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Complexity Theory: Public benefit companies

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On Jan. 29, RStudio, an integrated development environment for the programming language R, announced that it had become a public benefit corporation (PBC). The RStudio mission, it wrote, has always been to provide high-quality, open-source software for data science, scientific research and technical communication. However, before it became a PBC, this was not formalized in RStudio’s charter. RStudio wrote in a public announcement that by becoming a PBC, “we have codified our open-source mission into our charter, which means that our corporate decisions must both align with this mission, as well as balance the interests of community, customers, employees, and shareholders.” 

RStudio joins approximately 3,000 companies across the U.S. that have officially converted from regular corporations into PBCs in the last decade. PBCs are a new concept in the world of business. Maryland became the first state to recognize PBCs in 2010, and 19 states have since followed suit, including California. The difference between a regular corporation and a PBC is subtle: while regular corporations are largely obligated to pursue shareholder value above other concerns, PBCs are allowed to include other missions into their charter, typically those focused on some benefit to their stakeholders or society at large that may not always align with generating maximal shareholder value. 

Many well-known companies have become public benefit corporations, including Patagonia, Ben & Jerry’s, Eileen Fisher and Kickstarter. These companies are for-profit and do take their shareholder interests into account in business decisions, but also center social and environmental concerns in their work. Patagonia is perhaps the most famous example, excelling not only in worker’s rights and environmental sustainability, but also in popularity and revenue—the company brought in over $200 million in 2017. 

The PBC model may sound like the perfect marriage of social stewardship and capitalism that the world is searching for. Viewing the success of PBCs like Patagonia, Ben & Jerry’s and Kickstarter, it is natural to ask: should more and larger companies file for PBC status if their work significantly impacts social life, the environment or the political sphere? Should companies be encouraged to incorporate mission-driven purposes into their charters beyond shareholder value, by tax breaks or other government incentives? 

It may seem obvious that all companies, technology or otherwise, should incorporate social and environmental values into their charters. For some companies, this is undoubtedly positive at present. However, in our world of tech giants, there is one deep potential consequence of large, powerful companies moving over to the PBC structure: it could allow these companies, and therefore corporations in general, to define what is “good” or “socially beneficial,” preempting collective decisions made through democratic processes. 

For example, suppose Google decided to reincorporate as a PBC, and decided that it would augment its responsibility to shareholders with a promise to end homelessness in the places where it operates (in fact, this is not entirely hypothetical; less than a year ago, Google pledged $1 billion to end homelessness in the Bay Area). Let’s say Google decided that the best way to achieve this was to buy up currently undeveloped land along the peninsula and turn it into affordable apartments. This is fine and good, except that it would obliterate the fragile coastal habitat along the peninsula, along with the natural beauty and open park space that many enjoy today for recreational purposes. 

The point here is not that Google would make demonic decisions in the name of “social improvements.” The point is that any decisions involving social welfare tradeoffs are difficult and often come at a high cost, and it is unclear whether we want PBC-Google making these choices instead of elected local governments who represent the people most concerned with housing and protected land around the peninsula. The government may not be a perfect decision maker either—it often fails us, often egregiously—but the government, unlike Google, is controlled by the will of the people. 

Allowing companies like Google to coast on PBC status without further regulation, thus giving them the power to decide the fate of our country’s housing, infrastructure, social welfare policies and sustainability goals, would be akin to handing over our government to the corporate powers that be. 

When it comes to ultra-powerful tech companies, it is unwise to hand them the reins of social responsibility, for all responsibility is synonymous with power and influence. Instead, we should aim for our governments—national, state and local—to more proactively shape our future and the future of corporate actions in this country. Rather than leaving it up to companies to determine what our environmental efforts will look like in the 21st century, we should vote for Congress members who push for environmental reforms that will equally affect all industry players. Rather than applaud Google for addressing housing in the Bay Area, we should elect local officials who expand affordable housing through increased taxation on large companies or through better use of public resources. 

The problem with democracy is that everyone gets a voice, including the people we disagree with. But the beauty of democracy is that everyone gets a voice, including ourselves and those who support our causes. Limiting the number of voices in play may sometimes help us win, but it may also lead us to defeat, without the chance to advocate for our side of an issue. No matter the risks of the democratic process, I prefer to put big decisions into the hands of elected officials, not corporations. 

This is not to say that large tech companies should not sometimes go above and beyond current government regulations to further socially minded goals, particularly those relating to the environment. I am glad that many companies have chosen to continue buying carbon offsets and supporting the creation of renewable energy sources despite the current administration’s animosity toward the reality of climate change. However, it is imperative that large companies, via PBC reincorporation or otherwise, are not able to wiggle their way around regular government regulation because of stated goals in their charters. Governments must continue to do the brunt of the work in producing a healthy, clean, opportunity-filled society by shaping the constraints of the market and allowing the most innovative, efficient companies to flourish. 

Contact Avery Rogers at averyr ‘at’ stanford.edu.

have pretty bad insomnia. This means I think a lot: the Grind section is a place to put all of that overthinking down on paper. I love to make people think and [hopefully] give people some inspiration and solace about whatever they've had on their minds!