Friday, January 19, 2018
On a previous post about Etsy dropping its B corp. certification, because of the B Lab requirement to convert to a public benefit corporation, I received the following comments:
- "I simply believe that, in most ways, being a public benefit entity is more about a marketing strategy than a business plan." (Tom N.)
- "I had my students read the NY Times articles on Etsy as a part of their last class in my clinic this semester (thanks to my fellow Joe Pileri who alerted me to the article). We represent social enterprises in the clinic so this was a perfect wrap-up. The questions that I posed to my students: what social enterprise isn't a soft target like Etsy? Won't they all eventually cave to profit maximization?" (Alicia Plerhopes)
- "I agree with To[m] N ... Also, no theory of CSR actually requires an explicit weighting of the various stakeholders of a firm, so in reality, if the interests of shareholders are receiving the greatest weight, then Milton Friedman was right all along!" (Enrique)
I wanted to respond to these thoughtful comments, briefly, above the line.
Tom, I think the marketing benefits of becoming a PBC, currently, are weak. How many of your non-lawyer friends know what a public benefit corporation is? Even among lawyers, if they know what the form is, their knowledge is usually limited, and they are usually quite skeptical. But I agree, that simply becoming a PBC, without more, does not get you very far and will not substitute for a good business plan. Becoming a PBC, however, may help in takeover situations and it may help change the shareholder wealth maximization norm among directors.
Alicia, You are right, I think, that publicly traded benefit corporations would often be soft targets. That said, their PBC status, in connection with other takeover defenses, could help them fend off unwanted advances. Given the history of social enterprise sell-outs, however, one does wonder how long these companies, public or private, can stay on mission.
Enrique, You may be correct on most theories of CSR not requiring an explicit weighting of stakeholder interests, but the benefit corporation statutes do generally require “consideration” or “balancing” of stakeholder interests. You are right, however, that the statutes do not give instructions on how much weight is to be given to each stakeholder group. The benefit corporation statutes do generally say that the purpose of benefit corporations must be to materially benefit “society and the environment;” and some of the statutes say/suggest that shareholders can not be the predominant interest.
While I am not a big proponent of the current benefit corporation statutes, I do commend the drafters for moving the conversation forward and taking action. And hopefully we can agree that something needs to be done about the current state and focus of many American businesses. This holiday season confirmed to me how cheaply most things are made these days and how poor customer service has become. Toys from my childhood era are outlasting most of the toys my wife and I buy our children. Appliances now seem to last 1/5 of the time they lasted a generation ago. Ignoring or mistreating the customer has become the rule. Even Apple, which I think of as one of the positive exceptions, is now being accused on planned obsolescence, and their customer service has declined over the years, in my view. Maybe the above makes sense from a purely financial perspective; maybe customers buy mainly on price. But I would argue that what made Apple great was holding themselves to an even higher standard of quality and innovation than their customers did initially. I am not sure if benefit corporation law will help businesses make more quality products, and treat their employees and customers better, but I do think we should give businesses the latitude to explore.