Back in 1997 Gregory Bresiger penned a piece for the Free Market tearing apart the notion of "socially responsible investing" (SRI). Managers focused on social issues instead of profits will perform poorly as resources are diverted to unproductive uses. Bresiger looked to close the argument with this seemingly absurd proposition:
But SRI funds do point the way to solving a myriad of political debates in this country. Whenever a politician suggests a new tax, mandate, or regulation on business, let's first try it out on one of these "Socially Responsible" companies, purely on a voluntary basis. Let it pay higher taxes, insurance premiums, and wages, while adopting ever more rigid quotas and union rules. Then we can watch what happens to its stock price relative to everyone else's. Any takers?
More than a decade later there are takers. The Wall Street Journal reports that in seven states companies can register as benefit corporations, allowing the firms to pursue social and environmental goals without the worry of shareholders suing them for not maximizing shareholder value.
These corporate charters aren't tax exempt or nonprofit. Companies choosing to be benefit corporations pay Uncle Sam like any other for-profit company, but have the prerogative to make profits an afterthought.
Casey Sheahan, chief executive of outdoor-apparel company Patagonia Inc., changed his company's charter right away, believing that his company's shareholder value should take a backseat to the common good.
Jeff Furman, a Ben & Jerry's director since the 1980s and its current chairman, told the WSJ that had the socially conscious ice-cream maker been a benefit corporation back in 2000, they would have never sold out to Unilever PLC.
Ben Cohen and Jerry Greenfield are the stuff of legend for turning an initial $12,000 investment in an ice-cream store, located in a renovated gas station, into an ice-cream juggernaut the two sold 22 years later for over $300 million.