What is the purpose of a corporation? Looking at corporations today, one might conclude: “To make money.” But this wasn’t always the case. As Janine Hiller pointed out in the Journal of Business Ethics in 2013, the corporation as a legal entity was originally established as a way to create a social benefit:
Based on individual petitions, legislatures granted state approval for independent corporate status in order that the entity might perform public functions such as building roads, providing water, and the like. There was a close connection between corporate purpose and societal purpose, and because the corporation was performing a quasi-governmental role, limited liability accompanied the corporate form. (Hiller, 2013: 288)
In other words, corporations originated to serve the public. Yet today, they are often criticized for thinking only of profit. Indeed, the notion of shareholder primacy—the idea that profits must be maximized for shareholder benefit above all else—has been invoked as justification for acting first and foremost to increase profits, even when doing so comes with social and environmental costs.
And yet at the same time, corporations (particularly the larger ones) are under public pressure not to cause societal harms. So how can these competing pressures—shareholder primacy and public benefit—be balanced? Furthermore, how can corporations wishing to be leaders in promoting social and environmental sustainability avoid challenges on grounds of shareholder primacy?
In part as a way to help corporations fulfill their original mandate to provide a public benefit, new corporate forms, such as “Benefit Corporations” (BCs) and “community interest companies” are emerging. B Lab, the nonprofit that certifies BCs and advocates for their legal recognition, has registered more than 1000 such corporations to date, including many household names. Such legal forms allow corporations that were founded with a social mission in mind to balance pursuit of that mission with pursuing profit, allowing the companies to provide societal, environmental, and economic benefit. BCs register their social and environmental goals and then include in their annual reporting their progress towards achieving those goals.
For companies that haven’t historically been focused on providing a social benefit but that are keen to start, looking into becoming a benefit corporation or a community interest company could facilitate identifying opportunities for the company to benefit society. It’s also potentially a way for companies to differentiate themselves from their competitors and engage with their community.
Regardless of their legal structure, all corporations have some leeway to prioritize and promote social benefits. Realistically, addressing social and environmental challenges like workers' rights and climate change will often involve civil society's working with corporations rather than against them. While this might not always be possible or appropriate, in many cases it just might produce the best results socially, environmentally, and economically.
SOURCES
Hiller, J. S. (2013). The Benefit Corporation and Corporate Social Responsibility. Journal of Business Ethics, 118(2), 287–301. doi:10.1007/s10551-012-1580-3
For more information on benefit corporations, check out B Lab's website at http://www.bcorporation.net/
For more information on socially responsible corporations, check out http://www.mikeathay.com/corporate-social-responsibility
This post also appears on the Carbon Analytics blog: http://www.co2analytics.com/blog/