2012-01-12 07:08:51
A new sort of caring, sharing company gathers momentum
Jan 7th 2012 | NEW YORK | from the print edition
HE likes to do things differently. Yvon Chouinard changed his favourite sport,
mountaineering, by introducing reusable pitons (the metal spikes you bang into
the rock face and attach a rope to). Climbers often used to leave pitons in the
cliff, which is environmentally messy, another of Mr Chouinard s peeves.
In business, Mr Chouinard, the founder of Patagonia, an outdoor-clothing firm,
says he believes that well-treated employees perform better. (He wrote a book
called: Let My People Go Surfing .) Before it was fashionable, Mr Chouinard
preached a philosophy of sustainability and long-term profitability that he
calls the slow company .
On January 3rd Patagonia was anything but slow in becoming the first firm to
take advantage of a new California law designed to give businesses greater
freedom to pursue strategies which they believe benefit society as a whole
rather than having to concentrate on maximising profits for the next financial
quarter.
According to Mr Chouinard, the new benefit corporation usually referred to as
a B Corp creates the legal framework for firms like his to remain true to their
social goals. To qualify as a B Corp, a firm must have an explicit social or
environmental mission, and a legally binding fiduciary responsibility to take
into account the interests of workers, the community and the environment as
well as its shareholders. It must also publish independently verified reports
on its social and environmental impact alongside its financial results. Other
than that, it can go about business as usual.
The B Corp is a deliberate effort to change the nature of business by changing
corporate law, led by B Lab, a non-profit outfit based in Pennsylvania.
California is the sixth state to allow B Corps; the first was Maryland, in
April 2010. Patagonia was followed immediately by another 11 Californian firms,
including Give Something Back Office Supplies, Green Retirement Plans and
DopeHut, a clothing retailer. Across America, there are now several hundred B
Corps. Before Patagonia, the best-known was probably Seventh Generation, a
maker of green detergents, paper towels and other household products.
California s B Corp legislation took effect alongside a new law creating the
flexible purpose company (FlexC), which allows a firm to adopt a specific
social or environmental goal, rather than the broader obligations of a B Corp.
Another option in America is the low-profit limited-liability (LC3) company,
which can raise money for socially beneficial purposes while making little or
no profit.
The idea of a legal framework for firms that put profits second is not confined
to America. Britain, for example, has since 2005 allowed people to form
community interest companies . Similar laws are brewing in several European
countries.
The impetus for all this comes from people like Mr Chouinard, who believe that
existing laws governing corporations and charities are too restrictive.
For-profit firms, they argue, often face pressure to abandon social goals in
favour of increasing profits. Non-profit firms and charities are needlessly
restricted in their ability to raise capital when they need to grow.
This prevents socially minded organisations from pursuing their goals as
efficiently as possible. Existing laws for co-operatives and mutual companies
are inadequate. Hence the need for B Corps and other novel structures, goes the
argument. There is no tax advantage to being a B Corp, but there is to some of
the new legal structures.
Whether these new legal forms will change business that much remains to be
seen. Supporters of existing corporate law say it does not prevent firms, if
they so wish, from setting social and environmental goals or rigorously
reporting on their performance in delivering them and that pursuing profit is
often the best way to benefit society. Nor is it clear how much difference in
practice will be made by the obligation of a B Corp to weigh interests other
than profits. How does one measure such things? What counts for more: a clean
lake or a happy neighbour?
Mr Chouinard argues that making a firm s social mission explicit in its legal
structure makes it harder for a new boss or owner to abandon it. Perhaps so. B
Corps will be tested in the market. Anyone who feels inspired by a B Corp s
mission is free to invest in its shares, or work for it.
from the print edition | Business