In their recent article in SSIR, The Truth about Ben and Jerry’s, Antony Page and Robert Katz offer an important corrective to the widespread perception that for-profit corporate forms cannot well serve social entrepreneurs. When Ben and Jerry’s sold to Unilever in 2000, many observers (and apparently Ben and Jerry themselves?) interpreted this sale as necessitated by the law governing publicly traded corporations. Unilever’s offer, in other words, was believed to be a price that commanded a sale in the interest of Ben and Jerry’s shareholders. Page and Katz argue that this was not necessarily the fact and document how Ben and Jerry’s board had several legal and governance tools available to avoid a hostile takeover.
The upshot of their argument is that the rising interest in for-benefit corporations (L3Cs, B-corps, etc) may not be a silver bullet and may actually be a red herring. Even when stock is publicly traded, shareholders are not commanded by law to sell to the highest bidder. But there is need, as Page and Katz suggest, for social entrepreneurs and their investors to understand how corporate law as it already exists can be used to enable and protect the desire of companies to incorporate “social benefit” as an important part of their business models.
Far from favoring corporate raiders focused only on extraction of profits, the wonder of a free market system bound by rule of law is that there is a wonderful diversity of business purposes and models that can be attempted and can succeed. Yes, things get a little more challenging on the regulatory front when the tool of publicly traded stock is used to raise capital, but freedom and responsibility are not eliminated.
“…even under capitalism, if a man really wanted to work primarily for humanity, instead of primarily for himself and his family, wasn’t he free to do so?”
Uldanov’s conversation with Adams is worth continuing:
Adams: “But under capitalism, chief, he got the highest rewards by working for himself; therefore his biggest incentive was to work for himself and not for others.”
Uldanov: “That’s begging the question. If a man is not already selfish, he is not stimulated by selfish incentives. If he finds his greatest reward in advancing the welfare and happiness of others, that is what he will do; and selfish incentives will not divert him, because he will not feel them.”
Adams: “Then I suppose the answer is, chief, to set up social institutions so as to harness even the self-regarding motives in such a way that when a man pursues his own welfare he will do most to promote the welfare of society.”
Uldanov: “But socialism begins precisely at the other end, Adams! It argues that it is only by pursuing the welfare of society that a man can promote his own welfare. The appeal is still primarily selfish. But the argument, judging by results appears to be unconvincing….”
Interesting echoes of Hazlitt in Page’s and Katz’s conclusion:
When critics claim corporations are inherently pathological, they mean that they encourage antisocial decision making by their employees. Executives at hybrid forms likely feel less pressure to maximize profits at society’s expense. Yet the causation is uncertain: Does a virtuous form make directors more virtuous, or do the virtuous seek out businesses so formed?
It’s good to see that it may not have been the law that compelled the sale of Ben and Jerry’s, but sad to observe that the law has been misrepresented as the culprit in what may have been a rational decision to sell, for a decent profit to shareholders, a company that seemed to be on the decline. Personally, I wish Ben and Jerry’s were still out there as a privately held company proving that in the free market system, as it has always been, it is possible and reasonable for an entrepreneur to do well by doing good, but either way, Page and Katz suggest to us that it is imperative to understand and defend how the law works to secure liberty and property, and the freedom and responsibility of buyers and sellers.