Reposted from Harvard Business Review
by: Will Patten
It is hard to overstate the role and impact of business today. As an area of human endeavor, Business — with a capital B — is clearly the most powerful force in the world. It can boast the greatest concentration of talent, resources, and fresh thinking.
And many aspects of western civilization appear to be in crisis. Health care, education, transportation, environment, wealth distribution, energy … the list goes on. The needs are great, and solutions are shockingly scarce.
Whether Business is responsible for the current crises can be argued forever. We don’t have time for that argument. The point I want to make is that, as the dominant power in the world, Business will have to be a major part of the solutions.
For many business leaders, that fact is energizing. They know that they are in command of powerful organizations that could be powerful forces for change. But there’s a problem: corporate law in the United States compels any publicly traded corporation to put the financial interests of shareholders above all other interests — and shareholders have come to expect immediate and sizable returns on their investments. As a result, much of the creative talent housed in many businesses is focused on maximizing shareholder value in the near term, even at great risk, and even when the means of achieving it might not be in the long-term interests of anyone — including shareholders. Shortcutting safety procedures in deep water oil drilling immediately comes to mind.
It’s an interesting notion that Business, held captive by a narrow definition of fiduciary responsibility, is not able to make the long-term investments that could benefit communities, the environment, and ultimately the shareholders. If this notion is even partly correct, then our most powerful institution will be unable to do enough to solve the social and environmental crises confronting us.
Earlier this spring, Vermont made a new path available. Through an initiative called the Vermont Benefit Corporation, it provided for a different class of organization — one that exists not simply “for profit” but “for benefit” and therefore expands the definition of fiduciary responsibility beyond an exclusive obligation to shareholders to encompass the interests of all corporate stakeholders, including employees, the local economy, and the environment. Are the directors of a Benefit Corporation still obliged to act in the best interests of the company’s owners? Absolutely. But they have legal protection to make investments with an eye to the long term, aiming for sustainable returns, not fast paybacks for shareholders. (To learn more about the Vermont Benefit Corporate Charter see this pdf of the enabling legislation, or you can read an excellent article here.)
In 1994, on the Fourth of July, Czech Republic President Vaclav Havel gave a speech in Independence Hall, Philadelphia, that resonated with many. “Today, many things indicate that we are going through a transitional period,” he said, “when it seems that something is on the way out and something else is painfully being born. It is as if something were crumbling, decaying, and exhausting itself — while something else, still indistinct, is rising from the rubble.”
For some, it seemed clear what was crumbling and decaying: an economy based on consumption, and driven by overdependence on growth. Some made it their business to give the future a less indistinct shape. Business may or may not be the root of our problems, but the solutions will come more quickly and be more durable if we can find a way to involve Business in them. The option of Benefit Corporation status may be just what Business needs in order to do the right thing for all of us.
Will Patten is the Executive Director of Vermont Businesses for Social Responsibility (VBSR), a statewide not-for-profit organization promoting triple bottom line business practices. It is the largest such organization in the US. Mr. Patten was formerly Director of Retail Operations for Ben & Jerry’s, where he retired after a 22 year career.
photo: Nicholas Erwin