The Supremacy of Shareholder Value Myth

January 23, 2016

 

Columbia Business School might rescind my MBA for this blog title but hear me out. What do Patagonia, Etsy, method products, Plum Organics, Seventh Generation, Rally Software, Green Mountain Power, Warby Parker, and New Belgium Brewing among many other disparate retailers, manufacturers and service providers have in common? All are Certified B Corporations. Ever heard of B-Corps? Or Benefit Corporations (not the same thing, but we will get to that later)? You’re not alone. They represent less than .0007% of the 30 million US businesses, but they matter. Let me explain.

The trend toward environmentally and socially conscious corporate goals is actually relatively new although we have been so blasted in the last decade with green packaging and environmentally friendly claims, it’s hard to remember when environmental corporate goals were a backburner issue. Way back before clean tech and green tech were coined, about twenty years ago, I served as a panel judge for corporate environmental awards and found Clairol’s innovative re-use of plastic waste and water reduction techniques in shampoo bottle manufacturing so inspiring that I altered my career path. Rare was the manufacturing company that embraced environmental goals beyond compliance or for PR purposes. It was practically unheard of.

 

Today there are literally thousands of companies that incorporate social responsibility and environmentally-friendly practices, but which ones are willing to subject themselves to rigorous review and certification or actually alter their corporate status? Not that many as it turns out. About 2200 so far. Embarrassingly fewer public corporations (1 or 2) have pursued PBC classification. Etsy did it and the for-profit college network behemoth Laureate Education filed for an IPO in the fall of 2015. Not to be confused with a Public Benefit Corporation (PBC), which is a legal classification that companies can enter into in 31 states (with 5 more states forthcoming), B-Corps have been certified by the non-profit Lab B, a process similar to the green LEED certification for buildings. Greenwashing is hard to untangle and the rigorous certification standards of Lab B come into play here.

 

So, why do we need B-Corps and Benefit Corporations anyway? Legally, the concept of the supremacy of shareholder value is not what most people think it is. In fact, if you read most reports of the supposed hostile takeover by Unilever of Ben & Jerry’s, you would think that only PBC status could have saved the company. Untrue. Ben & Jerry’s was tanking and Unilever saved it. The truth is that corporate law, according to Indiana University law professors Antony Page and Robert Katz, does not put stakeholders’ interests first but rather considers “the corporation’s employees, suppliers, creditors, and customers; the economy of the state, region, and nation; [and] community and societal considerations, including those of any community in which any offices or facilities of the corporation are located.” That reality is of course buried deeply under the ubiquitous mantra that we must maximize corporate shareholder value.

 

Benefit Corporations and B-Corps blow the barn doors off the idea that corporations should not be held accountable to stakeholders other than shareholders. Changing corporate status and becoming certified is a serious commitment and a signal to others in the supply chain, as well as customers, potential employees and investors. For the first time ever over the last few years, corporations are holding themselves accountable to double bottom lines so the interests of customers, community members, others in the supply chain… hell, the world… actually count. I don't know about you, but this is more like the world I want to live in.

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