Friday, April 17, 2015

What if companies pledge to adhere to social and environmental accountability guidelines?

See Etsy I.P.O. Tests Pledge to Balance Social Mission and Profit by HIROKO TABUCHI of the NY Times. Excerpts:
"Etsy is one of a growing number of companies, called B Corps, that pledge to adhere to social and environmental accountability guidelines set by a nonprofit organization called B Lab. And Etsy on Thursday became only the second for-profit company to go public out of more than 1,000 companies that have that certification."

“The success of our business model is based on the success of our sellers,” Mr. Dickerson said in an interview. “That means we don’t have to make a choice between people and profit.”

"It is also an experiment in corporate governance, a test of whether Wall Street will embrace a company that puts doing social and environmental good on the same pedestal with, if not ahead of, maximizing profits."

"Etsy declares in its public offering prospectus that it wants to change the decades-old conventional retail model of valuing profits over community. It states that its reputation depends on maintaining its B Corp status by continuing to offer employees stock options and paid time for volunteering, paying all part-time and temporary workers 40 percent above local living wages, teaching local women and minorities programming skills, and composting its food waste."

"If Etsy eventually reincorporates as a full-fledged benefit corporation, as required to do under B Lab rules, it could potentially become vulnerable to lawsuits from shareholders over any failure to achieve its social mission, in addition to the risk of potential litigation by shareholders over its fiduciary duties.

Still, “B Corps are reaching a tipping point in market acceptance,” said Jay Coen Gilbert, co-founder of B Lab, which assesses and certifies companies along social and environmental accountability standards. “The current shareholder model doesn’t meet the needs of entrepreneurs, business leaders and investors who want to make money and make a difference.”"

"B Lab has certified more than 1,000 companies in the United States as B Corps, including Patagonia, Warby Parker and Method. In addition, 27 states have adopted laws that can award companies status as “public benefit corporations,” letting them emphasize social or environmental concerns over profits, and more than a dozen others have introduced similar legislation."

"Under B Lab rules, companies incorporated in states with benefit corporation laws must eventually comply with their home states’ standards to maintain that benefit corporation status.

In Delaware, where Etsy is incorporated, even small shareholders of a public benefit corporation could sue the company, claiming it had failed to fulfill its social or environmental duties."

"B Corp legislation could allow companies to adopt values some would find objectionable and discriminatory, like religious beliefs, said Kent Greenfield, a professor at Boston College Law School. The Supreme Court justice Samuel A. Alito Jr., in his argument for last year’s Hobby Lobby ruling, cites B Corps as evidence that corporations can be religious.

“If you let companies opt in to their own set of obligations, there’s no constraint from them opting in to their view of ethics as something from the Old Testament,” Mr. Greenfield said."

In his book The Wealth of Nations, Adam Smith wrote about how self-interested people were led by the "invisible hand" to make society better off:
"But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestick industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the publick interest, nor knows how much he is promoting it. By preferring the support of domestick to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the publick good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

From the Online Library of Liberty.

The B Corps are suggesting that people start businesses to intentionally try to help society while Adam Smith thought society benefited more if people pursued their own self-interest.

Of course, Smith is more complex than this. Adam Smith's "other" book was called The Theory of Moral Sentiments. One point he made there was that we are able to sympathize with other people by trying imagine what they are going through. I wrote about that in a post once called Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of)

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