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Protecting Companies That Mix Profitability, Values

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Protecting Companies That Mix Profitability, Values


Protecting Companies That Mix Profitability, Values

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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There are some entrepreneurs who dont just want to make money; they want to make change. These social entrepreneurs may use organic ingredients, or donate profits to a social or political cause. Though, if they become too successful, they run the risk of being bought out - or having to compromise the vision for the sake of profits. Now, some lawyers are trying to change corporate law so that doesnt have to happen.

April Dembosky has the story.

APRIL DEMBOSKY: There's a fast-growing company in San Francisco, called Method. It sells about $100 million worth of household cleaning products, but the company's founders say they aren't just out to make money. They use nontoxic materials, they say, renewable resources, and they minimize energy consumption in the manufacturing process. Co-founder Adam Lowry says that is more important than profits.

Mr. ADAM LOWRY (Cofounder, Method): What we're not going to do is say, let's do this really dirty, ugly, toxic thing because it's going to make us more money.

DEMBOSKY: Lowry joins a growing number of entrepreneurs driven by a desire to do some social good. The problem is, he says, corporate law is not on their side.

Mr. LOWRY: In most bylaws of most companies, there's a provision that says that the shareholder is king.

DEMBOSKY: And if shareholders think you're sacrificing profits for some other, nonprofit-making reason, they can sue you.

Look at what happened to Ben & Jerry's, one of the most well-known corporations that made social mission a core part of their brand.

Unidentified Woman: Half-Baked, Chubby Hubby, Magic Brownie...

DEMBOSKY: Today, close to 350 Ben & Jerry's locations dot the country, including this scoop shop in San Francisco's Haight-Ashbury district. In the early days, Ben & Jerry's was small and local. It used its product to take political stands. The company sold chocolate-coated "peace pops" and began using hormone-free milk. It donated 7 and a half percent of its annual profits to small community projects.

Unidentified Woman: Thank you.

DEMBOSKY: But then the company grew and needed some cash. So it went public. Years later, huge offers rolled in to buy Ben & Jerry's.

Co-founder Ben Cohen thought the company could better protect its social mission if it stayed independent. But, he says, the law was on the side of shareholders.

Mr. BEN COHEN (Cofounder, Ben & Jerry's): The laws required the board of directors of Ben & Jerry's to take an offer, to sell the company despite the fact that they did not want to sell the company. But the laws required them to sell the company to an entity that was offering an amount of money far in excess of what the stock was currently trading at.

DEMBOSKY: That entity was European conglomerate Unilever. Lawyers told the board members that shareholders could sue if they turned Unilever's offer down. Cohen says individual board members were concerned that the company didn't have adequate insurance to cover a lengthy court battle, and that they'd be personally responsible for the legal fees.

Mr. COHEN: I think most people are not willing to lose their house for the privilege of sitting on that board.

DEMBOSKY: And so they sold to the highest bidder. That helped set the stage for today's young, idealistic companies.

Mr. TODD JOHNSON (Attorney): As it exists today, there is not a good framework for the entrepreneur who wants to create an entity that really mixes profitability and mission.

DEMBOSKY: That's Todd Johnson. He heads a group of California lawyers that's trying to change that. He says right now, businesses can be either for-profit companies or nonprofit organizations. The law doesn't recognize a corporate form that falls in between.

Mr. JOHNSON: Traditionally, directors of a for-profit corporation are, at certain points, required to maximize shareholder profit.

DEMBOSKY: Johnson and others are trying to rewrite laws in seven states, which define for-benefit corporations and require their boards to balance social and environmental policies with profit. Johnson hopes California will take the lead.

Mr. JOHNSON: Because it has such a high concentration of these kinds of companies already.

DEMBOSKY: But Vermont might get there first. Legislation in Ben & Jerry's home state is expected to pass this spring.

For NPR News, I'm April Dembosky.

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