On his Esquire blog, John H. Richardson has a teaser up for a Wednesday story about ““Saving Capitalism from Itself”. If you don’t click over, you’ll miss a great cartoon explication of the benefit corporation:
… As a college student, [Jay Coen] Gilbert started a sports-apparel company called And One, which was worth $250 million when he sold it thirteen years later. When he and his partners sat down to plot their next move, they dreamed big.
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“We wanted to figure out how we could harness the power of markets to solve social and environmental problems,” Gilbert told me. “Our assumption was government and nonprofits are hugely necessary but insufficient to the task — business is three-quarters of the GDP. So we figured that trying to figure out how to remove some of the impediments that prevent business from being part of the solution would be a pretty useful thing.”
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To find practical solutions that would work in the real business world, they started talking to the leaders of civic-minded business like Shore Bank, Puravida Coffee, and Seventh Generation. “Out of 200 of those conversations, they told us there was infrastructure missing that would be pretty useful. One piece was around standards. The second was around legal corporate structure.”
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Since the economic crash of 2008, the B Corp momentum has intensified dramatically. “It’s accelerating on a couple of fronts,” Gilbert says. “We certified twice as many B Corps in the first half of 2010 as in the first half of ’09. That’s ripples in the pond — 330 ripples.”
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In order for those ripples to have impact, B Lab has been fighting to change America’s corporate laws…
Click the link for more inspiration. Can’t wait to see the full article!
Yutsano
That cartoon is pretty dam awesome. I wonder how much this is going to catch on or if too many Wall Street parasites will kill this idea before it gets really popular.
Omnes Omnibus
There also are low-profit limited liability companies in several states. I haven’t read enough on the B Corps to know whether they are the same or a similar thing.
burnspbesq
@Yutsano:
Wall street led the world in internalizing the notion that there are multiple groups of stakeholders. How else do you explain the historically unprecedented transfer of wealth from shareholders to non-shareholder employees?
randiego
excellent!
burnspbesq
For the record, And 1 is a purely evil organization, as responsible as any other for everything that has gone wrong with the game of basketball over the last 20 years. I hate them more than I hate John Boehner.
Yutsano
@burnspbesq: Either this is classic snark or I’m tired and not understanding your point. I can’t rule out either possibility at this moment. The third option is I’m just being horribly dense. :)
Fifi
Shore Bank went under last Friday.
Good intentions and profitability rarely go hand in hand, alas.
And for a good reason : good deeds by the nice guys benefit everybody, nice people and assholes alike, while selfish, predatory actions by assholes only benefit the assholes while they impoverish everybody else. Net effect, the assholes get ahead and earn more leverage to be even worse assholes.
That’s the problem with liberals. They never ask themselves : “What about assholes? How do we take them down?”
Felanius Kootea (formerly Salt and freshly ground black people)
The Kochs have a lot more money and influence (and way too many other CEOs subscribe to the “I got mine fuck you” business paradigm) but this is heartening.
mclaren
Umair Haque has been talking about this over on his bubble generation blog. He calls it capitalism 2.0.
Between B corps and free open source peer production and movements like no-profit restaurants where people pay whatever they think the meal’s worth, there are definitely some changes comin’ down the road in capitalism as we know it.
You have to ask yourself: why do we actually need profit in most of our society? Evidence as well as research studies shows that money is not the most effective motivation in a work environment. The efficiency guru W. Edward Deming pointed over and over again that money is not the motivator at work.
So why do we need for-profit banks? Why not turn ’em all into credit unions? Why do we need for-profit restaurants and car repair shops? Why do we need for-profit publishing houses and clothing stores? People will do all these jobs if they can make a decent living but everything will get much cheaper. Profit primarily serves to create a tiny superclass of ultra-wealthy parasites like the Koch brothers. Why not strip profit out of most of our industries?
j
Shore Bank was started in the 1970’s when the big banks refused to invest in the Black areas of Chicago. They eventually got to around 90% market saturation in the poorest parts of the south side, where all the steel mills closed (throwing 16,000 people out of work in just a few years) by giving loans and start up money to small businesses in the area. Sadly, due to the Great Republican Recession of 2007 and beyond, their core business dried up, so they were seized by the Feds last Friday.
http://www.suntimes.com/business/2621106,feds-seize-shorebank-082010.article
Suffern ACE
@mclaren: Because we don’t believe that the purpose of the economy is to provide us with things and give us something to do all day. We get fascinated, for instance, by the fact that there are now lots of billionaires in China, Russia and India as a sign that those economies are developing cause of the profit motive and assume that what has developed there is a thriving capitalism just like ours.
(Since makato_chan isn’t here tonight, I’ll add, cause we think that if there are billionaires and capitalism in China, pretty soon there will be freedom so that we can send our missionaries there…I’m serious about that.)
Martin
@mclaren: Profit has been rather effective at attracting investment dollars. For all stocks traded on the NYSE, they’ve attracted an average of $8 for every $1 of profit that they’re expected to earn. That $8 builds factories, buys products, makes payroll.
I’d be open to eliminating profit, but would a system without it attract investment money on a reasonably similar scale?
j
@Martin:
The question is WHERE are those imaginary factories being built? Where is that payroll being spent?
Right now, so called “American” companies are sitting on trillions of dollars of cash and refusing to reinvest in the US. We keep hearing that “productivity is up” but all that means is that the workers are being bled to death, doing more work for less money.
Some companies are perfectly happy to average 20 hours per week per employee in overtime just so they don’t have to hire any more bodies which would need training. When the quarterly profit mindset sets in, the corporate masters will laugh all the way to the bank and the overtime will vanish.
Suffern ACE
@Suffern ACE:
Lots of interesting stuff in there. Things about how perceived corruption in the system leads people to come up with beliefs that they think will end it without actually changing the system that is benefitting them.
Hope the Chinese are paying attention about how those sentiments of support for the system can change rather quickly when it becomes apparent that the “crisis” is a feature, not a bug, in a religion that tends to interpret every “crisis” as a sign that the end times are approaching.
These B Corps sound like a secular version of doing business for heaven. Not that it’s not worthwhile, but they would work better if they were set up as a counter system. Otherwise, the PE firms will find you, make an offer you can’t refuse, and make your company profitable.
mclaren
@Martin:
Well, the investment issue is a really excellent point. We would need a different investment model if we were to strip profit out of most businesses. How about the grameen bank model?
People who object that the current grameen bank setup only provides small amounts of capital have got a pretty solid objection there. Would the grameen system scale up to really huge amounts of capital, like, say, the billions of dollars needed to fund truly big businesses?
Also, grameen lending right now has a short payoff horizon — typically a year or so. Would the grameen system with a significantly longer investment horizon, perhaps 5 years or 10 years? That’s also open to question. We don’t know the answer to that. (Of course current stock market funding of long-horizon business ventures is equally problematic!)
Capital for businesses comes from three sources — venture capital, common stock, and corporate bond issues. I think everyone now agrees that the situation with common stock has become pathological. CEOs get rich by manipulating stock prices, traders play market games, it’s a real cesspool. Current venture capital funding is also problematic — they’re known as “vultural capitalists” nowadays.
So maybe a mix of grameen lending and corporate bond issues could solve the capital problem.
Other potential problems: the public or venture capitalists are often willing to finance risky business models with big payoffs. Grameen lending models or corporate bonds probably wouldn’t be willing to fund very risky ventures with potentially huge payoffs. But those types of new businesses are the game-changing ones. So we’d need to think of a way around that problem too.
Tim in SF
The new capitalism. Reminds me of this article in wired on the new socialism.
Paris
There is ggod stuf in this book, Natural Capitalism. One point that is emphasized is that companies that ‘do the right thing’, respect their employees, improve energy efficiency, etc, are also more profitable in the long term.
ornery curmudgeon
@mclaren: “Other potential problems: the public or venture capitalists are often willing to finance risky business models with big payoffs…. those types of new businesses are the game-changing ones.”
How about we give a contract, say a ‘charter’ to a group of investors to finance development in an area and reap the risk/rewards? Call it, say, The East India Tea Company, for example, and give it a limited life? Allow business to profit for the actual benefit of society.
That was the original idea behind the state granting a corporate charter.
The situation we have now is the result of original limited-life profit-for-risk charters having influenced (bought) the law-making apparatus to declare themselves “people” … now even, “citizens.” And btw, “immortal.”
If we went back to chartering an investment vehicle for a limited life, we could then make room for the kind of municipal-utility/B-corp/whatever to manage the resource.
All you have to do is transform society into caring about each other and the future, and rolling back decades of propaganda that ‘greed is good.’
The transforming society part is underway as we collapse, maybe; guess we can hope it falls the right way … this reform sounds like a hopeful idea though, maybe the closest thing to a possible answer I’ve heard about. Thanks for the discussion!
Mary
This is kind of misleading. I mean, sure, the stockholders can sue, but they’re not going to get very far. If an executive can make a good faith argument that in his or (very occassionally) her judgment that it’s better for the long term interest of the corporation to keep the factory local, then the business judgment rule gives him the benefit of the doubt.
It’s true that the law certainly makes it easier for corporations to NOT be decent and humane, and the fiduciary duty to shareholders is often used an excuse to do shitty things in the name of profit, but there’s nothing in the law that requires corporations to be evil.