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NPR's Morning Edition did a major piece this morning about how the structure of publicly held companies prevents them from doing good in the world. The premise was the directors and officers of these companies have a legal duty to maximize shareholder profit, and therefore could be sued if they did things that impacted the profit, even if done for social good. As an ex-Wall Street corporate lawyer, I can tell you that this is utter nonsense. It reflects a lack of imagination on the part of the directors and officers (and their legal advisors) and replaces their real legal duty with the profit-oriented economic theory that has gripped our country since the late 1980s.
The truth is, officers and directors are legally required to maximize shareholder VALUE, not shareholder profit. That is or can be a very different proposition. "Value" is what the company defines it as. Profit is only part of the value equation, but there is no legal, ethical or moral requirement that it is the only definition of value. So if the highest value of a company is to serve the common good and be profitable (which we at Dean's Beans, among others, have proven is possible for almost twenty years), then when shareholders invest in that company, they will know what they are getting into. There is no shortage of investors looking to put their money where their greater values are, as proven by the billions consciously placed in socially responsible investments in the last decade.
What is required is not a new form of corporation. Rather, social entrepreneurs creating their new businesses for the common good simply have to write their foundation documents (the Bylaws and Articles of Incorporation) to enshrine their social mission into the very bones of their new company. They need to state clearly what the values of the company are that they are seeking to maximize. Thus it is a lack of imagination on the part of the company's lawyers and advisors, not a lack of legal possibility, that prevents new public companies from being organized for the common good, as they define it.
I will be happy to give free advice on this subject to any social entrepreneur who wants to insure that their new company can pursue its social mission without the fear of being sued by shareholders for not putting profit above everything else.
