Corporation as Technology
One of the most important technologies that moved society from the pre-industrial era, through the industrial era, and on to the post-industrial eras, was the corporate form.
Old Ideas in a New Era
New Twist on an Old Friend: The Benefit Corporation
In a prior era, where shareholders were disaggregated and unable to protect their investments, shareholder primacy was a necessary tool to protect against managerial defection. But today’s shareholders are quite organized, and able to fend for themselves. On the other hand, in our increasingly interdependent world, the doctrine of shareholder primacy is encouraging corporations to create negative externalities in the form of social instability and environmental degradation.
There is a new corporate technology available to investors and companies that want to address this danger: the benefit corporation. This new corporate form was invented in 2010, and has now been adopted in 35 states, and by over 5,000 corporations. It eliminates shareholder primacy and creates corporations accountable for all of their effects on stakeholders. Benefit corporations have raised more than $1.5 billion in capital to date.
In 2018, expect to see more and more innovative companies use the benefit corporation form in order to raise capital without becoming prey to the value maximization credo. In the final weeks of 2017, Lemonade, an innovative insurer organized as a Delaware benefit corporation, announced a $120M Series C round led by SoftBank, while Luna DNA, a Delaware benefit corporation focused on blockchain technology for DNA announced a seed round from the founders of Illumina and Prelude capital.
The corporation has been around for a long time. Let’s make sure we are using the 21st century version.