profit in return.
posted by Dr. Curare at 4:47 PM on February 28, 2011

....decisions at odds with even the shoddiest moral compass.
But those decisions worked out pretty well for many of the people that made them. Perhaps they shouldn't have, but they did. Companies that successfully externalize their undesirable attributes (risk, pollution) often do remarkably well, because part of their "cost of goods" is paid from somebody else's wallet. Unless / until you force them to pay their own way, they won't.

I don't believe adequate force can be exerted just by investors declining to purchase their shares.
posted by spacewrench at 4:48 PM on February 28, 2011 [2 favorites]

I don't believe adequate force can be exerted just by investors declining to purchase their shares.

More effective, imo, is buying their shares and then going to shareholder meetings. Mutual funds and pensions own so many shares that their voice actually gets heard.

In the meantime, I won't buy some shares because it would be hard for me to sleep at night knowing I was THAT complicit in the atrocities they're perpetrating. There is no point in shareholders demanding that Corrections Corp of America stop building prisions since it's their raison d'etre. All I know how to do is to not buy the stock and to write my my state representatives asking them to fight against them.
posted by small_ruminant at 5:14 PM on February 28, 2011

This just doesn't makes sense for a variety of reasons. It's a nice idea but what is the profile of a potential shareholder for whom a Benefit Corp (BC) would be a good idea?

If the company is profitable and pays dividends, presumably people who like money? Obviously there would be a risk premium involved, but no one is just going to leave money on the table.
posted by delmoi at 5:15 PM on February 28, 2011

Oh, and this:

a. No MF would pick a BC except as a stunt. There may come a time when a MF has a pool of BCs but again it would not be in the best interest of the MF's clients at any level of wealth. If you see a MF start listing a BC fund, it's part of their marketing plan.

That's an incredibly myopic statement. It presumes that people are 100% greedy and focused on accumulating wealth no matter how much damage it causes to other people. Obviously 10 seconds of thought would indicate that's not the case. People would pick socially responsible funds if they were socially responsible, and it was an option (and they were aware of the damages caused by non-SR funds that invest, for example, in oil companies and military contractors).

But for most employees, there isn't even an option.
posted by delmoi at 5:18 PM on February 28, 2011

Profits are social responsibility expressed in dollar terms. You make profit by meeting people's needs. That's responsible.

Obviously. If, for example, you run around and shoot little old ladies and steal their purses, you are by definition being socially responsible as long as you don't get caught and make a profit off the cost of the bullets! That's just ECONOMICS.

Even the most rabid of free-market economists understands that externalities exist.

Au contrare. Lots of rabid free-marketers don't understand this, because they are in fact quite stupid.
posted by delmoi at 5:22 PM on February 28, 2011 [3 favorites]

In one US state, they've just brought in a new law ...

Can anyone tell us which state and what the law says, or what the statute citation is?
posted by Cletis at 5:40 PM on February 28, 2011

B Corporations remind me of L3Cs, which combine attributes of 501(c)(3)s and LLCs. See also Program Related Investments.
posted by Sticherbeast at 5:59 PM on February 28, 2011

Lots of rabid free-marketers don't understand this, because they are in fact quite stupid.

Touche.

No true economist...
posted by pompomtom at 6:12 PM on February 28, 2011

If your moral compass is so badly broken you look to Wall Street profits to tell you what to value, you're in pretty bad shape. Morality aside, that leads to a crazy-town feedback loop that ultimately renders everything worthless.

(There's also another kind of collective entity that can serve the public interest and that doesn't have to defend itself in court for not screwing its workers over: It's called a union. If union rights were put on an equal footing with corporate rights, and more of the workforce were organized, a lot of corporate abuses could be checked by the workforce. I know, I know. Somebody's grandpa got beaten by a union thug once. Sure. The unions are the side with the thugs now. I'll buy that.
posted by saulgoodman at 7:33 PM on February 28, 2011

A laser-like focus on profit is often a laser-like focus on short-term profit -- benefit for investors, but only the present generation of them.

The actual value of a stock is actually its revenue multiple. Is a stock worth 0.75x, 5x, or 25x its yearly revenue? That's entirely wrapped up in the long term potential revenue for the company. Being socially irresponsible ties oneself to some interesting long term risks -- fines, bad press, difficulty acquiring or retaining ethical talent.

Costco pays its people way over average, and in return has dramatically lower shrinkage rates.
posted by effugas at 7:39 PM on February 28, 2011

I would be remiss if I didn't share what I meant to share when I first saw this post -- a presentation by Jay Coen Gilbert given at TEDxPhilly. Possibly the most awesome thing about it was how it was specifically broke all the rules of making interesting presentations and still was one of the more interesting presentations there.
posted by Deathalicious at 8:41 PM on February 28, 2011 [2 favorites]

This seems to me like the worst of both non-profits and corporations. At best, it is a nifty way for mutual fund managers to collect a fat management fee before profits. I'd love to be wrong, though.
posted by b1tr0t at 9:22 PM on February 28, 2011

Cletis: Can anyone tell us which state and what the law says, or what the statute citation is?

House Bill 1009/SB 690, signed into law as Chapter 98 of the Laws of Maryland of 2010

Some of the main elements of Maryland’s benefit corporation legislation

How does Vermont's benefit corporation legislation compare to Maryland's?
posted by cybercoitus interruptus at 10:14 PM on February 28, 2011

Profits are social responsibility expressed in dollar terms. You make profit by meeting people's needs. That's responsible. What's irresponsible is deciding that YOU know what people need, and forcing them to take it. The profit motive is pure by comparison to the sanctimonious bullying of "social responsibility". Samuel Johnson said, "a man is never more innocently employed than when he's making money." The desire for profits is clean and transparent. The desire for "social responsibility" is the echo of some damaged ego, some hurt child wanted to work his or her will on the world.

Ha ha ha ha ha. Like selling arms to dictatorships?
posted by jaduncan at 2:03 AM on March 1, 2011

I would like to pause here and reflect upon the historical and philosophical foundations of artificial legal entities.

It seems to me that a precondition to the formation and existence of a filed ALE would be that the filing is accepted with the understanding that the newly formed Corporation would operate to the benefit of the Public. Otherwise what benefit to that public do they gain from recognizing the ALE in the first place.

You may now resume the discussion (once you've ceased laughing uncontrollably)...
posted by mikelieman at 3:02 AM on March 1, 2011 [1 favorite]

This just doesn't makes sense for a variety of reasons. It's a nice idea but what is the profile of a potential shareholder for whom a Benefit Corp (BC) would be a good idea?

Surprise! Defining people by how they want to maximize their money finds they all want to maximize their money!
posted by DU at 4:50 AM on March 1, 2011

No true Scottish economist...

FTFY.
posted by blue_beetle at 5:30 AM on March 1, 2011

Stop humping the laser!
posted by telstar at 5:48 AM on March 1, 2011

I have an idea. Why don't we give money to socially responsible corporations?
posted by LogicalDash at 6:36 AM on March 1, 2011

You know, I've said it before. I'll say it again. Corporate social responsibility is not a political solution. It is a marketing solution. Nowhere was this clearer than in last year's Target debacle and their eventual response.
posted by Subcommandante Cheese at 7:47 AM on March 1, 2011

1. Middle-class retirement accounts:
2. Charitably minded wealthy individuals:
3. Mutual funds:
4. Pension Groups/large institutional investors:
5. Endowment Funds:

None of which will exist if we keep plowing through our resources without an eye toward sustainability.
posted by fusinski at 7:55 AM on March 1, 2011