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There are actually several arguments against these so-called "stakeholder society" initiatives that most people don't consider at the outset. For example: 1. T

by xanados 15y ago

There are actually several arguments against these so-called "stakeholder society" initiatives that most people don't consider at the outset. For example: 1. These concepts generally come with weaker governance for company managers, allowing them greater latitude to act inefficiently in general. By contrast with maximizing shareholder value, managers can undertake almost any program under some pretense or justification, ranging from excessive empire building, to justifying sweetheart deals with friends at greater cost citing "environmental" concerns. This doesn't matter for Patagonia because it's family-owned, but this would be a huge problem with making this a widespread practice in the Fortune 500. 2. Widespread use represents a de facto tax on businesses through less efficient operations, but without the control of the political process to direct it. Even if you aren't in favor of governmental interference, it is generally better for organizations that are going to have charitable aims to be directly accountable, whether via the democratic process or the donation process. 3. Returns to shareholders, in light of the returns that go to other stakeholders, are reduced, thus potentially reducing the amount of financing available from capital providers. So it doesn't really matter if Patagonia does this, but doing it on an economy-wide scale would potentially be a big mistake.

lkrubner 15y ago
These remarks really need to be compared to the situation in Germany. A large degree of stakeholder democracy is enforced by law. In Germany, any company with more than 50 employees must allow workers some representation on issues of hiring and firing, and any company with over 300 employees must provide funds so that at least one worker can work full-time on workers concerns. Representation on the Board, by workers, is common. And the result seems to be a highly efficient system. Compare that to the American experience, in which fraud and abuse has been widespread: Enron, Worldcom, the S&L Bailouts, CountryWide, Wachovia, etc. As programmers, we know that bad code can be written in any language, and clearly fraud can be committed under any legal system. Still, we also know that each language tends to encourage certain habits, while discouraging certain other habits. Obviously one can find examples of fraud in Germany and efficient operations in the USA. However, it is striking how few scandals ripple through the German business community, and how very competitive German manufacturing firms are. Given the comparison of Germany to the USA, I'd be cautious about dismissing systems of stakeholder democracy.
- xanados 15y ago
  The system in Germany is different in that it names a particular set of stakeholders, namely workers, and gives them a formal place in governance controls. To my knowledge, German managers do not have to take into account the objectives of suppliers, the local economy, or society at large in their decision making. While it's similar, it actually addresses the first point I made, as compared with the California law under discussion. German companies have much more concentrated share ownership, which gives them an advantage for corporate governance that perhaps makes scandals less likely. Also, they are a product of the German culture which is very different from American culture.
- smackfu 15y ago
  Given that most mortgage fraud was done at the employee level (for instance, encouraging people to lie on applications), I'm not sure how giving the employees a greater voice would have an impact at all.
kijin 15y ago
> it is generally better for organizations that are going to have charitable aims to be directly accountable, whether via the democratic process or the donation process. Aren't these "benefit corporations" also ultimately accountable to shareholders who invested money in them? Although social benefits are more difficult to measure than profits and dividends, that doesn't change the fact that whoever pays the bills will have an incentive to ensure that the corporation does what they think it should do. In fact, shareholders might be in a better position to hold managers accountable than donors to a non-profit are.
- damoncali 15y ago
  shareholders might be in a better position to hold managers accountable But to whom? You can't assume shareholders agree on what this means, so you're introducing a layer of politics into the board elections. I'm not sure that's a good thing. You could say the same about buisnes management- shareholders will disagree on strategy. But the current solution to that is the "business judgement rule" that says boards have wide-ranging protections so long as they're acting in good faith. You'd have to assume the same sort of thing would be adopted for charitable decisions - the "charity judgement rule", if you will. And now you have a board with wide freedoms on business decisions and on non-business decisions. In other words, you have a board who can do pretty much anything they want outside of outright fraud. That is not exactly inspiring corporate governance for would-be investors or would-be do-gooders.
  - kijin 15y ago
    shareholders might be in a better position to hold managers accountable than donors to a non-profit are That was a comparative statement. You're right, it may be difficult for shareholders to sue the management even if they make inefficient or even self-serving decisions. But lawsuits are not the only means by which people can hold other people accountable. Shareholders have the right to fire the management, in addition to the right to withhold further investment. Donors to charities only have the latter right. So I'm only disagreeing with your claim #2 that charities are more accountable than these new types of corporations. Too many charities are run in an unaccountable way because the directors are accountable to nobody but themselves. > But to whom? ... [snip] ... you're introducing a layer of politics into the board elections. Politics happens everywhere, including for-profit corporations and non-profit charities. There's no escaping it.
leot 15y ago
While I am, at least at this point, a big fan of B-corps, the issues of efficiency are real. Organizations will sometimes use their B-corp or not-for-profit status as an excuse to provide poor value to their customers or for overall bad management. Case-in-point: REI. Though they're a co-operative, they don't behave at all like one. They don't have a straightforward product pricing policy (co-operatives shouldn't have "sales"). They don't hold free and fair elections to their board of directors (candidates for election must be approved by those currently in charge). They altogether fail to serve as an example of how a co-operative should behave (this is obvious when you compare them, and their prices, to their Canadian counterpart MEC).

by xanados 15y ago

lkrubner 15y ago

These remarks really need to be compared to the situation in Germany. A large degree of stakeholder democracy is enforced by law. In Germany, any company with more than 50 employees must allow workers some representation on issues of hiring and firing, and any company with over 300 employees must provide funds so that at least one worker can work full-time on workers concerns. Representation on the Board, by workers, is common. And the result seems to be a highly efficient system. Compare that to the American experience, in which fraud and abuse has been widespread: Enron, Worldcom, the S&L Bailouts, CountryWide, Wachovia, etc. As programmers, we know that bad code can be written in any language, and clearly fraud can be committed under any legal system. Still, we also know that each language tends to encourage certain habits, while discouraging certain other habits. Obviously one can find examples of fraud in Germany and efficient operations in the USA. However, it is striking how few scandals ripple through the German business community, and how very competitive German manufacturing firms are. Given the comparison of Germany to the USA, I'd be cautious about dismissing systems of stakeholder democracy.

xanados 15y ago
The system in Germany is different in that it names a particular set of stakeholders, namely workers, and gives them a formal place in governance controls. To my knowledge, German managers do not have to take into account the objectives of suppliers, the local economy, or society at large in their decision making. While it's similar, it actually addresses the first point I made, as compared with the California law under discussion. German companies have much more concentrated share ownership, which gives them an advantage for corporate governance that perhaps makes scandals less likely. Also, they are a product of the German culture which is very different from American culture.
smackfu 15y ago
Given that most mortgage fraud was done at the employee level (for instance, encouraging people to lie on applications), I'm not sure how giving the employees a greater voice would have an impact at all.

kijin 15y ago

> it is generally better for organizations that are going to have charitable aims to be directly accountable, whether via the democratic process or the donation process. Aren't these "benefit corporations" also ultimately accountable to shareholders who invested money in them? Although social benefits are more difficult to measure than profits and dividends, that doesn't change the fact that whoever pays the bills will have an incentive to ensure that the corporation does what they think it should do. In fact, shareholders might be in a better position to hold managers accountable than donors to a non-profit are.

damoncali 15y ago
shareholders might be in a better position to hold managers accountable But to whom? You can't assume shareholders agree on what this means, so you're introducing a layer of politics into the board elections. I'm not sure that's a good thing. You could say the same about buisnes management- shareholders will disagree on strategy. But the current solution to that is the "business judgement rule" that says boards have wide-ranging protections so long as they're acting in good faith. You'd have to assume the same sort of thing would be adopted for charitable decisions - the "charity judgement rule", if you will. And now you have a board with wide freedoms on business decisions and on non-business decisions. In other words, you have a board who can do pretty much anything they want outside of outright fraud. That is not exactly inspiring corporate governance for would-be investors or would-be do-gooders.
- kijin 15y ago
  shareholders might be in a better position to hold managers accountable than donors to a non-profit are That was a comparative statement. You're right, it may be difficult for shareholders to sue the management even if they make inefficient or even self-serving decisions. But lawsuits are not the only means by which people can hold other people accountable. Shareholders have the right to fire the management, in addition to the right to withhold further investment. Donors to charities only have the latter right. So I'm only disagreeing with your claim #2 that charities are more accountable than these new types of corporations. Too many charities are run in an unaccountable way because the directors are accountable to nobody but themselves. > But to whom? ... [snip] ... you're introducing a layer of politics into the board elections. Politics happens everywhere, including for-profit corporations and non-profit charities. There's no escaping it.

leot 15y ago

While I am, at least at this point, a big fan of B-corps, the issues of efficiency are real. Organizations will sometimes use their B-corp or not-for-profit status as an excuse to provide poor value to their customers or for overall bad management. Case-in-point: REI. Though they're a co-operative, they don't behave at all like one. They don't have a straightforward product pricing policy (co-operatives shouldn't have "sales"). They don't hold free and fair elections to their board of directors (candidates for election must be approved by those currently in charge). They altogether fail to serve as an example of how a co-operative should behave (this is obvious when you compare them, and their prices, to their Canadian counterpart MEC).