
The Benefits Of A Benefit Corporation
In January 2014, Adi Ignatius, the editor of Harvard Business Review, wrote: The world would be a better place if businesses stopped thinking so much about short-term results and focused more on the long term. “Yet it has proved nearly impossible to shift their behavior. The idea is clear, but the incentive systems in place at many firms deter efforts to attain it.
This problem was answered by Roger Martin, Academic Director of the Martin Prosperity Institute: in an illuminating discussion at the Aspen Institute (now on Youtube). His response was clear: short-termism is not the real problem.
Martin was asked, “You’re not saying that you can’t serve your shareholders; that it’s just by not pursuing shareholder value in the short term?” Martin responded: “I’d say it’s by not pursuing shareholder value at all. The best way to serve shareholders is to have a great company.
Who determines shareholder value? You don’t determine shareholder value. Shareholder value is a completely ethereal thing. The market capital of a company at any given point in time is the collective belief of market participants in the likely future events concerning that company. It is no more concrete than that.
That’s why it can change incredibly rapidly. It’s not like your return on equity, or your return on assets; which you have control over. It’s an ethereal thing that changes quickly. So the notion that the job of a CEO is to always make sure that the collective view of the market of the future prospects of this company goes up, good luck!”

Pursuit of Shareholder Value Does Not Work
What’s interesting about Martin’s perspective against maximizing shareholder value, which is elaborated in his book, Fixing the Game, is that it isn’t just based on moral aversion at the self-interested behavior of managers or an obscure thought about the purpose of a firm.
Martin’s primary argument is much more straightforward: pursuing shareholder value just doesn’t deliver the expected results.
Pursuit of shareholder value actually destroys shareholder value.
Positive Trend: Pursuing Shareholder Value is Declining
There is a broad agreement from business leaders that maximizing shareholder value does not work. Jack Welch called it “the dumbest idea in the world.” Recently, Marc Benioff, CEO of Salesforce said:
The business of business isn’t just about creating profits for shareholders — it’s also about improving the state of the world and driving stakeholder value.
But bad ideas don’t die just because they are bad. They hang around until a consensus forms around another idea that is better. This is what’s happening now with maximizing shareholder value. Even though it remains the conventional wisdom throughout much of big business, a consensus is forming around a better idea.

In late 2015, we formed a Benefit Corporation: The Relationship Capital Corporation, Doing Business As the Standard of Trust.
Whether you are a large enterprise, small business, or independent worker, becoming a Benefit Corporation has advantages for every stakeholder in your business, from customers and talent to shareholders and directors:
- Reduced Director Liability
Benefit corporation status provides legal protection to balance financial and non-financial interests when making decisions — even in a sale scenario or as a publicly traded company.
- Expanded Stockholder Rights
Investing in a benefit corporation gives impact investors the assurance they need that they will be able to hold a company accountable to its mission in the future. This could aid companies in attracting impact investment capital.
- A Reputation For Relationship Capital Leadership
Your business will join other high profile, highly respected companies as benefit corporations (e.g. Patagonia in California), and be at the forefront of a growing movement.
- An Advantage in Attracting Top Performing Talent
“Millennials will grow to 75% of the workforce by 2025, 77% say their “company’s purpose was part of the reason they chose to work there.” Benefit corporation status gives prospective employees confidence that a company is legally committed to their mission.-Deloitte Millenial Survey
- Increased Access to Private Investment Capital
Benefit corporation status can make your company more attractive to investors as a company with increased legal protection, accountability, and transparency around its mission. Benefit corporations can also speed up investor due diligence since they produce an annual benefit report, which describes their qualitative activities aimed at producing general public benefit.
- Increased Attractiveness to Retail Investors and Mission Protection as a Publicly Traded Company
Benefit corps create an attractive investment opportunity for the same conscious consumers that have fueled organics, fair trade, and “buy local” movements while enjoying a form of inoculation from the short-termism that plagues public equity markets.
- Demonstration Effect
Benefit corps show investors and entrepreneurs from every industry what the future Fortune 500 looks and acts like.
The Way Forward
In truth, the best way to serve shareholders’ interests is to have a great company with a great purpose and great mission that delivers ever-increasing value to customers through highly-engaged employees. We will either reignite growth and prosperity or we will continue to stagnate and sustain a long and slow decline in our global economy. We at the Standard of Trust will practice what we preach and utilize what we sell which includes the Peer SaaS platform. As a senior business leader or small business owner, what will you do?
www.StandardofTrust.com

Sources:
- http://www.amazon.com/Standard-Trust-Leadership-Transforming-Relationship-ebook/dp/B00IK1T6Z6
- https://www.bcorporation.net/become-a-b-corp/why-become-a-b-corp
- Originally Published in May 24th, 2016 on Linkedin Pulse
