28 Jul 2015

How B-Corps (and China) can save the world

I've criticized "social welfare maximizing" B-Corps as a solution in search of a problem, but I think I've found a problem worthy of them.

First, let's set the (slightly contrived) stage as a world where for-profit corporations are willing to rape and pillage in a race to the bottom in terms of their social conduct. Let's also acknowledge that non-profits are lovely, but limited in their impact in many industries.

B-corps are thus welcomed as intermediate "social-profit" enterprises that pursue sustainable practices (i.e., balancing the "needs" of all stakeholders) in many lines of business.

Many people assume that B-Corps are thus beneficial, but most are in niche businesses (e.g., green design, vegan chocolates) --- not the "unethical industries" (oil, fast food) that do most of the damage.

I thus propose that B-Corps enter those industries as competitors, where they will make a profit due to the combined advantages of smaller dividends, higher sales to ethical customers, and lower costs from fewer fines, lawsuits, etc.

B-Corps will also, as a form of competition, issue sustainability benchmarking reports (SBRs) on themselves and their competition (like these), thereby clarifying which companies pursue sustainable practices, which consumers support them, and where regulators should apply more interest. These reports will be far more useful and critical than the bland platitudes put out by most CSR marketing departments.

This is how B-corps might transform entire industries in a race to the top, but what about international markets, where cutting rainforest or spilling oil is profit-maximizing?

In the absence of a world government, it's hard to bring regulatory oversight onto errant companies or industries. The only choice, then, is to remove the profits of sin.

A little while back, I concluded that China may be the only country capable of saving the world, because its rulers pursue a policy of totalitarian popularity. Taking this interest in mind, this is how China Inc. can B-Corp the world:
  1. China orders its SOEs to switch to B-corp status. (They are owned by the people, so they should surely benefit the people!)
  2. Those B-corps change course to pursue social welfare and issue SBRs within their sectors.
  3. Due to China's market power, those B-corps (and their SBRs) will affect world markets
  4. If B-corps are really useful at clarifying or making it easier to achieve social sustainability, then this strategy will succeed. China's leaders, people and businesses will win, but so should we all.
Bottom Line: The fastest way to a corporation's heart is thorough its profits.


Eric said...

Benefit corporations try to compete with regular corporations outside of niche markets the track record suggests that they will lose and lose badly. I would like the B corps to try. The trying would be good for everyone. As to China as a model, crumbling buildings in China, the collapse of the Chinese stock market, and the fact that China needs a strong America to be a market for its products all suggest that the Chinese model needs some work. The fact that many Chinese trained 'engineers' are not capable of engineering real world devices also suggests that the Chinese model needs some work.

David Zetland said...

True but neither worry impedes the "this is how you can be useful" idea :)

Eric said...

What do we do with fiduciary duty laws? In the US, if the management of a company decides to be a charity (some version of a B-corp), often the managers are viewed by the courts as abrogating their fiduciary duty to their shareholders and can be successfully sued and sent to jail.

David Zetland said...

Well, I've read that those are aimed *principally* on the continued existence of the corporation, not necessarily of profit maximization (e.g., you get shut down for maxing profits while polluting).

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