Although it's interesting to formalize it, it's never really been the case that directors of normal companies are legally required to maximize profits above all else; they're generally given extremely large leeway to run the company as they see fit, as long as they're up-front with investors about what they're doing and why, and aren't engaged in shady things like trying to benefit insider shareholders at the expense of external shareholders. More: http://news.ycombinator.com/item?id=3227980
This probably will still help, though, because many directors of normal corporations believe they have stronger profit-maximizing duties than courts have actually ruled that they do, and they're in any case worried about even unsuccessful shareholder lawsuits.
This is prevailing practice for publicly traded companies -- I feel like these Benefit and Flexible Purpose Corps are more about allowing companies to be publicly traded without having to play this game through setting social expectations than through real structural differences. (To be taken with a grain of salt as I'm not a lawyer or a financial professional, just someone that's been an individual investor.)
>> I feel like these Benefit and Flexible Purpose Corps are more about allowing companies to be publicly traded without having to play this game through setting social expectations than through real structural differences.
As someone who works at what was, until Patagonia, probably the largest B-Corp around, I'll comment on this.
Yes the idea is that with these legal designations and social/environmental charters written in to the company by-laws it will allow for, someday, a B-Corp to go public and not have to change the way it operates. The oft-cited example of "what went wrong and why we need this" is Ben & Jerry's.
When Ben & Jerry's was bought by Unilever in 2000 the new ownership shut down a handful of their social programs and stopped sourcing products from local farmers, among other changes. Other companies were concerned about that happening to them in the future, and thus B-Labs.
To me the most important thing this does is force the conversation with management and allow everyone to get on the same page. Even in companies where they are not registered this way.
Treynor, one of the great finance minds of our time argues in one of his writings that management at a large firm can be more responsible for balancing the interests of all stakeholders rather than simply maximizing profits.
I believe that idea should be discussed more rather than simply accepting the idea that profit should always come first.
This is actually why companies can 'over compensate' people without getting into trouble. Paying Union workers, Day traders, or Executives above market rate does not open a company up to investor lawsuits unless it's far beyond any reasonable standard. But, they have slightly less leeway when dealing with suppliers.
This probably will still help, though, because many directors of normal corporations believe they have stronger profit-maximizing duties than courts have actually ruled that they do, and they're in any case worried about even unsuccessful shareholder lawsuits.