It’s trendy these days to bash on corporations. A recent The Nation article talks about how “Thanks to the Roberts [Supreme] Court, Corporations have more rights than actual people”. I’m constantly reading diatribes against faceless corporations in my twitter and facebook feed. Search for #corporations if you want a taste of the anti-corporate fever.
Presidential politics is no exception. On both the left and the right, candidates like Bernie Sanders and Donald Trump are engaging in anti-corporate populist rhetoric (albeit with polar opposite policy conclusions). But why are corporations such an easy and obvious scapegoat? Aren’t they just legal tools for us to be able to organize ourselves?
Originally, that was the case. Corporations in America evolved from the royally chartered enterprises of Britain. In the first decades of our nation, it took a major act of legislation and a governor’s signature to create a limited liability corporation, and they had high levels of obligations to the public good. Doing business as a corporation was viewed as a privilege, and there was a duty to exercise that privilege in a way that benefited society.
Since our nation’s founding, that obligation has been steadily eroded. Initially, states opened up general corporate applications to the public in an effort to limit crony capitalism and democratize the benefits of collective capital. Ironically, it was the 14th amendment’s extension of rights to all persons that opened the floodgates to end the public obligations of corporations and establish them as people.
There are numerous timelines tracking the history of corporate personhood and the extension of personal liberty to these fictional, legal entities. There are also numerous movements to re-establish the primacy of actual people in our government, such as MoveToAmend.org, FreeSpeechforPeople.org, and Wolf-Pac.org. But as important as these movements are, they are going to take time. What is a socially responsible entrepreneur to do in the meantime?
All this may seem like historical trivia or a populist polemic, but let me tell you it has very real implications for a business owner. If you have a sole proprietorship, LLC, or LLP, you have a reasonable amount of discretion in how you conduct business. You can decide to do something that may not be the most profitable option, but that fulfills your social obligation, so long as your partners and co-owners agree.
This is not the case if you have investors in an S Corp or C Corp. Thanks to Dodge v. Ford Motor Company, investors can sue and replace the leadership in a corporation for not maximizing shareholder value. If you have a traditional S or C Corp for your startup, and you don’t take every option to make money and increase your company’s value, your investors can sue you for malingering or failing to uphold your obligations to the corporation.
This can cause serious problems. For example, a traditional corporation that sources it’s raw materials from fair trade partners could be sued for not buying from cheaper, less ethical suppliers. However, a publicly chartered benefit corporation can list fair trade as one of it’s stated benefits, and thus pursue the more equitable route without having to worry about shareholder lawsuits.
Now, this is only necessary if you intend on taking on investment. If you intend on staying local and expanding organically with operating funds, a benefit corporation may not be called for. You could make do with just a sole proprietorship, LLP, or LLC with a stated commitment to your benefit. If you plan on making an impact but would rather pursue donors and grants than investors and revenue, then a non-profit may be the best tool for the job.
But if you have an idea so big that you need to leverage investment and plan on growing exponentially, a benefit corporation might be the best way to ensure that your creation doesn’t become a Frankenstein’s monster. It is very common (80% chance) for founders to lose control and be replaced as CEO of a startup. So what if your entire idea is predicated on accomplishing a benefit, but later CEOs and investors want to pivot away from that goal?
A benefit corporation allows a mission driven entrepreneur to embed their values into the DNA of the company and ensure that the natural pivots and economic decisions made in the course of doing business don’t allow the entity to stray from its purpose.
This is why I incorporated Grow Games Interactive as a Public Benefit Corporation, ensuring that the apps we create, the partnerships we make, and the data we collect stay dedicated to our values of Inspiration, Play, Creativity, Community, Entrepreneurship, Flow, Self-Sufficiency, Sustainability, Scientific Inquiry, Empathy, and Interaction. We also spell out our stakeholders in our bylaws, from our sponsors and business partners to our players, workers and the environment.
It is possible to use the tools at our disposal such as corporations and investment capital and still accomplish good in the world. Do you plan on doing business for public benefit?