Tuesday, March 9, 2010

To be a good member of society, you must first break the law.

NPR had an interesting story this morning about some of the challenges facing "socially responsible" companies. Top among them being "shareholder primacy." That is, the law governing corporations actually requires the CEO to pursue shareholder profit even at the expense of other corporate goals or values.

In short: the law does not recognize two of the three pillars of the triple bottom line: People, Planet, Profit.

Joel Bakan wrote a book touching on this topic: The Corporation: The Pathological Pursuit of Profit and Power.
Two relevant takeaways being:
  • The current definition of cost in the profit = income - cost equation encourages externalization of as many costs as possible. The costs don't go away, they are just borne by someone else. In effect, you could say, the corporation is stealing from the parties who end up paying the cost.
  • The corporate structure encourages this behavior but the structure was put in place by people. Therefore people can change it... though it won't be easy.
There is also an organization trying to change this: B-Corporation.net
They have put together a legal and support framework to put the other pillars back into the articles of incorporation and thereby allow officers to address all stakeholders', not just shareholders', interests.
In their own words:

Objective: 

Expand the responsibilities of the corporation to include the interests of employees, consumers, the community, and the environment.

A. Give legal permission and protection to officers and directors to consider all stakeholders, not just shareholders
B. Create additional rights for shareholders to hold directors and officers accountable to consider the interests of employees, consumers, the community, and the environment, while also serving the best interests of shareholders.
C. Limit these expanded rights to shareholders exclusively; non-shareholders are not empowered with a new right of action.
It's a little bit crazy to need the law to be amended to allow a corporation to act like you or I as private citizens are required to act.

An alternative is to go private (or stay private) and remove the legal pressure of shareholder primacy. But I suspect that is another topic altogether. Building a business model around this requires some deep thinking, planning and a different idea of what "exit strategy" means from the outset.