B-Corporations are Real in California

It looks like the legislation making B-Corporations legal in California has passed and one big name corporation has signed up.

Read this previous post for more thoughts on what this means.

It's a good step towards making it legal, by changing the focus on shareholder primacy, for a public corporation to even consider doing what you or I would see as mandatory in our dealings with other people and with our communities.

Flexible Purpose Corporations - California making it legal for corporations to "care" about something other than money

In a previous post, I wrote about shareholder primacy (the law governing corporations actually requires the CEO to pursue shareholder profit even at the expense of other corporate goals or values) and how that makes it very difficult for a corporation to pursue goals that are not directly tied to increasing bottom line profits.

According to this Green Biz blog, California is getting ready to pass a law (2011 SB201) which makes it legal for corporations established in California "...to include a social and environmental mission that is given equal weight, perhaps even greater weight, than profits..." It protects CEOs and boards of directors in pursuit of such goals and it provides shareholder mechanisms to enforce the pursuit of the same.

That's an improvement.
If you can get companies to stop incorporating in Delaware.
By which I mean that "traditional" motives, training and culture need to change in addition to the law. Profit is so deeply rooted in American culture and history that it is difficult to even see how enthralled by the old ideas we are.

Saving the Savages = Breaking the System

I just finished reading The Wayfinders - Why Ancient Wisdom Matters in the Modern World by Wade Davis. Besides being one of the best arguments I've read on why sustainability matters and where we might "relearn" how to achieve it, there was a section on the consequences, however well intended, of misunderstanding the context of a culture and of applying the wrong solution to a problem because of it.

The story is of the people of the Kasuit desert in northern Kenya. For hundreds of years, they lived in this desert. They developed a culture that embraced the difficulties of living in the desert and, therefore, did just fine. Until severe drought, combined with nearby wars brought this region to the attention of the West. At which point, the United Nations took actions to "save" them from themselves.
Following is my summary of Wade's story.

The culture the originally developed worked like this:

To ensure that enough livestock survived severe drought, large herds of livestock were required.
To maintain large herds required large families, stewardship of the land and a nomadic lifestyle (so that the carrying capacity of any one area was not exceeded).
The requirement to have large families resulted in polygamy being common. But to maintain social harmony among the young men in a group where there were not enough women for every man, the culture developed rites around sending young men away to tend the herds. These rites bound together the men involved in them, creating life-long social bonds which reinforced the "commonness" of their use of the land (avoiding the "tragedy of the commons"). These rites also instilled a large amount of prestige in the men, allowing them to accept the situation which supported the large families.

Then the UN intervened and added a few things:

First they added the idea of private ownership of the land and, thereby, permanent settlement. This required the reduction of herd size which quickly led to dependence of outside aid to keep the people alive.
Outside aid included western education. The education broke the traditional rites of passage (by instilling the idea that such a life was "beneath" an educated man), which broke the personal ties which were necessary, among the other factors, to allow life in the harsh environment.

The entire culture collapsed and, along with it, the ability to sustain life in that place.
All with the best intentions...
...but without sufficient respect for the wisdom of the people who had learned to live within the limits of the place they inhabited.

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.