“The social responsibility of business,” Milton Friedman once wrote “is to increase profits.”
That was in 1970. Since then a massive movement has grown up around the rather vague notion of CSR, or Corporate Social Responsibility. Promoting the triple bottom line – people, the planet and profit – they seek to strongly consider the side effects of all the different operations and then act accordingly – from helping fight global warming to expanding employee health benefits.
Soon some corporations may attempt a “third way”: neither explicitly non-profit nor solely concentrated on bucking up the (single) bottom line. To manage this somewhat dicey balance a new term has arisen: a B Corporation, or Benefit Corporation, which includes in its bylaws specific legal responsibilities not only to its shareholders but also to “stakeholders” – those that the organization affects, if only tangentially. Their status as a B Corporation is reconsidered annually by a recognized third party; if they fail to live up to their by-law obligations they lost the status.
Maryland has become the first state to pass this category into law; in possible contradiction to Friedman’s own words, Andrew Kassoy, one of the promoters of B Corporations, said: “”Milton Friedman would have loved this, for the first time, we have a market-based solution supporting investors and entrepreneurs who want to make money and make a difference.” Now in part he is right – this is partially a market solution because by using the basics of tort law they’ve made sure part of the voluntary contract used in starting the corporation includes this social commitment.
Two caveats, however:
1. B Lab specifically promotes the legislation because it can make sure that even under new ownership this commitment remains.
2. Perhaps mor importantly, there have started to be some tax breaks packaged with incorporating as a a B Corp. These tax breaks are admittedly extremely minor, but that’s no guarantee that they will remain so and it certainly gives the lie to the claim of a Friedman-like market solution.
But to most people who aren’t hardline libertarians, the most important question is, does this ideal of responsibility actually yield a better world than traditional corporations? I for one think that this is hardly the “first time [we have] a market-based solution supporting [those] who want to make money and make a difference.” Would we really be better off if Google shifted resources from computing to fight oil spills? If Phizer dropped its main devotion to creating pharmaceuticals and threw itself into investing in the local community? Both of these companies have done extraordinary good while doing extraordinarily well; they both do have CSR components but that cannot, and I believe should not, be their essential concentration – or even a particularly large one.
While CSR has been found to have positive, neutral and negative effects on profits, there’s no doubt that many companies think that it helps their bottom line to help out society – or, at least, to appear to. Ultimately corporations that are not B Corporations have legal duties only to their shareholders (and to abide by the law), and so as their actual incentives don’t really align with doing a lot of conscious good, it should not surprise us that CSR often doesn’t do much at all. Whether somewhat vague promises built into their by-laws can help B Corporations avoid this incentive trap is an open question.