The Rise of the Benefit Corporation
Small changes in the corporate code can change the world and on April 13, 2010, Governor Martin O’Malley made history in the US State of Maryland when he passed a law creating a new type of for-profit corporation – the Benefit Corporation. With a stroke of his pen O’Malley constituted the power of commerce to generate profit as well as deliver meaningful and positive benefits for society, employees and the environment.
A Benefit Corporation, in the simplest terms, is legally obligated to create benefits for both society and its shareholders. This modern movement is driven by astute leaders who recognise that delivering meaningful benefits to society can also generate significant competitive advantages. “It’s going to take time for that to get organised,” said Andrew Greenblatt from B Lab, a certification company, which consulted for the State of Maryland during the drafting of the benefit corporation legislation, “but 10 to 20 years from now this will be the standard way of doing business. And if you’re not a benefit corporation people are going to ask why not.”
To date thirty US states, including Delaware have joined the State of Maryland in passing benefit corporation legislation. The growth and development of the benefit corporation movement, is being supported by B Lab who offer independent certification to companies aiming to do well, by doing good. The B Lab certificate provides a recognisable label in much the same way the Fairtrade mark offers consumers an easily identifiable independent guarantee of a better deal for third-world producers.
“The desire to balance profit and purpose is arguably a return to the model that many American companies once followed,” argues James Surowiecki, a journalist with The New Yorker magazine in an article he wrote about this exciting new development in capitalism’s history. “Henry Ford declared that, instead of boosting dividends, he’d rather use the money to build better cars and pay better wages. And Johnson & Johnson’s credo, written in 1943, stated that the company’s ‘first responsibility’ was not to investors but to doctors, nurses, and patients.”
The movement for a new more meaningful model of capitalism has the backing of some of today’s most thoughtful leaders. Even the former champion of shareholder capitalism Jack Welch and the man voted by Forbes as the greatest manager of the twentieth century, has recognised the failings of the capitalist shareholder model and in doing so become one of its strongest critics. Following the most recent global financial collapse Welch came out batting hard saying in an interview with Francesco Guerrera of the Financial Times, “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy. The main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. Short-term profits should be allied with an increase in the long-term value of a company.”
An exciting new business model for a new world.
This post is based on research conducted for the writing of the book: Quest: Competitive Advantage and the Art of Leadership in the 21st Century written by co-founder of TomorrowToday Global, Dean van Leeuwen and is available from Amazon in print and kindle format.