Public Benefit, Incorporated

Lenore Palladino in Boston Review:

The stakeholder model of corporate governance would redesign governance so that all stakeholders in our economy (workers, customers, and the public) have a chance to benefit as corporations create profit. It is simultaneously radical and incremental by promising to remake our economy with some straightforward legal shifts. Though there are plenty of variations, three substantive changes to corporate governance are necessary.

The first change is to disallow corporations from forming for any lawful purpose. Corporations should be required by statute to have as their purpose “creating general public benefit,” which is the language that benefit corporations such as Kickstarter and Patagonia use. Benefit corporations are companies that have chosen to be governed by a new kind of law that requires a public benefit purpose and accountability to stakeholders. Benefit corporation status is permissive—right now, corporations have to choose it. Corporate law should be changed so that all corporations—creatures of the state—must create a general public benefit. This would, at minimum, allow some ability to challenge corporate externalities that have disastrous social consequences.

The second change is to mandate that employees, and perhaps other stakeholders, have elected representatives on the board to balance the interests among those making major decisions of the corporation. The third is to make the fiduciary duties of board members—their obligation to be loyal and to make decisions with the interests of the corporation, not themselves, in mind—applicable to a variety of stakeholders, not merely the shareholders who have been actively trading on the secondary markets.

More here.