What A Good Company Looks Like

Posted by: John Tozzi on March 15, 2010

Twitter co-founder Evan Williams today declared at SXSW that the company’s first principle is to “be a force for good.” Like Google’s longstanding “don’t be evil” slogan, it’s a fine idea. It also could seem to conflict with each companies’ legal obligation to maximize returns for investors.

What would it look like if a company actually had that sentiment baked into its corporate charter? It might instruct directors to

consider the effects of any action … on the shareholders, employees, suppliers, and customers … the economy of the state, region and nation, community, and societal considerations, … and the local and global environment.

That’s from a bill before the Vermont Senate that would create a new legal form for companies in the state to that want to become designated “for-benefit corporations.” It’s designed to let companies that have social missions to codify those values in their governing documents. The proposed law also instructs directors to “consider the long-term and short-term interests of the corporation, including the possibility that those interests may be best served by the continued independence of the for-benefit corporation.” That would help firms avoid what happened to Ben & Jerry’s: reluctantly selling out to a buyer that doesn’t share the original firm’s values.

The Berwyn, Pa.-based nonprofit B-Lab, which certifies member businesses on social and environmental performance, is pushing for laws in several states to make it easier to formalize values in business. Vermont may be the first to pass legislation. Maryland legislators are considering a similar proposal, and efforts are underway in New York, Pennsylvania, North Carolina, Colorado, and Oregon. California lawmakers are weighing a different bill that would give companies the flexibility to incorporate with a particular non-financial purpose, but not the requirement to consider all the stakeholders that Vermont’s bill names.

“What the corporation will be doing will be committing to create general public benefit and may also elect to pick specific public benefit,” says Bill Clark, a partner at law firm Drinker Biddle who is helping B-Lab develop legislation on a pro-bono basis.

The movement to do create this in Vermont didn’t begin in earnest until last year, according to Andrea Cohen, public policy manager at Vermont Businesses for Social Responsibility. I mentioned a few months ago that one of the big ideas we’d see this year is new forms for social enterprise and new ways to finance them. Vermont could be the first state to make that law in the next several weeks before the state’s legislative session ends. Then companies that want to “be a force for good,” as Twitter’s founder says, could write it into their charter.

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Reader Comments

Rachel S

March 16, 2010 10:53 AM

What a promising movement!

So often we are shown the ever-evil side of business and business legislation. It's good to know that there are forward-thinkers making real progress on this kind of legislation.

I'm hopeful for the kinds of for-benefit, innovative organizations that could find their way within this kind of culture.

... but I have to ask, what's the catch? Are these 'too good to be true' kinds of legislation?

Louis V. Galdieri

March 17, 2010 10:03 AM

Promising, maybe, but it's important to ask hard questions of the B-corporation movement.

One has to do with the phrase “for-benefit” itself, and whether it can stand up to very close legal scrutiny, or survive a legal challenge.

Now, “for-benefit” is simply a certification; but when it’s a matter of corporate law, you can expect that someone is eventually going to point out that the for-benefit corporation is essentially chartered to pursue what looks very much like a political agenda.

Behind much of the talk about social enterprise and delivering social benefits through business lurks a 19th century idea: benevolent corporate paternalism, which now manifests itself in a more politically correct, palatable way, so kind and soft and sweet and full of concern that it might be better termed benevolent corporate maternalism.

By chartering corporations to deliver social benefits, isn't society also surrendering power? Instead of rewriting the laws to create for-benefit, for-profit companies, why don’t states more strictly enforce the existing laws, or enact laws on behalf of communities and the environment?

The rise of the social enterprise may actually signal society’s loss of its power to regulate and restrict business. These fledgling efforts to rewrite the law may -- albeit inadvertently -- usher in a new era of lawlessness, in which companies can do whatever they want, as long as they can claim to be doing good.


More at my blog: http://www.bit.ly/bgcqDA

Jeff Mowatt

March 17, 2010 10:28 AM

This is how it was put 14 years ago, in a white paper for President Clinton's re-election committee.

"The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a non-profit organization. The only restrictions are the normal terms and conditions of free-enterprise. If a corporation wants to donate a portion of profits to its local community, it can do so, be it one percent, five percent, or even fifty percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no one will object. The corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of employees and community leaders."

Deployed in 1999 to source a microfinance initiative in Russia, it has been a working social business model in the UK since 2004.

@briggsly

March 17, 2010 11:59 AM

"The rise of the social enterprise may actually signal society’s loss of its power to regulate and restrict business."
Patently false, in parts.
I think the rise of "do-gooder" for profits portents the government's ability to regulate and restrict business efficiently. That in the wake of the fiascos we've seen from Enron to AIG that the single greatest power to regulate business is society; the entrepreneur. We should be proud that a company like Ben&Jerry's wants an acquirer who will maintain their vision, not bastardize their legacy.
But should we create a whole new class of corporate entity that gives these socially conscious businesses a leg up? Not in my view. All companies should have an impact on their community, large or small. Should we dictate that certain company's get a benefit for giving back? Isn't a writeoff enough? Just the fact that there is a bill to this effect is evidence that the government just doesn't get it.
The reason companies like B&J's became so popular was good product and a good message. Twitter's mission statement and desire to do good helps their image. Good for them. Am I going to buy from a company who I know is giving back versus from a company selling a perfect substitute for the product I'm purchasing but I view that company as corporate scoundrels? Hell yes!
This is how the market works.

Jeff Mowatt

March 17, 2010 4:37 PM

The social business model I described above is one part of the economic paradigm described as people-centered economics, offered as a replacement for the nonprofit model which would co-exist in the existing market.

The core argument was a critique of capitalism which asserted that people who are real were rendered disposable by manipulation of abstract numbers to create debt. In this it identified the cause of the credit crisis which resulted 12 years later:

http://www.p-ced.com/1/about/background/

Emily Ralph

April 21, 2010 3:36 AM

Promising of course. I think every company must take a humanistic approach both towards its people and customers. Though the business plans and strategies will be there, it is this approach that makes a company look good in others eyes. At www.hellotrade.com, we have talked to many of our customers who are in turn small or mid sized business owners and we have observed a similar expectation. Apart from our professional services, they want us to be humanistic to realize their limitations.

kyle westaway

August 4, 2010 10:26 AM

John,

Great article. I love that you are highlighting this movement. I just want to make one quick correction, MD has already signed the legislation into law.

check out these articles on MD:
http://socentlaw.com/2010/06/explaining-the-maryland-benefit-corporation-law/

http://socentlaw.com/2010/03/maryland-first-to-pass-b-corporation-law/

Love this movement.

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What's it like to run your own company today? Entrepreneurs face multiple hurdles new and old, from raising capital and managing employees to keeping up with technology and competing in a global marketplace. In this blog, the Small Business channel's John Tozzi and Nick Leiber discuss the news, trends, and ideas that matter to small business owners. Follow them on Twitter @newentrepreneur.

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