Tuesday, August 20, 2019

For Profit Corporations with a Social Purpose?

America's CEO's came out, through the Business Roundtable, with (from my perspective) an odd new statement yesterday that shareholder primacy should no longer guide their mission as for-profit corporations. Instead, it highlights the importance of other values like: “value for customers,” “investing in employees,”  “diversity and inclusion,” “dealing fairly and ethically with suppliers,” “supporting the communities in which we work,” “the environment.”

It's odd because from a legal and practical perspective, I don't see the institution of the for-profit corporation as able to make this change. These entities are structured to first, second, third, and last maximize profit. 

Fortune Magzine wrote about the statement here.

This post is obviously not directly about nonprofits. But, I think for watchers of nonprofits and philanthropy this is an interesting moment. My sense is this is related to two different trends. The first and maybe the most important is the growing sense of inequality worldwide. This is perhaps a primary function and is there to be a PR appeaser to those types of concerns, but maybe is at least a signal that they are aware of the democratic concerns. The second though is the very real trend of new businesses choosing to form as benefit corporations. This suggests that many think it at least important for for-profit corps to be viewed as sustainable, genuinely good, and a part of the community. Whether driven by employees, consumers or the larger public this seems to be a real trend.

Why do I think this relates to nonprofits? Because these moves begin to tread on nonprofit territory. What that will mean for the nonprofit brand long term will be interesting to watch. Nonprofits have long been involved in for-profit spaces like health clubs or program related investments. The latter have been growing through things like "impact investing." Now, for-profits increasingly see a need to be mission directed like the nonprofit world.

Anyway, no major thoughts on this other than this moment is worth sticking a pin in for those in the nonprofit space as well. What it will mean remains to be seen, but I think this trend will cause an impact in the nonprofit world that we are just not able to appreciate yet.  

Philip Hackney, Associate Professor of Law, University of Pittsburgh School of Law

https://lawprofessors.typepad.com/nonprofit/2019/08/for-profit-corporations-with-a-social-purpose.html

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