B (Benefit) Corps, the Business Model to Watch

A Different View (Courtesy of Ev and Jo Leave Trax)

As an entrepreneur and small business owner I often find myself in conflict feeling comfortable with large corporations. I remember looking into a Sam’s Club membership about five years ago and walking out of the store when they offered, as part of their “Small Business Membership” to provide me a free website package.

Wait… that’s what I do… and Sam’s Club is offering this?

Now of course the quality and product support is completely different from what I offer and I quite frankly don’t take on clients that would even consider a Sam’s Club website.

However it is the large corporate concept that every company must do everything for everyone in order to grow that makes me uncomfortable.

Corporations – Were Born That Way

Anyone that has had an issue with corporate irresponsibility (actual or alleged) has often asked why don’t they just make better deciusions regarding the environment or at least the consumer?

Recently I have learned that they are just born that way. About six months ago I came to the realization that it is corporate law itself that forces a company to place the benefit to the shareholder above all others – even the actual consumer.

An article published last week describes how a New California Law Will Boost Social Entrepreneurship and may begin to change the current model.

“The modern corporation was ‘Born to be bad,’” Patagonia founder Yvon Chouinard wrote in a letter to Governor Brown. “Benefit Corporations are ‘born to be good’ because their corporate purpose must include the pursuit of a material positive impact on society, not just shareholders.”

Corporations are chartered by states, and a historic body of law makes clear that all company directors and executives owe their shareholders is profits, profits and more profits; their fiduciary duty is their only duty.

If you do expect company’s officers to take into account other goals—like environmental sustainability, the well-being of their workers, or general public benefit—conflicts with the profit motive can expose even well-meaning executives to legal difficulties.

CouchSurfing.org, a community I am recent member of just announced a move to become a B Corp and I have been reading more on the subject lately. While this may not be a final solution I think it is a definite step in the right direction.

Business owners have always intended to and are entitled to profit. Most business owners never plan to place profits above the consumer they serve or the environment they live in. It is the loss of control required to grow and go public that shifts a company’s priorities to the benefit of shareholders unnaturally over those of consumer the company actually serves.


  1. David says:

    Congratulations on your book, I hope it does well for you. I glanced at a few of your articles and saw the following comment ” It is the loss of control required to grow and go public that shifts a company’s priorities to the benefit of shareholders unnaturally over those of consumer the company actually serves.”

    That statement is very scary, I would have guessed it came from a Hugo Chavez speech. Companies, which are people, whether public or private, goal is to make a profit for its shareholders by providing goods and/or services by competing in a free and open market. Their purpose is not to “serve”, as in a socialist society a business would do. The motivation of profit, “not a bad word” creates more efficient, more innovative healthier companies and a stronger growing economy.

    Just a little food for thought.

  2. Vinny says:

    David, thanks for the feedback and well wishes. It has been quite a process. On the subject of your comment I would have to admit that this blog entry was a bit premature and not completely accurate because it was written without nearly the amount of background I have a year later. I posted this just three months before coming up with the idea for my book.

    Using the word serve I think is accurate although the context of my use does make it sound like I might have been suggesting servicing the needs of the customer “over” the shareholder which I am absolutely not endorsing. You can’t run a business that way.

    In private companies we as owners certainly service the needs of our shareholders first (we need to put food on the table and roof over our family). Most of us also serve our customers and the communities we do business in with respect at the same time. This balance is struck by us as private business owners using our own moral compass and life experience.

    In public companies the balance is much harder to find and has been compounded by the teaching of economists and law professors over the past century. When I wrote my post last year I thought the imbalance was written in corporate law but in fact have found that it is actually not. An excerpt and quote from my book summarizes it.

    The usual explanation given for the purpose of a for-profit company is to make money for shareholders and in the minds of most people that has almost become law. The irony however is that it never has in fact been law. The opinion, and in fact it was only an opinion, stems from a 1919 Michigan Supreme Court decision in Dodge v. Ford Motor Co. where the court made an offhand remark that, “a business corporation is organized and carried on primarily for the profit of the stockholders.” The opinion was not relevant to the actual ruling and has not been sighted in other court cases since in relevant manner.

    Lynn Stout, Professor of Law from the University of California, Los Angeles (UCLA) school of law provides an excellent explanation of why Dodge v. Ford is still taught to law students. Why We Should Stop Teaching Dodge v. Ford

    In particular, Dodge v. Ford serves professors’ pressing need for a simple answer to the question “What do corporations do?” Their desire for a simple answer to this question can be analogized to that of a parent confronted by a young son or daughter who innocently asks “Where do babies come from?” The true answer to where babies come from is difficult and complex, and can lead to further questions about details of the process that may lie beyond the parent’s knowledge and comfort level. It is easy to understand why, faced with this situation, many parents squirm uncomfortably and default to charming fables of cabbages and storks. Similarly, professors are regularly confronted by eager law students who innocently ask, “What do corporations do?” It is easy to understand why professors are tempted to default to Dodge v. Ford and its charming and easily-understood fable of shareholder wealth maximization.

    In his 1909 autobiography John D. Rockefeller wrote, “I know of nothing more despicable and pathetic than a man who devotes all the waking hours of the day to making money for money’s sake.” In 1970 Milton Friedman wrote that “the social responsibility of business is to increase its profits.”. In 2011 Mark Zuckerberg stated in an interview that “for profit companies really give a great ability to align the incentives of a lot of people towards a goal… Society tends to undersell the mission value that for profit companies can have.”

    Zuckerberg and Rockefeller both created jobs, products, and of course profits while also doing very charitable things. Friedman used his entire lifetime to generate opinions on how the first two should run their business. Part of the purpose of my book is to inspire companies to take back some of the control we have given to academia and Wall Street in how we run our enterprises.

    I really enjoyed responding to this and welcome further discussion. I am putting what I believe is a big idea out and the challenge from friends will only help me be prepared for the challenges from others.

Leave a Reply

Your email address will not be published. Required fields are marked *