Large Corporations Should Not Be Only About the Money
There’s a little known, rarely used way to make companies legally responsible for more than just profits. It’s now time we use it.
We need to move to a more reasonable form of capitalism where corporations aren’t only about the money. There is a better structure, the Public Benefit Corporation (PBC).
Economist Milton Friedman wrote 50 years ago that corporations should only exist to make money for shareholders. With the benefit of hindsight, he clearly got it wrong.
We’ve seen that a sole focus on shareholder returns does not work for society, especially as corporations become larger and more powerful, particularly through the use and reach of technology. Software is powerful. An algorithm can be changed by one person and within minutes affect the lives of millions. Apple, Amazon, Facebook, Google, and Microsoft now represent 15 percent of the total stock market’s worth. They are also becoming controlling forces worldwide in ways never imagined.
Large technology-enabled companies focused only on shareholder return can become dangerous. Software algorithms, powered by artificial intelligence, can determine the news we see, what we buy, the prices we pay, and the credit we are given. If the goal of the algorithm is only to make money, it will optimize to accomplish that goal, to the exclusion of all else. It is not okay morally. But, it’s fine for a traditional corporation since its legal responsibility is to make money for shareholders.
And it’s not just limited to tech companies. For an international powerhouse controlling a segment of the economy to be only about the money is not good for society.
What can CEOs and board members of large corporations do? They can raise the issue of corporate purpose and increase awareness, as the Business Roundtable did last year. The next step is to actually do something about it, to change the legal charter of their company to serve all stakeholders and to have a purpose that is about more than shareholder returns. This is now possible thanks to the PBC structure.
A PBC is a for-profit corporation that also adopts a public benefit purpose. PBCs consider their public benefit purpose and the interests of those materially affected by the corporation’s conduct — including customers, employees, and the community — in addition to shareholder interests. Maximizing shareholder profits is no longer the sole duty of the board.
When I founded Veeva in 2007, the PBC structure was not available. It troubled me to sign a standard certificate of incorporation because I never thought Veeva would be only about the money. But I put that aside thinking little Veeva would likely fail, as most startups do.
But Veeva did not fail. It grew. We went public in 2013 and in 2019 crossed the $1 billion revenue mark. We were starting to become very important to the life sciences industry we serve, an industry critical to human health. I knew it was time to act. Time to become a PBC.
Yet no public company had ever converted to a PBC, we were going into uncharted waters. We carefully looked at the pros and cons, got feedback from shareholders, customers, and employees, then in 2020 formalized our proposal to make the change.
Conversion to a PBC is a long process that is ultimately decided by shareholder vote. I am very proud that our proposal passed and on February 1, 2021 Veeva became the first public corporation to convert to a PBC. The vote was a landslide. Of the votes cast, 99 percent were in support of our proposal.
As we look towards the future of Veeva over the decades to come, and the critical decisions that may be required from our management team and board, I’m glad we now have a specific corporate purpose and multistakeholder accountability in our certificate of incorporation.
During a Congressional hearing in July 2020, Representative Jamie Raskin asked the CEOs of Amazon, Facebook, and Google if they ever considered becoming benefit corporations. There was no reply. We can do better than silence.
It’s clear the path we are on is not sustainable and there’s a need for corporations to evolve. Learn more about the PBC structure. As an employee, raise it with your leadership. CEOs and directors, have the discussion in the boardroom. Make an active decision. We can all change capitalism for the better.
Learn more
Veeva PBC proxy statement explains to Veeva shareholders the reasons for PBC conversion
The Business Roundtable on the Purpose of a Corporation
