Consider two different social enterprises: Blue River Technology and Greyston Bakery.

Blue River applies expertise in robotics to develop new agricultural technologies. Recognizing that $25 billion is spent annually on herbicides that pose environmental risks, the company offers farmers the option to reduce their chemical usage by switching to robots pulled behind tractors that can quickly identify and kill weeds with a rotating blade.

Greyston sells brownies (including some found in Ben & Jerry’s ice cream), but it also adheres to a strict workforce development program. The company staffs its operations with hard-to-employ individuals and teaches them skills that they can use when looking for jobs across the wider foodservices industry. As Greyston’s slogan says, “We don’t hire people to bake brownies, we bake brownies to hire people.”

Greyston is organized as a benefit corporation; Blue River is not. That probably makes sense.

Blue River approaches what some call “the hybrid ideal” – a situation where everything a company does generates social value and revenue. The company’s social objectives are market driven. There is little tension between profits and impact. Mission drift is relatively easy to monitor. I wouldn’t think Blue River has much to gain by becoming a benefit corporation. Indeed, it seems to be doing just fine.

Greyston is different. It can’t align profits with public good quite as neatly. Its social mission is broader and open to greater interpretation. What does it mean for someone to be “hard-to-employ?” How should we measure something as fuzzy as workforce development? Even if we say that Greyston is near the hybrid ideal, can we be sure it won’t move toward greater pursuit of profits at the expense of public benefit? This might follow from something as simple as a change in ownership or leadership, and it could be hard to detect. Blue River’s products strike me as easily observable, but if Greyston makes discrete changes to its hiring policies, those decisions seem easier to keep under wraps.

The provisions found in benefit corporation statutes do not fully resolve these issues. However, I’m not ready to say that benefit corporation statutes are a mistake, or that becoming a benefit corporation is only about greenwashing. Instead, I argue that the benefit corporation’s best opportunity for influence is to be seen as a new institutional structure—one that can motivate the development of self-regulatory standards and provide a normative framework for social entrepreneurs and pro-social investors. This framework, in turn, can be particularly helpful to companies like Greyston that pursue more complex social missions.

First, the benefit corporation form offers a rallying or focal point that ought to make it easier for like-minded private actors to come together and collaborate on issues ranging from corporate governance practices to the development of social impact metrics. Seeing benefit corporation laws as focal in this way does not mean they will dictate particular standards. Rather, they simply incentivize firms and stakeholders to participate in a self-regulatory process by providing an archetype and hub that can facilitate communication and standards development. The form’s mandate to consider multiple interests should make such cooperation more palatable. Firms that prioritize profits above other objectives often lack the incentive to share information with their competitors. In that case, first-movers will see their profits slip if information sharing allows others to easily replicate their strategies. However, by definition, the benefit corporation form means that profits are not the overriding focus. It thus creates more room for cooperation and coordination—and as Haskell Murray reports, this already appears to be happening.

Additionally, a key step in addressing issues like mission drift is to recognize that, just as they send broader signals about values to the market, legal forms also influence corporate behavior. The people within an organization are the most significant determinants of its commitment to mission. With respect to the benefit corporation, forms that reflect a specific ideological commitment can influence internal culture by signaling the values that should inform employee decision-making. Patagonia cited this belief as a motivating factor in its decision to become a benefit corporation. 

Finally, establishing a culture that leads to the internalization of values is easier when organizational goals match employees’ personal beliefs. The benefit corporation’s emphasis on dual objectives should attract socially minded employees by signaling that they will find a supportive structure in place. When employees then enter organizations that reflect their own values, they often exhibit greater motivation to act consistently with those values.

There is obviously much more to say about these points, and for anyone looking to wade deeper into them, I offer a fuller explanation here.

Unless the rapid spread of benefit corporation laws is evidence of an enthusiastic or cynical mistake (which I think is possible but unlikely), then there must be some underlying logic to unpack. My aim is to keep working to explain the social enterprise phenomenon, to put it into a clear theoretical framework, and to distill the best justifications for offering special organizational options for social entrepreneurs.

Business Organizations, Corporate Governance, Corporate Law, Organizational Theory, Social Entrepreneurship | Bookmark

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