Rob Swystun, Pristine Advisers
Corporations and shareholders that measure success by parameters other than just profit?
What madness is this?
Socially responsible corporations have been around for a while, of course, but now they’re starting to sneak from the fringes of the business world into the mainstream thanks to changing regulations and attitudes.
Plenty of states, including corporation-friendly Deleware, have legalized benefit corporation status. This requires companies that want the status to consider not just their impact on shareholders, but their impact on the general environment, workers and the community. Maybe the most important aspect of benefit corporate status, as outlined by Co.Exist senior editor Ariel Schwartz writing for FastCompany, is that it prevents shareholders from suing companies for failing to maximize profits.
When Deleware’s law became active on August 1 last year, Plum Organics, makers of organic baby food, jumped on board, becoming one of the first companies to adopt the status. Hundreds of private companies are already benefit corporations, but now that Plum Organics has been acquired by Campbell’s Soup, that makes it the first one under a public company umbrella.
Now, the question is, how long will it take for a public company to adopt the status?
The answer: 23 years, five months and four days.
No, wait! The truth is we don’t know exactly how long it’ll take, but now that Deleware, the state where over half of all corporations in the US are incorporated (it’s on the Welcome the Deleware sign) has legalized the status, a public company adopting it seems like an eventuality.
“We begin the process of socializing this concept among the large institutional investors, pension funds, insurers, and regulators that ultimately drive the public capital markets,” says Jay Coen Gilbert, cofounder of non-profit agency B Lab. “It’s going to take more than a minute to get from ‘Never heard of it’ to ‘Heard of it, sounds scary’ to ‘Oh wow, that could potentially be interesting.’”
B Lab hands out its own non-legally binding certification to companies that meet a set of corporate social responsibility standards laid out by the nonprofit agency. So far, over 900 companies have adopted the B Corporation certification and it may just be one of those B Corporations that is the first public company to get Benefit Corporation status, as many Benefit Corporations also happen to be certified as B Corporations. Some B Corporations have even gone public. But none of the public ones has adopted the legally binding status of Benefit Corporation, at least not yet.
“I think that will happen, but I don’t think that will happen in the next 12 months. That’s a longer term process that I think will likely be preceded by successful IPOs, more M&A activity, and work on supply chain,” says Gilbert.
Obviously it goes well beyond that, though. In order for a public company to adopt Benefit Corporation status, the shareholders in that company are going to have to have an entire shift in attitude and expectation for it to work. Shareholders will have to accept that what they’re investing in isn’t just a matter of monetary profit, but profit that goes beyond money, making not only shareholders richer, but everyone associated with and impacted by a company richer in ways other than fattening a bank account.
Corporations already largely have human status, but if a public company is to adopt Benefit Corporation status, shareholders will have to embrace corporations that actually act humanely.