I have never really understood the real social benefit of B-Corps other than employing a lot of third party auditors. Now I think they may actually be dangerous. At a recent paper presentation by Alicia Plerhoples, a professor at Georgetown University, I learned that recent ruling in eBay v. Newmark may be the beginning of the end for CSR, and B corps are to blame. Read the following opinion from the case (bold added):
Chancellor Chandler: “In the recent “[Newmark and Buckmaster] did prove that they personally believe craigslist should not be about the business of stockholder wealth maximization, now or in the future. As an abstract matter, there is nothing inappropriate about an organization seeking to aid local, national, and global communities by providing a website for online classifieds that is largely devoid of monetized elements. Indeed, I personally appreciate and admire [Newmark’s and Buckmaster’s] desire to be of service to communities. The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. Jim and Craig opted to form craigslist, Inc. as a for-profit Delaware corporation and voluntarily accepted millions of dollars from eBay as part of a transaction whereby eBay became a stockholder. Having chosen a for-profit corporate form, the craigslist directors are bound by the fiduciary duties and standards that accompany that form. Those standards include acting to promote the value of the corporation for the benefit of its stockholders.”
What he is referring to is the CHOICE that firms have now in corporate forms. In Delaware, firms can chose to be a B-corp, which means that they have certain social goals as well as financial. What this ruling states is that since they chose NOT to form as a B-corp – they made, in essence, a choice for shareholder primacy. This ruling could be the precedent for future legal decisions on the social role of corporations.
Ironically, we never needed the B-corp for firms to pursue social goals (see Lynn Stout’s work on the Myth of Shareholder Primacy). Managers have a great deal of discretion in this arena. You can even alter a corporate charter to explicitly state social goals. (The B-corp for some states is a good way to keep auditing companies employed, however, a process which may help some companies. You don’t, however, need a new corporate form for a process for continual improvement).
However, this managerial discretion may start being reduced if courts see a managers choice to not incorporate as a B-Corp as a clear indicator of preference for shareholder primacy.