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Seminal Book on Benefit Corporation Law

Frederick H. Alexander, Head of Legal Policy at B Lab US, discusses his soon to be published book, ‘Benefit Corporation Law and Governance: Pursuing Profit with Purpose’.

By ESELA Posted 28/09/2017

‘Benefit Corporation Law and Governance: Pursuing Profit with Purpose’ is the first comprehensive guide to the benefit corporation movement, which is designed to foster for-profit businesses that create a positive impact on society, workers, the community, and the environment. The book also includes a foreword by Leo E, Strine, Jr., Chief Justice of the Delaware Supreme Court.

Preface Excerpt

“This book provides business and law students, as well as practicing lawyers, with a guide for using and understanding a new legal tool:  benefit corporation governance.  It should also interest investment professionals, especially those who care about sustainability and socially responsible investing.  I also hope this book will develop a broader audience among those interested in shaping public policy.  While corporate governance may occupy a remote corner in our policy discussions, it has a profound effect on the economy.  This book’s theme is that in order to tackle issues like inequality and climate risk, we need to change the way we govern our corporations.  One critical component of the message is that shareholder primacy—the dominant corporate doctrine that the primary purpose of corporations is to make profits for shareholders—threatens the long-term health of our society.  Everyone, including shareholders, would be better served by a financial and legal system that respects the interests of all corporate stakeholders—including workers, the environment and the community.  Benefit corporation law is a tool for establishing such a system.”

Epilogue

The following Epilogue includes a summary of Frederick’s argument that our financial system ought to use the benefit corporation form to shift towards a capitalism that is based on creating value for all stakeholders and not simply financial wealth for shareholders.

“I wrote this book because of my belief that the incredible gains of modern civilization that have lifted billions out of poverty are threatened by some of the very elements that brought those gains.  The atmosphere’s carrying capacity for greenhouse gas is limited; society’s carrying capacity for inequality is limited; the financial system’s capacity for risk is limited.  The monocapitalistic system that evolved as means for allocating economic resources simply does not adequately address these limitations.  Continuing to rely on a legal and financial system that answers only to financial capital is untenable.

Attempts to address the threats to our rapidly diminishing stocks of human, social and natural capital through regulation and repair cannot overcome the overwhelming strength of an economy run solely on financial principles.  The power and momentum of by financial capital—hundreds of trillions of dollars—is too powerful for governments and NGOs to overcome.  If we are to address these threats before the system reaches a tragic overload—and if we are to address the inequality that leaves so many in poverty even now—we must establish an economic system that accounts for the value of all capitals.

The global economic system is not the result of a grand design any more than human beings are. Both evolved haphazardly in response to a constantly changing environment, and both have many elements that just don’t work well in the modern world.  Our sweet tooth was great on the savanna, when ripe fruit was a rare but critical source of calories and nutrition.  Not so much in an era where drugstores, grocery stores, and vending machines are full of cookies, cakes and candy, as our epidemic of obesity related illness shows.  By the same token, the idea of shareholder primacy might have worked well to combat the agency problem discussed in Chapter Two, but as our economic system has globalized and became more interdependent, and as the earth’s population has grown, the financial system’s “short term profit tooth” has become a similar liability, with corporations consuming social and environmental resources at an unsustainable pace.

The message of this book is not simply about corporate law.  It is really about public policy, and the need to insist that the professionals responsible for managing our stores of financial wealth manage all of the capitals they impact, and not just the money.  This applies to asset allocators like pension funds, to managers like mutual fund complexes and their advisers, and finally to the corporate directors and managers that apply that capital to the real economy.”

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