With a Public Benefit Corporation, Profit and Good Karma Can Coexist
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Business success often gives entrepreneurs both the desire and ability to "give back." History is replete with examples of businesspeople-turned-philanthropists, so this is hardly a new phenomenon. But what is new is the surge in consumers who feel the urge to give back on behalf of the businesses they patronize.
A 2014 study found that 81 percent of millennials surveyed “expect companies to make a public commitment to good corporate citizenship,” making “giving back” practically mandatory for modern companies.
What's more, this isn't hard, because entrepreneurs have multiple ways to contribute to the causes they support. Especially upon the close of a successful career, they can give back full-time, or pursue some other altruistic path. Once Bill Gates stepped down from day-to-day operations at Microsoft, he focused on the Gates Foundation he and his wife, Melinda, founded. Post-Apple, Steve Wozniak became an elementary school teacher and still helps fund technology for local schools.
Some entrepreneurs and celebrities use their success to start a side project that gives back. Mark Zuckerberg created Internet.org with the mission to connect the far corners of the globe. Actor Matt Damon is heavily involved in Water.org and the Not On Our Watch Project.
The point is that companies have choices. For-profit companies often focus on responsible and sustainable business practices, which is fine at the internal level but might be seen externally as more a matter of doing no harm rather than giving back.
Then there are the companies that are actually founded with the goal of giving back as a core part of their business. Tom's is one example; this shoe company started by donating a pair of shoes for each one purchased and has since expanded to glasses, bags and safe water.
Combining a successful business with a mission to do good in the world can be difficult in a traditional for-profit corporate structure where maximizing shareholder value is the overarching goal. On the other hand, the for-profit motive is key to affecting maximum change in the world. Non-profits are long on mission but often achieve results more slowly because of this. Public benefit corporations (PBCs) were created to bridge this gap.
A PBC is a for-profit institution that provides some sort of benefit to the environment or public. Because it does not operate as a non-profit, shareholders can still profit -- but because of their altruistic side, PBCs can choose to not declare shareholder profit as their primary goal and instead focus on accomplishing a greater vision and mission.
So, why would an entrepreneur or his or her company want to engage in corporate altruism and file as a PBC -- a for-profit company -- instead of a non-profit?
When you look at the companies that have driven the largest sustainable changes in the world -- in technology, healthcare, education, agriculture, transportation and infrastructure -- there is usually a strong underlying profit motive there. While this is not to discount the work of many successful and influential non-profit organizations, a profit potential can drive investment, attract capital, spur innovation and generally move a vision along faster.
An inherent responsibility to give back to the public also serves as a safety net against distractions with the company’s mission. Where for-profit can go wrong is where the desire for short-term profit trumps the mission. The PBC designation allows the same potential for investment, the same ability to attract capital and rapid business expansion; but it also allows organizations to make decisions that benefit the mission long-term, even if those decisions don’t necessarily correlate to shareholder profit in the short term.
This flexibility -- the option to distribute profit to shareholders or reroute that profit to a mission, a choice that non-profits (which don’t have shareholders) don’t have -- is what makes the PBC an increasingly attractive option for entrepreneurs.
Further, the PBC category helps institutionalize the good intentions of the founder. Even if the founder leaves, the mission remains.
While PBCs are relatively new, they seem to represent where corporate altruism is headed. Companies like the crowdfunding site Kickstarter and the apparel company Patagonia have found success through the PBC designation while bolstering the environment and supporting artistic initiatives. My own company, Know Yourself, which is dedicated to self literacy -- teaching children and families how their minds and bodies work -- recently incorporated as a PBC in order to help spread our mission to the world.
As PBCs become more mainstream, then, it will hopefully become clear that profit and good karma aren’t mutually exclusive. In my experience, institutionalizing a mission with a PBC -- because that company is beholden to a greater cause -- motivates quality, drive and passionate work in employees.
It also goes a long way toward satisfying millennials' oft-cited urge to do business with companies that "give back."