Plenty of for-profit corporations operate with some measure of community benefit, often limited to charitable contributions to offset tax liabilities. However, there is a growing trend toward purpose-driven business. The indirect benefits to corporations who "give back" are hard to measure, but clearly arguable. Employees who work for an engaged company and witness positive impact in their neighborhoods are likely to be happier, more productive and loyal. Potential customers who observe the same actions may be more inclined to purchase the company's products or services.
Socially responsible corporate leadership could argue that an investment in the community beyond the standard 1-2% of pre-tax profits positively impacts the bottom line. But, would their argument hold up in court?
eBay vs. Newmark
Did you know that eBay purchased a decent share of Craigslist in 2004 and owns approximately 25% of the for-profit corporation?
Craig Newmark, the founder and namesake of Craigslist, along with CEO Jim Buckmaster, have been fairly transparent about their desire to simply provide classifieds, rather than maximize shareholder value.
Obviously, this isn't in eBay's best interest as a major shareholder and making a fairly long and complicated story short, eBay sued Craigslist and won on several points.
The bottom line?
For-profit corporations have a law-binding fiduciary duty to maximize profits. Which makes it difficult to divert any significant resources to social impact.
In steps the BCorp
As described in a prior post, benefit corporations are a recent corporate entity breed that maintains the for-profit nature of business, but adds in a mandate to have a “material positive impact” on society and the environment.
As of this post, 27 states have passed benefit corporation laws. In May, local purpose industry organization, P3 Utah, celebrated the addition of Utah to the list of states benefiting from BCorps.
P3 Utah is a nonprofit promoting business for people, planet and profit. Founder and Executive Director, Steve Klass, was interviewed by Utah Business last month and described benefit corporations:
They define success by what is called the ‘triple bottom line,’ or the degree by which they can improve human existence for their employees and communities and the environment, while also making a profit. It’s doing good while doing well.”
Becoming a B-corp doesn’t come with any financial benefits, tax incentives or preferential treatment. However, as a B-corp, the company can expand its fiduciary duty beyond maximizing profits, without fear of investor or shareholder whiplash.
One might also predict that the new breed of consumer will begin looking for the B-Corp designation when making purchase decisions.
A Purpose-Driven Economy?
Economists and marketing experts have commented on the timing of socially responsible businesses, noting that the millennial generation has much greater expectations of the businesses they patronize, demanding a give back philosophy and tangible results rather than an annual corporate social responsibility report on dollars donated.
Aaron Hurst, author of The Purpose Economy, describes the concept of an economy that caters to our need for something more:
Could an increasing consumer demand combined with a highly entrepreneurial generation equate to a major impact to our economy?
Harvard professor and corporate strategist, Michael Porter, thinks so, having launched the Social Progress Index, a global index that measures more than GDP (the US ranks 16th with an overall SPI of 82.77 as of 2014).
There's also been an explosion of mutual funds and investment opportunities for the socially responsible investor, from 50 in 1995 to over 500 "SRI" funds today.
Claim Your Stake
Businesses like TOMS Shoes with it's one for one donation promise and Starbucks with its healthcare coverage for even part-time employees are proof that social impact is highly correlated with profit in light of the changing values of consumers.
Is your business ready for such scrutiny?
P3 Utah's 4th annual conference will provide insights, tools and resources, and a network of role models on September 18th and 19th in Salt Lake City. Session topics include social enterprise, local partnerships, employee engagement, sustainability through LEAN, and more.
Register now to ensure you get a seat at the purpose economy table.