Guest Commentary: Getting Past Profit
Guest Commentary: Getting Past Profit
Elizabeth Warren wants large corporations to change their profit-at-all-costs model. B Lab'southward co-founder offers some means that liberals, conservatives and the private sector might all agree on a new vision for accountable capitalism
Aug. 16, 2018
In an opinion piece in The Wall Street Journal titled " Companies Shouldn't Be Answerable But to Shareholders ," Sen. Elizabeth Warren appear this week that she will innovate legislation called the Accountable Capitalism Act to crave all corporations with more $1 billion in revenue to become federally chartered and adopt a new model of corporate governance based on the benefit corporation model already in use in 34 states.
While promoting "Accountable Capitalism" may not be surprising coming from a liberal icon like Sen. Warren, it may surprise some who haven't been following the rise of the do good corporation to know that Republicans, the world'southward largest investors, and an increasing number of concern leaders have been promoting a similar thought for years.
On the political front, across those 34 state legislatures—including Delaware, abode to the majority of publicly traded companies and two-thirds of the Fortune 500—there have been 30 unanimous votes in support of benefit corporation legislation, and 88 percent of all legislators have voted in support. Benefit corporation laws have been signed by Republican Governors including quondam Indiana Governor and current Vice President Mike Pence; old South Carolina Governor and current U.S. Administrator to the United nations Nikki Haley; Gov. Scott Walker from Wisconsin; onetime Governors Sam Brownback from Kansas , Jan Brewer from Arizona, Chris Christie from New Jersey; and their peers in Florida, Idaho, Kentucky, Louisiana, Nebraska, Nevada, Tennessee, Texas, Utah and Virginia. Even libertarian conservative Sen. Rand Paul endorsed the benefit corporation model on a 2014 visit to Silicon Valley.
On the political forepart, beyond 34 state legislatures—including Delaware, home to the majority of publicly traded companies and 2-thirds of the Fortune 500—at that place have been 30 unanimous votes in support of do good corporation legislation, and 88 percentage of all legislators have voted in support.
Benefit corporations are exactly the same equally traditional corporations except for i important affair that is uniting strange bedfellows: Benefit corporations fix a source code fault in the operating system of capitalism—a legal concept chosen "shareholder primacy." Unlike traditional corporations, the boards of directors and officers of benefit corporations are required to consider the impact of their decisions non just on shareholders, only besides on other stakeholders, like workers, customers, communities, suppliers and the environment. Research , business leaders and investors are increasingly on the aforementioned page that this kind of stakeholder governance is non only proficient for society—it is practiced business.
The directors of benefit corporations exercise their expanded fiduciary duty in service of achieving a higher purpose than simply maximizing shareholder value—their public do good purpose is to create a fabric positive touch on on society and the surround. To create greater accountability and transparency, benefit corporations are required to publicly report about their social and environmental functioning then customers, workers, investors and policymakers tin assess for themselves whether the visitor is living upward to its promises. Non incidentally, this increased transparency builds trust, which in turn further builds value.
Equally a consequence, policymakers across the ideological spectrum aren't the only ones who like the do good corporation model of corporate governance. In addition to idea leaders like Nobel Laureate in Economics Robert Shiller , who says he believes benefit corporations, on the whole and over fourth dimension, volition be more profitable than traditional corporations, Larry Fink, CEO of BlackRock, the largest investor in the world with $6.3 trillion dollars under management, likes this thought likewise. In his 2022 open letter to CEOs, Fink called for "a new model of corporate governance ." Fink said that society'southward expectations of the role of business organization in society have changed, and that all companies need to demonstrate the social value they create or they "will ultimately lose the license to operate." Similar Shiller, BlackRock and a growing number of their fellow institutional investors believe that better governance volition drive value creation over the long term.
The risks—of growing inequality and climate change, for example—Warren believes, are too high to simply let the market decide the pace at which these large corporations decide for themselves when and how to serve the public involvement.
The Best Means to the Agreed-Upon Stop
Before nosotros tie this story too neatly in a bow, while Sen. Warren, Fink and Republican leaders concur on the end they seek, they disagree significantly on the ways by which they would attain that finish.
In contrast to Sen. Warren's regulatory approach, Republican and Democratic state legislators and Governors across 34 states, as well as investors similar BlackRock and those that control $viii.7 trillion in SRI (Sustainable, Responsible, Impact) investing, all prefer a market-driven approach that allows businesses and investors to opt-in voluntarily to this "new model of corporate governance."
Here'south the challenge Sen. Warren likely sees with this market place-based approach: Investors are likewise frequently more talk than action. Sen. Warren isn't alone in her skepticism. The leading international corporate police firm Cleary Gottlieb is besides skeptical that the actions of investors friction match their rhetoric. Lath votes, non open letters, influence corporate behavior.
In the few years since do good corporations laws accept been on the books, more than 7,000 businesses have adopted this new legal structure. Many of these benefit corporations are venture-backed, a few are publicly traded, and collectively they accept raised about $2 billion.
And then how has this played out so far in the marketplace?
In the few years since benefit corporations laws have been on the books, more than vii,000 businesses have adopted this new legal structure. Many of these benefit corporations are venture-backed, a few are publicly traded, and collectively they have raised nearly $2 billion. That sounds promising.
Nevertheless, some high-profile, venture-backed Certified B Corporations (e.yard. Etsy and Warby Parker) have been decertified when their boards, and presumably their investors, were unwilling to adopt the benefit corporation governance construction to meet the legal requirement to maintain their certification. The same hurdle of getting investor approval for adopting the do good corporation governance structure has been the greatest obstruction for many existing large publicly traded companies to pursue B Corp certification.
So far, beyond Laureate Didactics, who raised $90 million in an initial public offering every bit a do good corporation, and the Brazilian multinational Natura, who obtained investor approving for a do good corporation-like amendment to its manufactures of incorporation, there is simply one existing publicly traded company that has been willing to printing this issue with its investors. Equally reported in the current Economist story "Choosing Plan B ," Danone, the French food giant, is the only Fortune 500 company to date that has been willing to state publicly its intention to meet the performance and legal requirements to get a Certified B Corp, start declaring this to investors at their 2022 annual shareholder meeting.
Republican and Democratic state legislators and Governors across 34 states, as well as investors like BlackRock and those that control $8.7 trillion in SRI (Sustainable, Responsible, Impact) investing, all prefer a market-driven approach that allows businesses and investors to opt-in voluntarily to this "new model of corporate governance."
For Sen. Warren, this is just too slow. The risks—of growing inequality and climate change, for example—she believes, are too high to just let the marketplace decide the pace at which these large corporations—and the public capital markets which drive and constrain much of their behavior—decide for themselves when and how to serve the public interest. Sen. Warren, like the corporate attorneys at Cleary Gottlieb, is skeptical that the capital markets and the corporate boards they oftentimes control will ever actually vote for the "new model of corporate governance" they talk about.
So, not surprisingly, Sen. Warren wants the federal government to step in where markets have so far failed to protect and promote the public interest.
Uniting on the Means
In that location may exist a mode forward that would reconcile these ii competing visions for how to achieve the shared objective of "Accountable Commercialism." One style is for large institutional investors like Larry Fink to use their bully pulpit to say clearly that benefit corporation governance is one "new model of corporate governance" they would back up. This would signal to boards of directors that if companies want their investment dollars and to maintain their license to operate from other stakeholders (like the government), adopting a corporate governance structure like the benefit corporation would be welcome.
This capital market signal, and some meaningful showtime-mover adoptions from corporate leaders like Danone, would make a compelling case against the need for federal regulation of large corporations. These showtime-mover, large corporations could but apply the existing do good corporation statutes, which use shareholder accountability provisions and public transparency rather than federal oversight to provide guardrails on corporate behavior.
Another path frontwards to bring the regime-driven versus market-driven approaches closer together might exist for Sen. Warren to amend her proposed legislation to crave large corporations to apply existing benefit corporation state statutes rather than to create new federal oversight bureaucracy.
Either path forward might marshal Sen. Warren, leading Republicans, the capital markets and corporate leaders to unite not just around a common vision for the function of business in society, but also effectually the ways to make that vision a reality.
Jay Coen-Gilbert is co-founder of B Lab, a global movement of people using business every bit a force for good. This article kickoff appeared in Forbes .
Photograph: 1000000 via Flickr (CC BY-NC-ND 2.0) 
Source: https://thephiladelphiacitizen.org/guest-commentary-getting-past-profit/
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