From benefit corporations to social purpose companies: when capitalism seeks to reconcile profit with the common good

From benefit corporations to social purpose companies: when capitalism seeks to reconcile profit with the common good

Can the inclusion of social or environmental objectives in a company’s articles of association help to make them more virtuous? Whilst it may help promote a shift in business mindsets, it may also amount to little more than ‘fairwashing’.

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In November 2020, Camif stood firm in its boycott of Black Friday. The French online furniture sales company closed all access to its website, as it has been doing since 2017, when its board of directors decided to adopt the legal form of société à mission, a ‘mission-driven company’. Two years before a French law designed to modernise companies officially recognised this legal form, a committee bringing together the stakeholders – employees, shareholders, suppliers and customers – as well as “leading experts in sustainable development”, set a guideline for Camif and included it in its articles of association. It set itself the task of “offering products and services for the home that are designed to benefit people and the planet” as well as involving “consumers, partners, suppliers and local actors” in its governance.

In line with this philosophy, Emery Jacquillat, who took over the former mail order cooperative, founded in 1947, a year after it went bankrupt in 2008, decided to forgo the day of the year that symbolises unbridled consumption. Since becoming the head of Camif, its CEO has been a French pioneer, developing the idea of giving the company a mission, making social or environmental objectives an integral part of its activity. “I wanted to take the bull by the horns straight away,” he tells Equal Times. “When I told the shareholders, ‘we’re shutting down the site’, their initial response was that it could not be done, because Black Friday was the most important day for e-commerce.” But having managed to convince them, it has to be said that, from a marketing perspective, the move has paid off. By taking a stand against overconsumption, Jacquillat caught the media’s attention. And the business is doing well.

But over and above the benefits drawn from the publicity, Camif’s CEO insists on being driven by a genuine desire to contribute to the kind of “world we want to leave to our children, which is not the world of Amazon”. The French entrepreneur’s stated aim is to encourage “another way of consuming. Consuming less, but better […] and giving consumers back the power to boost local business.” The company prides itself on its local customer base, with domestic sales representing “93 per cent of its turnover”.

As for its social impact, Jacquillat once again contrasts the firm with the US online sales giant: “Every job at Camif supports 14 others in France. At Amazon, for every job created, two others are destroyed”.

Also in France, researchers from the École des Mines de Paris and the Collège des Bernardins have contributed to stimulating debate on this new type of business model. Armand Hatchuel, professor of management sciences and design engineering, is one of them. Together with his colleague Blanche Segrestin, he took part in writing a book proposing a new type of company, with a broader purpose, Société à Objet Social Étendu – Proposition pour un nouveau statut d’entreprise (A Company with an Expanded Corporate Purpose – A Proposal for a New Business Form). The aim of the work, says the researcher, was to “explore the possibility of companies having societal and environmental aims that are as legitimate as their profit-making objective, and inscribing this in their articles of association”.

The deregulation of the incorporation of sociétés anonymes or public limited companies under French law dates back to 1867. Prior to that, founding a company of this kind required authorisation from the state, which would grant it if the corporate purpose was considered to be in the collective interest. Companies with major infrastructures such as canals, dockyards or railways were among those who benefitted. “But with the deregulation of public limited companies, the idea of a social purpose lost its value,” explains Hatchuel. Since then, articles of association only have to refer to the company’s activity and its legal nature. For all those years, a company’s only purpose was the distribution of profits and losses among its shareholders.

So the research team’s work was aimed at reviving the “old idea of a social purpose”, says Hatchuel. With this updating of an old concept, “the idea is to give [companies] another [non-financial] purpose, which reconciles business and society”, by creating a legally-recognised ‘social purpose’, which we refer to as an ‘expanded’ purpose”. The idea of a company with an expanded or broader purpose is at the root of “a general theory that has now been embodied in present-day French law with the inclusion of the sociéte à mission”, explains Hatchuel.

From the United States to Europe, companies are taking on new commitments

Although this new type of company has been under consideration in France since the beginning of the last decade, it was the United States that pioneered the idea, with its social purpose corporations (SPC) and benefit corporations. More than 30 US states have passed laws enabling companies to adopt these legal forms since 2010.

Benefit corporations enable businesses to incorporate objectives that have a positive overall social or environmental impact into their articles of association, without giving up the pursuit of profit. Famous outdoor clothing brand Patagonia did so in 2012, committing to “sustainability and treating workers well”. Like many such US companies, and their European cousins, Patagonia also displays the B-Corp label, awarded by B-Lab, which is a reference in terms of corporate social responsibility (CSR).

The social purpose companies, which can be formed in a number of US states such as Washington, California and Florida, are similar in spirit. The difference is that these companies have to pursue a very specific purpose, which is intended to benefit their stakeholders, society or the environment.

Solar energy company d.light, for example, has committed to providing reliable access to electricity in communities where it is lacking.

Another major difference between the two is that the businesses’ non-financial purposes are assessed by an independent third party in the case of benefit corporations but not in that of social purpose corporations.

Finally, in 2013, Delaware came up with the public benefit corporation, a hybrid model that combines the specific objective element of social purpose corporations and the positive environmental or social impacts required of benefit corporations. Unlike the latter, the public benefit corporation does not require any third-party assessment of its activities and their impact.

In Europe, the concept is also spreading in countries other than France, such as Germany, with companies joining the purpose bewegung or purpose movement, such as the Ecosia search engine. But it was in Italy, in 2015, that the alter egos of these new types of US corporations first made their legal appearance on the Old Continent, with the società benefit, which seeks to reconcile the financial interests of shareholders with the interests of all the company’s stakeholders as well as social or environmental benefits. All of this is audited on a yearly basis by an independent third party. GreenApes, a social network geared towards ecology and promoting sustainable initiatives for the planet, is a prominent example of Italy’s società benefit.

In France, the theoretical model of the broader social purpose company was written into law very recently, in 2018. Companies can now include a ‘raison d’être’ and a ‘mission’ in their articles of association, if approved by a majority of the shareholders. For Hatchuel, the French model is a “a world’s first”. He explains that the US “purpose-corporations”, which are similar in that they set themselves a very specific objective, “are self-assessed”, whereas the success of the non-financial missions of their French equivalent are assessed by third parties. For the researcher, the arrival of the social purpose company in the French Civil Code represents “a genuine revolution”.

In what sense, in practical terms? Contrary to the concept of CSR, which has been measured for several years on extra-financial reports and is based on assessment standards, the inclusion of a non-financial mission in a company’s articles of association has the advantage, according to the researcher, of no longer making “any real difference between the company’s [business] strategy and its mission. It’s not a case of, ‘I have a strategy and then we’ll see what impact it has.’” For Hatchuel, the fact that the company’s mission can be audited by an independent third party, to which it is accountable, is a real step forward.

Limiting shareholders’ appetite

Is there hope that France’s mission companies will manage to curb the desires of shareholders interested solely in short-term profitability at the expense of more sustainable investments? For Hatchuel and his fellow researchers, the ability of a company to set objectives other than profitability should help curb shareholder demands. But if the economic purpose and the broader corporate purpose are theoretically placed on an equal footing, what happens when the two collide; when the shareholders’ desires clash with the management’s strategy?

According to Hatchuel, “it is too early” to judge the potential legal effects of this new type of company. For the researcher, this matter is of secondary importance. He would rather focus on the scope for discussion that this process offers in corporate governance. Unlike works councils, he explains, which “are not forums for discussing strategy, the mission committee complements the work of the board of directors so that the mission informs the strategy”.

The idea is that a mission company will lead to the emergence of a stronger undertaking, a genuinely more democratic structure, in which internal and external commons become as legitimate a goal as sacrosanct financial profit.

It nonetheless has to be said that certain large groups, which have shown their collective voluntarism, are already seeing their good intentions take a back seat or obscured, at least, by the demands of profitability. The food group Danone, for example, which adopted the legal form of a société à mission company in June 2020, with the main purpose of “bringing health through food to as many people as possible”, announced a few months ago, under pressure from its shareholders, the slashing of between 1,500 and 2,000 jobs.

The French multinational’s CEO, Emmanuel Faber, who wants to be the white knight of corporate, social and environmental responsibility, has had to accommodate shareholders dissatisfied with the group’s loss of competitiveness compared to its rivals. Danone’s social and environmental commitments include “building the future with our teams” and “giving each of our employees the power to shape the company’s decisions”. There is no indication at this time that the group’s employees were involved in shaping the job cuts announced in November 2020.

Risk of ‘fairwashing’

As Michel Capron, emeritus professor at the University of Paris VIII and member of the National CSR Platform (a public body attached to the government) told Equal Times: “Every company has its ball and chain, it’s never black or white. In CSR, we are always somewhere between light and dark grey.” The researcher, who is due to publish a book in a few months’ time on the French mission company, nevertheless points to the risk of ‘fairwashing’.

The academic fears that this new legal form will allow “companies that are not socially responsible to paint themselves in a positive light”. He also has his reservations about the mission committee defining the company’s non-financial purpose, as well as about the independent third-parties responsible for assessing compliance, since they are appointed by the management. This, he believes, explains why traditionally conservative French employers have endorsed the new legislation: “Employers’ organisations are willing to change the rules of the game so long as they are the ones who control and audit them.”

As for France’s main trade unions, the CGT feels that “changing a company’s corporate purpose is not enough to really change the social and labour relations within the company or to ensure that it meets and assumes its social and environmental responsibilities. The CFDT, for its part, welcomed the new law’s “recognition of companies’ social responsibility”, in an article on the Novethic website, but has also expressed caution over the democratic credentials of the French-style social purpose or benefit company. For the most part, the trade unions believe that there is still some way to go before any real power is given to employees.

A revolution in corporate spirit and a form of capitalism that can save the world, for some, a “false good idea” or the commodification of areas previously covered by the actions of the public and associative sectors, for others, ‘social purpose’, ‘benefit’ or ‘mission’ companies are only at the early stages of their existence. It will take years to judge the extent of any meaningful benefit they may bring, and their limitations.

One thing is clear, the need to reform corporate governance is growing and is leading to the search for solutions. After an initial series of national initiatives, it may be the turn of the European Union to address the issue, with the new directive on sustainable corporate governance, which the Commission has been working on for some months now.

This story has been translated from French.