Are growth and principles mutually exclusive?
Kickstarter has just announced that it is to become a public benefit corporation, a move that makes clear its intention to continue working to provide finance for creative and entrepreneurial projects, but that it won’t be taking the usual route toward growth: instead of seeking additional rounds of financing or an eventual IPO, the idea is to protect itself against the temptation of maximizing profits at the expense of its mission statement.
Public Benefit Corporations, or PBCs, are a relatively new entity within US corporate law: for-profit companies that work for the public good and that therefore must operate along sustainable and responsible principles, seeking to balance the economic interests of shareholders with those affected by the company’s activities, as well as the public good sought by its creation. Recent conversions into PBCs include Etsy or Ello, which by doing so are hoping to maintain their mission of providing a social networking tool that has nothing to do with other business models such as making money from their clients’ profiles, without having to worry about shareholder control as they grow.
What is interesting about PBCs, leaving the Kickstarter case aside for a moment, is how some companies are beginning to see that traditional growth routes do not guarantee protection of the key elements of their identities, elements that in many cases are rooted in their very creation or that have played a key role in their success.
In the case of Ello, I remember reading a piece by a developer stating categorically that the company’s promises were false, because as the project was financed by risk capital, it would end up having to do things that initially it had said it wouldn’t, due to the need to grow and offer an outlet for its investors: converting the company into a PBC was done precisely to ensure that it would be able to align its mission with its growth in a viable manner, avoiding certain temptations that could end up being unavoidable were it to develop along different lines.
Managing these kinds of companies is not easy: the requirements in terms of transparency, of reporting on whether the they have met their social aims outlined in their mission, certification of environmental commitments, corporate social responsibility, etc, only make things more complicated, and put them under controls that are out of the hands of the shareholders. This isn’t simply some marketing gimmick. In the case of Kickstarter, aside from meeting PBC requirements, there is also the question of donating 5 percent of its profits to the arts and causes related to reducing inequality, as well as promising never to use legal loopholes or other strategies to reduce taxes.
What interests me is how the company intends to align its mission statement with the usual ways growth is financed: to what extent will the usual route of finding investors, financing rounds, and the eventual IPO end up compromising companies, leading them away from what they started out being? There are so many companies out there that simply changed when they went public, that became corporations conditioned by the quarterly results.
Are these PBCs perhaps a wake up call, telling us that something is wrong in the way that companies develop? Do they expose a failing in the essence of capitalism that needs to be corrected through these types of tools when it is judged that the time has come to preserve some kind of fundamental values?
Is it actually possible to remain true to one’s principles if they are not compatible with optimizing profits at any cost?
(En español, aquí)
