by Michael Vargas, Associate at Rimon
No issue has commanded more attention in the past 12 months than economic justice, and given the historic, and growing, chasm between the global one-percent and the rest of world, it’s not hard to see why Americans are so focused on this issue. The solutions being proposed by progressive lawmakers and activists, however, seem to be stuck in the past. To be sure, reviving the regulatory ideals of FDR’s New Deal and LBJ’s Great Society, would likely have a positive impact on economic inequality, but to truly achieve a just and inclusive economy, there needs to be a cultural shift in American business, a shift away from the profits-only mentality that brought about the Great Recession and toward an acknowledgement that businesses can and must be accountable to their communities and society. A top down, regulation-heavy solution can create the checks and oversight needed to police bad behavior, but regulation alone cannot create the cultural change that will bring about a just and inclusive economy that will stand the test of time.
Fortunately, activists within the business community have been hard at work creating a business entity that can do what regulation cannot. It is called the “benefit corporation,” and, although it has only been around for a short while, there is a large and growing community of social entrepreneurs and innovators who are using these companies to bring about precisely the kind of cultural shift progressives have been trying to achieve for more than a century. This post will introduce you to this revolutionary idea sweeping the business world, but we cannot bring about the kind of change we want without the support of other members of the progressive community. We need progressive lawyers, policy-makers and activists to support this movement as a necessary addition to the movement for re-regulation.
How We Got Here
For almost a century, a debate has been raging within the field of corporate law over the proper purpose of the business enterprise. On the one side are those who argue that profit alone should be the sole motivator for business activities, a position that was most forcefully advocated by law and economics scholars in the 1970s. On the other are those who argue that profits must be balanced with a genuine concern for the needs of society, which we would today call “corporate social responsibility” or “CSR.” For decades the two sides in the debate jockeyed for prominence, until President Reagan tipped the balance in favor of law and economics. Reaganomics was the extension of these principles at the level of the national economy, and the business community largely took advantage of the opening to prioritize profits. Today there is little doubt that law and economics remains the dominant force in corporate law.