Make it a requirement that corporations receiving federal dollars rewrite their charters as "B Corporations"

On Tuesday, May 8, 2007

I wrote a column titled "B Corporations get an A+." In it I described current corporate charter language and the danger of its current interpretation. B Corporations may offer an important alternative.

In that earlier article, I noted that Adam Smith's dictum about maximizing profit has been mis-applied, misinterpreted and etched in the stone of public corporation charters. "Maximizing profit to shareholders" has often been taken to mean "make the most money possible as soon as possible for the shareholders."

That is, in fact, not what Adam Smith meant. Maximizing profit did not mean put as much money as possible into the profit margin but rather use capital to its maximal advantage in the effective operation of the company. That means paying workers, maintaining machines and all the things that keep things running smoothly, hopefully happily along. "Maximizing profit to shareholders" under the new dogma results in the sacrifice of many other stakeholders.

Enter the B Corporation. According to NPR's Marketplace story, "Profiting from Social Responsibility" by Alex Goldmark, A "B" Corporation is a new status for a for-profit corporation that writes into its charter, not simply that it MAY consider other stakeholders, but it MUST. The understanding is up front that the profits may be used for fair pay, benefits, hours, and conditions for workers; that the environment and community are considered; that some portion may be contributed to charity etc... Jay Coen Gilbert who is one of the pioneers of the concept says, "The B is for social benefit. It's still a traditional company, but with a modified charter that legally binds it to a socially-conscious set of values."

It's time for the new(or is it old) attitude that businesses are not in the business of "making money" but of making products, offering services, and supplying human needs and to that end, creating prosperity and beneficial communities.

The current legal definitions and operating manual for corporations creates in them the inherent drive to create as much wealth, (phantom and real) as possible in the short term. No amount of regulation will undo this fundamental constraint on corporations.

If we are to expect corporations to behave rationally, fairly, and in a trustworthy manner, those characteristics must be written into their charters, not in conflict with their essential legal structure. We will be writing in double-binds if we add regulation to the current corporate form.

MAKE RE-CHARTERING AS A "B-CORPORATION" MANDATORY before receiving any futher federal capitalization. This is the only way to make commercial and investment banks accountable to taxpayers. It is not enough to make taxpayers, shareholders because the mandate still demands that the corporations place instant profits ahead of all other considerations, a practice that leads to instability and self-destruction of the institutions.

Current corporate legal statuses of corporations leaves them weak and dangerous. Empowering financial corporations to take responsible action will render them stronger, safer, more transparent, and more accountable to those who rely on them for ensuring a stable and rational economy.