An explosion of businesses doing good has created a legal industry all of its own. Laws have popped up on the books all over the country that create new structures–L3Cs, benefit corporations, flexible purpose corporations–to help businesses do good better.
Well, allegedly they help business be better social stewards. I’m not convinced. We had an UnSectored Talk a few months ago about this issue, and we decided that one of the main purpose of these structures is to ensure that the social mission of the company remains embedded in the activities, no matter who leads it.
Ben & Jerry’s sale to Unilever is the common case study given to illustrate the need for legal structures with a social focus. The story goes that Unilever offered them a deal, and since they were a publicly held company, they had to maximize shareholder value and accept the offer, even though it didn’t align with their social bottom line. Many people have said that if Ben & Jerry’s had been incorporated using these newer, socially-focused legal structures, they wouldn’t have had to sell out to Unilever. However, a new article from the Stanford Social Innovation Review dispels that myth.
The article gives a legal history to show that, actually, there isn’t much legal precedent to force a company to prioritize maximization of shareholder value in its decisions. The courts usually defer to the board, allowing them to guide the company and define what “shareholder value” means to them. In the case of Ben & Jerry’s, the authors illustrate that there were many board protections in place to prevent something like the selling-out to Unilever from happening if the board members didn’t actually want it.
Which is why, as an accompanying blog post says, it’s more about the individuals who run the companies than the actual structures of the companies themselves. If the leaders of a company truly don’t want to something to happen–like a financial decision that goes against part of the organization’s social mission–it’s very unlikely that that decision will be made. Which begs the question: If the old corporate structures suit our social purposes just fine, then why spend time and energy on developing new ones?
Well, I think that new corporate structures provide entrepreneurs with more choice, which is good, but as we discussed in our UnSectored Talk, they are only a temporary solution. Ideally, we wouldn’t be placing the onus on the law to dictate what a “good company” looks like. Instead, the individual should be responsible to create the change her or she seeks. I do think that all corporations should have a social focus over profit, but I don’t think we should (or can) dictate what that looks like.
If an individual wants to have a socially-focused company, then it will be. The old laws are good enough for that to be true–assuming you put the work up front to prioritize it in your legal documents. (I’m told the new laws make this ground work easier. I don’t know for sure, I haven’t started one.) If an individual doesn’t care about the social impact of the company, it probably won’t be a positive one.
Instead of putting so much weight on the legal structures, we should focus more on changing people’s perceptions. That is where the real change can be created: By making sure there are people at the head of Ben & Jerry’s that won’t sell. Or, even better, making sure there are people at the top of Unilever who will buy companies like Ben & Jerry’s to strengthen their social impact, rather than increase profit.
These new structures seem, to me, more reactive than proactive. Many seem like branding opportunities for companies, rather than real systems of accountability. I’m always skeptical of the next big thing, and the SSIR article on Ben & Jerry’s only makes me more unsure about the long-term usefulness of these structures.
Changing perceptions and culture is much more powerful than changing laws. If you change a society’s values, then the laws will follow. So how do we work to change those values, together?
Photo credit: kandisebrown