Through the 1960’s, companies felt social responsibility was part of their culture. That all changed after a 1970 essay by Milton Friedman in the New York Times –“The Social Responsibility of Business is to Increase its Profits.” But recently a new type of corporate status has become popular, the Benefit Corporation, which requires companies to do social and environmental good.
Social responsibility has a warm, chocolatey, toasty fragrance. It’s what the air inside Greyston Bakery in Yonkers, N.Y., is perfumed with, and it’s enough to stop a reporter in her tracks.
“That would be remnants of brownies,” says Mike Brady, the company’s CEO.
Greyston turns out 30,000 pounds of brownies a day for Ben and Jerry’s Chocolate Fudge Brownie Ice Cream. The bakery sold almost $10 million of brownies last year. But Greyston isn’t a typical company. It’s what’s called a Benefit Corporation. That means in addition to normal requirements, Greyston also has to create a “material positive impact on society and the environment.”
Brady can provide a substantial list of positive projects the company has undertaken: solar panels on its roof, buying sustainable cocoa and sugar, providing social support for workers who need extra help outside of work — and when jobs open up, anyone gets the chance to work, no questions asked. The company even keeps a sign-up sheet in its reception area.
Companies can now become benefit corporations in 22 states, but how do you reconcile a social mission with a bottom line?
“I could spend 100 percent of my time trying to figure out the solutions for selling a good product.” Brady says. “But I dedicate my time and the time of my team to trying to focus on how we can figure out the environment and the community, ultimately hoping that that’s going to lead to us selling more products, and that’s been the case so far.”
Erik Trojian, director of policy for B Lab, a non-profit that certifies benefit corporations, says that traditional corporations are limited by their duty to maximize shareholder profits, rendering them unable to focus on other missions.
“The unique thing of a benefit corporation is it deregulates the purpose of a corporation by saying, you can consider other factors than profit,” he says. “You can consider society and the environment. In addition to profit.”
Trojian notes that because benefit corporations have to report and answer to shareholders, just like traditional corporations, unlike traditional corporations they can be held accountable for doing good.
“If the only goal of a corporation is to maximize profits, these investors don’t have a right to say, well, I have a mission-oriented fund, I invested in your company, you said you were going to consider society and the environment, but you stopped doing that. You have no recourse,” he says, “but to sell your stock and get out or take what’s given.”
Reporting to shareholders, he says, means a benefit corporation keeps operations transparent — unlike a traditional corporation, which may focus on a specific, targeted social or environmental project like cleaning up a polluted waterway but isn’t necessarily held responsible for its achievement in that area.
“That doesn’t mean the company isn’t polluting out the front door,” says Trojian, “while it’s cleaning the back door. So that’s the dilemma with that, it doesn’t really provide the consumer with a complete understanding of what the totality of the company’s operations are.”
Lynn Stout, a professor of corporate and business law at Cornell Law School, says the misunderstanding lies elsewhere. The purpose of a corporation, she wants to make clear, is not to maximize shareholder profits.
“It turns out the purpose of the corporation is to do, and I’m taking this right from what the vast majority of corporate charters say,” she says, “they say the purpose of the corporation is to do anything lawful.”
Stout notes that companies do often focus on shareholder value. One of the biggest reasons for this, she says is that tax law requires executive pay to be tied to a metric and very often that metric is share price. “So we shouldn’t be surprised that if we pay executives to bump up the share price, that’s what they do,” she says. “But that’s not required by the law in the sense that you can’t sue managers for making decisions that reduce profits, or perhaps don’t move the share price up as far as it can go.”
Stout says we don’t need benefit corporations.
“I don’t think we do,” she says, “if what you want to do is create legal space for managers to run companies in a socially responsible fashion.”
But she notes, when it comes to focusing on social and environmental goals, there are some benefits, to having benefit corporations, such as the inherent appeal, to some consumers, that comes along with the label of benefit corporation.
“It’s very much a marketing thing,” she says. “For example, Patagonia is a benefit corporation and they make a line of clothing suited to outdoor activities. A lot of people who like outdoor activities are very concerned about the environment. And they might be willing to buy Pataonia instead of another brand, because it’s a benefit corporation.”
Then Stout says there’s the requirement to report to shareholders about social and environmental impact.
“The benefit corporation is supposed to provide information that’s available to shareholders and others, to show that they’re actually making progress towards that objective,” she says. “And that requirement, that you provide information, may be very, very important.”
“There’s a saying in business,” Stout says, “that what you measure, is what you manage. And if all you’re measuring is profits, that is naturally going to be your focus.”
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