Archive

Archive for the ‘business’ Category

Corporations for Public Benefit?

Thu: May 15th, 2014 Leave a comment

There’s a relatively new way to organize your business called the Public Benefit Corporation (PBC). The name is actually unfortunate, because it suggests some kind of charitable organization. In fact, it’s quite a bit like a normal corporation but with some of the perverse incentives removed.

In a standard corporation, the shareholders can sue if the company does not maximize profit. For example, if a company wanted to promote employee well-being by paying more than market wages to its lesser-skilled workers, the shareholders could sue. If that Inc was instead a Pbc, the requirement to maximize shareholder value at all costs is relaxed. The company could give its workers a raise, arguing as Henry Ford did, that employees who can afford to own the products they produce, are better for the world and better for the company. Even if, on paper, short-term profits took a hit, increasing public benefit is not considered a violation of the shareholders’ rights in the PBC.

This profit-maximization restriction is a large part of the reason corporations are bad citizens. If a company can increase shareholder value by making the world a worse place in which to live, they must do so. Economists might argue that shareholders do live in the world and thus would not invest in a company that would harm it. People by and large, however, think in the short term. If I have more money, I can afford to have air conditioning when global temperature rises, right? If I have more money, I can afford to live in a gated community when the 99% have to steal to eat. If I don’t take the profit, someone else will, and that someone else will live in the gated community while I scrounge for food.

We are taught to not hate the player, but rather to hate the game. When the rules of the game require bad behavior, the winners will be those who behaved badly! Unfortunately since the C corp option still exists, potential investors will likely be wary of the PBC. To really fix this issue, the definition of C corp needs to change. Any existing companies would need to be grandfathered, but if all new companies were granted PBC protection, investors wouldn’t be able to discriminate against them. Hopefully some brave pioneers will adopt the PBC model anyway and demonstrate the public good of this kind of incorporation, making it politically viable to make the change across the board.

HB 13-1138 on Colorado Public Benefit Corporations
Public Benefit Corporations Look Like a Go: leafferlaw.com
Colorado Public Benefit Corporations Part 2: leafferlaw.com
Colorado Public Benefit Corporations Part 3: leafferlaw.com
Colorado Public Benefit Corporations Part 4: leafferlaw.com