In the drive to please Wall Street investors, some corporations have shortchanged their customers and workers and polluted the air we breathe. Corporate scandals fill the news media.
Producing a good return on investment for business owners (shareholders) is an important function of any for-profit corporation. But society is ill served when we let profit trump fair treatment for the community.
It is unethical for businesses of our generation to use up natural resources at an unsustainable rate, destroying the planet we leave for our children. It is not OK for a business to make more money by paying their employees so little that the workers' families end up in poverty. It is not acceptable for a business to profit from selling toys containing lead that poisons unsuspecting children. The public wants corporations to be responsible for more than just making money.
Unfortunately, in today’s political climate, profit usually wins out. Corporations have the lobbyists, campaign contributions, and the clout to block government from interfering in their drive to make more money. Reform of the political system so government serves the best interests of the people, not the best interests of powerful corporations, is urgently needed.
However, this is not a problem to be solved solely with government regulation and enforcement. Our corporate design needs change too. Corporate laws should enable business owners to profit, but not to maximize profits regardless of the impact on others. Unfortunately, current law makes it difficult for corporate leaders to focus on the well being of the community.
There are businesspeople who want to look out for the public interest, but who are concerned that their fiduciary responsibility to stockholders precludes them from paying better wages or protecting the environment if profit margins are affected.
To address this fundamental problem, we should give businesses the option of incorporating under an alternative structure that acknowledges their responsibility to the stockholders as well as to other "stakeholders." Others who have a stake in a corporation's actions include the employees, the customers, the suppliers, the communities they are in, as well as the general public interest such as public health, the environment, and public safety. One means of facilitating socially responsible corporations is spelled out in Senate File 1153, the Minnesota Responsible Business Corporation Act.
The main advantage of incorporating as a socially responsible business is that a corporation's board and executives would be protected from lawsuits for failing to maximize stockholder profits as a result of their actions to protect the interests of other stakeholders. For businesspeople who want "to do the right thing," this would enable them to do so without fear of being punished. In addition, the legislation would bring worker and public interest representation onto the corporate board, and would ensure that corporate leadership regularly considers its impact on the public.
This legislation is only a partial answer to the problem. It would assist people who want to create a "for-profit" corporation to produce goods or services for the purpose of making money, but who also have sincere concern for other stakeholders. It would assist corporate leaders who treat their employees and the environment well even if doing so might, in the short term, reduce their profits.
Most businesses would continue to use the traditional corporate structure, but some would choose to incorporate under the socially responsible option instead.
Being socially responsible does not mean being unprofitable. Traditional businesses often recognize that they can create "green" jobs in renewable energy. Many employers recognize that good compensation for their employees results in happier, more productive workers. Many businesses recognize that it is a very real asset to have a positive reputation, to have built public trust. It creates loyal customers.
Businesses cannot survive if they cannot make money. They need to generate a fair return for their shareholders, but they can do that without trampling on the rights and interests of the community.
Our current corporate structures were designed in an earlier era, captive to investors' desire for short-term profits. In this new millennium, we need corporate structures that protect the environment, ensure public health and safety, and treat workers fairly. The Minnesota Responsible Business Corporation Act is a step in that direction.