The business world is changing. And new types of businesses are taking shape in response to past excesses. Economist Milton Friedman, who once said that a company's only social responsibility was to increase its profits, has lost his popularity. More and more people are now rejecting the notion that capital should be a company's singular and ultimate objective. But it's not that simple. Executives and managers believe that they are hired to generate profits. And usually, they are almost exclusively evaluated on their past financial results.
Previously, there has always been a clear division between for profit companies and the others. In fact, this is a popular discussion topic within the cooperative movement: Are cooperatives a for profit business or not? I persist in saying that they are not. The true goal of a cooperative is to always provide services to its members. However, let me add that they still want a surplus, which is needed to pursue the cooperative's mission. But there are other people who believe that cooperatives are indeed for profit since they are business oriented.
This is typical of the human mind, which is inclined to divide, categorize and compartmentalize. It's so much simpler that way. It's either 'A' or 'B'. You check 'yes' or 'no', and that's all there is to it! But sometimes it can be A "and" B. This is a complex world and it gets more so each day. The time has come to admit multiple relationships, half-tones and doublets! This is kind of what California is trying to do in terms of commercial law. The law now allows for two new kinds of businesses: The flexible purpose corporation and the benefit corporation. Both are for profit businesses with a social mission.
The flexible purpose corporation is required to state in its charter the type of positive contribution it intends to bring socially or environmentally. It is also required to report annually on its progress in attaining this non-financial goal. As for the benefit corporation, it is required to go even further. Its status explicitly includes a significant and positive contribution goal to the environment and to society as a whole, as well as an obligation to produce annual audits conducted by a third party. Patagonia, the outdoor clothing and apparel company and a leader in corporate eco-responsibility, was the first to seek the benefit corporation status, in fact it applied on the very first day these new provisions took effect.
This evolution of commercial law is more than welcome since judicial structures are never neutral. They bring about behaviours; they may forbid, allow, and/or obligate what makes up the company leaders' margin for manoeuvre. These two new types of businesses finally propose a framework in which shareholders will be allowed to legitimately ask for satisfactory remuneration of their capital, and for executives and managers to consider decision making criteria other than financial impact.
Just as biodiversity is necessary to the health of any ecosystem, diverse types of businesses within our economy are just as desirable. If, as we often say, cooperation is part of the solution, we must also conclude that the cooperative status is not a "one size fits all". Patagonia shareholders would not have been able to transform their corporation into a cooperative since they are not all its users. The needs are many and varied in terms of business models. That's why I'm pleased with California's innovation that paves the way toward a plural economy, an economy that increasingly reflects cooperation, even if it is more in spirit than in structure!