The For-Benefit Company: Will It Catch On?

Got a short but thought-provoking snippet to pass along today…

According to the compelling article you’ll find here, written by Will Patten for Harvard Business Review, a pocket of business leaders and legislators around the globe are starting to wonder whether it’s time to create a middle path of some kind between the traditional “selfless philanthropy” mission of non-profit organizations and “profit at all costs” mission of most for-profit enterprises.

One new experiment along these lines, being rolled out in Vermont, is the creation of a new “For Benefit” business classification that “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.”  According to Mr. Patten’s article, these new organizations will be granted “legal protection to make investments with an eye to the long term, aiming for sustainable returns, not fast paybacks for shareholders.”

An interesting concept, for sure!  As usual, if you want an even better grasp of the issue being discussed, make sure to scroll down and read some of the comments below the article.  These contributors refer to related examples of emerging social responsibility legislation, such as the L3C (“Low Profit Limited Liability Company”) structure now allowed in 5-6 states around the country, while other folks play Devil’s advocate and suggest such alternative business forms will never work, writing things like “for example, the tendency to outsource manufacturing to China may be socially destructive because of US job losses, but if consumers continue to demand the cheapest products, what choice does business have? Any business that sticks with making products locally and charges higher prices accordingly could well be out of business soon. Legislating for such a socially responsible action would just put them out of business sooner.”

Clearly, our society (as well as many Career Horizons clients) are feeling extremely torn these days between the competing interests of “doing good in the world” and “making a decent living” — so it will be interesting to watch how these forces play out on a bigger scale, across the country, a well as across the globe!

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5 Responses to “The For-Benefit Company: Will It Catch On?”

  1. In response to Brett’s excellent post, I can add that it is the executive level that benefits from the current system, as well as significant percentage shareholders.

    I’m generalizing, but the compensation is clearly stacked towards those who are fortunate enough to be in the inner circle at the top. The remainder of the workforce gets what is left, which in recessionary times, isn’t much.

    There are exceptions, I have read that some companies leveled with their employees and said they either cut X number of employees, or collectively take Y% decrease in pay and or benefits. The latter is what non-upper-management will almost always take.

    Those are the exception, corporations, particularly publicly traded ones, will make large and deep cuts to their workforce in order to make the numbers, and then will hire back much more slowly and cautiously. This is exactly what we are seeing with the Fortune 500 right now.

    As the United States comes to terms with chronic overspending beyond its means, special interest groups getting the breaks, and waging non-stop military action, I believe there will be a new sense of community that forms, one that will certain take a more egalitarian view. At least I can hope that is the case.

  2. Very interesting concept, indeed. Perhaps Adam Smith’s invisible hand needs a little guidance?

    The paradox in many situations is that a greatest strength is a greatest weakness. One of the greatest strengths of the USA economy is the financial system that enables capital to flow quickly and efficiently to businesses that create the most value. One of the greatest weaknesses of our economic system is the stock market system of driving companies for short-term results and using them as chips in a high-stakes poker game. The drive for short-term results-at-all-costs distorts the influence Adam Smith’s invisible hand.

    Taking Wall Street out of the equation may indeed enable the invisible hand to, once again, guide people’s decisions toward the collective benefit of all.

  3. Societies can’t sustain themselves under the current model….. never-ending growth is impossible…… evolving to a sustainable economy where shareholder value is measured by how balanced an organization is with respect to natural and other resources, and it’s impact on society and the enivronment IS the future.

    I think you’ll find hundreds if not thousands of top notch, smart, dedicated, hard working individuals lining up to work for companies that adopt this model…. myself included. These changes have to come from the bottom up….. waiting for D.C to do the right thing is a total waste of time….. each party continues to do their darndest to oppose the other regardless of how right the idea being proposed is. The US falls further and further behind other countries who get it, who see the right path to take and are making the right decisions……

  4. Great book along these lines is called Firms of Endearment. Reseach based. Findings suggest there are means to create great organizations not solely focused on the bottom line — organizations with a sense of soul. Good, provoking read. You can read the first chapter/summary at:

    http://www.whartonsp.com/articles/article.aspx?p=698131&seqNum=2

  5. Depending on how long our recession goes on (and what else can you call it when even though GDP is increasing, so are job losses?), there could well be a backlash against products that are solely manufactured offshore. Frankly, many of consumer products, particularly electronics, are assembled with people paid what we would essentially call slave labor in the U.S.

    That was my knee-jerk reaction to this, I will give this some more thought and comment on it again. It is intriguing, to say the least!

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