Should Wariness of Corporate Social Responsibility Extend to B-Corps?

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October 22, 2012; Source: Central Penn Business Journal

In light of all of the news recently about various corporations getting B corporation status, it is worth noting that in Pennsylvania, there is legislation on Gov. Tom Corbett’s desk that would officially allow corporations in the commonwealth to charter themselves as “benefit corporations” or “B-corps.” According to the Central Penn Business Journal, “B-Corps are for-profit companies that have chosen to make a set of values equal in importance to the overall profitability of the company.”

The sponsor of the bill is State Rep. Gordon Denlinger, a Republican from Lancaster County, who explains his support of B-corps in terms very close to the national political debates of our time: “B-Corps direct the entrepreneurial drive of American businessmen and businesswomen to aggressively address social and environmental problems without the waste and procrastination that often plague government programs that have similar goals,” according to Denlinger. His bill would make Pennsylvania one of a dozen states to enact B corporation legislation.

The theory is that corporate directors would be allowed to take nonfinancial interests into consideration as opposed to focusing exclusively on maximizing profits. The B-corp designation would protect corporate directors from being “held liable for lost monetary value as a result of socially conscious decisions.” “By expanding a corporation’s legal structure to allow directors to make decisions for the good of society, and not just to maximize shareholder profits, consumers are able to support businesses that align with their values,” Denlinger adds.

Of course, nearly every corporation worth its 10-K U.S. Securities and Exchange Commission filing has a corporate social responsibility program, which one would assume has some element of acceptance of something less than solely maximization of profits. Corporations and their shareholders know that corporate social responsibility is actually good business as well as good for the community. There may be some corporate iconoclasts, drawn from the Milton Friedman wing of economic theory, who believe that corporations should do no philanthropy and no conscious social responsibility programming because, in the capitalist model, a well functioning and highly profitable corporation is the epitome of what capitalism can offer society. However, most corporations buy into corporate social responsibility as important and positive—and defensible.

If you put B corporations into the context of corporations trying to incorporate or exercise agendas of corporate social responsibility, there is the critique from the other side of the political spectrum, represented by former U.S. Labor Secretary Robert Reich. “The upsurge of interest in ‘corporate social responsibility’ is related to the decreasing confidence in democracy,” Reich contends, presaging Denlinger’s critique of government. “These days, reformers often say they find it easier to lobby corporate executives than to lobby politicians; they contend they can be more effective pushing certain large corporations to change their ways than altering public policy.” Reich argues, “the new interest in so-called ‘corporate social responsibility’ is founded on a false notion of how much discretion a modern public corporation has to sacrifice profits for the sake of certain social goods, and that the promotion of corporate social responsibility by both the private and public sectors misleads the public into believing that more is being done by the private sector to meet certain public goals than is in fact the case.”

Reich wrote those statements some years ago, before the upsurge in state legislative activity around B corporations and low profit limited liability corporations (L3Cs), but he hasn’t changed his stance. He tweeted earlier this month, “Beware ‘corporate social responsibility.’ CEOs shouldn’t decide what’s socially responsible. That’s the role of democracy.” Does his critique apply to B-corps and L3Cs? Or are they a different breed of corporate player that counters his argument about the false notions behind corporate social responsibility?—Rick Cohen

  • Judy Gentry

    As founder and executive director of a very small volunteer non-profit organization in New England, I read the article in complete disbelief. I shouldn’t have been so incredulous, after all Republicans want corporations(that they see a s people) to be the sole beneficiary of society’s largessel.

    What is described in the article is a stripping away from both government and non-profits their ability to operate programs that would benefit society’s needs, culture, education and much more. It would lead to a burgeoning of businesses that would claim to be socially relevant,, negating the work of the thousands of non-profits whose entire mission is socially relevant.

    How could charities with our small budgets possibly get a seat at the table of the funders when corporate giants can do so much more and make a profit while doing it.. What would happen to our sector.?

    It is difficult enough to convince funders of our ability to reach certain goals, meet certain objectives, and be able to help more people than our resources can cover.

    Lobbyists think its easier and more efficient to bypass politicians (read governnment). Of course its easier; they speak the same language as the corporations —- bottom line profiits.. They would take much of the powet and authority of the government. Everything would be privatized and operated by beneficent despots.

    Surely, the distance between the have everything and have nothing will be increased. How can non-profits, many of us having very small budgets, compete with Walmarts and McDonalds?

    My organization “gifts hand-knit warmth to people in need, locally”. Knitters and crocheters from around the country put love and care into their beautiful creations. We even attach gift-cards so the items will seem less like charity! Would Walm,art care about people’s dignity? I think not.

    “B” Corps…addresses social and environmental problems without the waste and procrastination that often plague government programs that have simiilar goals”(Central Penn Business Journal, Oct 22, 2012.)” Can anyone actually say they believe that? It is true that government often botches programs,,. but their mistakes are minor compared to the greed, malice, and voracious appetite for profits that for-profit corporations would bring to the table.

    Many for-profit businesses do an excellent job of hiding their lust for higher pjrofits within a warm, fuzzy trojan horse ;that shows compassion and concern.

    How do we compete with that?

    After reading that article, I’m terrified for all the people who count on non-profit services to survive ?

    I’m sorry to ramble on so long,;but that article scares me and should scare everyone who priovides a service to people in need. What I want to know is what can we doi? Where do I sign up and how do we get rid of “B-Corps”?

  • rick cohen

    Dear Judy: thanks for the heartfelt response. I thought the comment from the Pennsylvania state rep who sponsored the B Corp law was kind of stunning, but I saw nothing from the B Corp advocates countering that silliness. And the people who somehow think that profit-making corporations will supplant nonprofits, I just don’t know. I’m so thankful that you wrote–and surprised at how reticent most nonprofit leaders are to utter a syllable critical of corporations. Thanks for writing.