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Changing the Corporate Structure

In this article, a corporation is defined as a legal entity describing the large "...Anglo-American publicly traded business corporation as opposed to small, incorporated businesses...." Over time the Supreme Court legitimated this type of capitalist institution. In Dodge v. Ford (1919), the Supreme Court created the principle, "the best interests of the corporation; that is, the managers and directors of the corporation must put the interests of the shareholders above all other interests. This means that if a CEO or board wished to give donations to a charity, other shareholders can sue and claim that such an action is not in "the best interests of the corporation." The Supreme Court opened the door to a very greedy corporate culture.

Over time, corporations grew into large monopolies sometimes gaining 90 percent of an industry's market. Part of their success relates to our federalist system in which every corporation chooses in which state it wishes to incorporate. Most corporation use Delaware, which in the 1890s sought "to attract valuable corporations to its state by lessening restrictions." Delaware repealed the rules that required business to incorporate only for narrowly defined purposes. It loosened controls on mergers and acquisitions. It abolished the rule that one company could not own stock in another. Corporations flocked to Delaware. Other states began lessening their requirements for corporations; it became a race to the bottom. This, of course, is one limit of federalism. Fifty states means that corporate officials can always find one state to do what they wish. 

Some corporation that had been involved in philanthropy found a way around this tight legalism by claiming that the social or environmental goals of a large corporation were strategic to advance the interests of the shareholders and managers. An example is BP, an oil company, formed a separate nonprofit with a mission to provide charity for a variety of projects around the world that insures the safety of the corporation through building goodwill with consumers. Another example is Pfizer created a robust charity in the neighborhood around its plant to insure the safety of its employees. But these corporations limit their giving so that they are not exposed to shareholders' dissatisfaction. 

In the late 20th century, two new forms of corporations were created by those seeking a less selfish corporate model. These are a Benefit Corporation and a Certified B Corporation; the benefit of both is to use the corporation profits for a "generally public benefit." Existing corporations can change their incorporation documents to become a Benefit Corporation although it takes time and requires shareholder approval. A Benefit Corporation is required to evaluate its impact on all stakeholders, not just shareholders. In several states, a Benefit Corporation must issue a public report of its assessment on meeting its social goals. There are over 3,000 Benefit Corporations in the United States.  A Certified B Corporation need not change its incorporation documents; it participates in a certification process operated by B Lab provided the shareholders agree. There are 5,000 Certified B Corporations in 77 countries, 1,500 are in the United States. It must have agreement from its shareholders. Examples of  Benefit Corporations are New Generation, King Author and Patagonia, the last recently put in a trust.

These new types of corporations are miniscule but they remain a hopeful sign that it is possible to restructure corporations to benefit society rather than just shareholders.






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