More than 50 years ago, Nobel economist Milton Freidman published his consequential essay, “The Social Responsibility of Business is to Increase its Profits.” His premise — that corporations should prioritize profits over all other goals — guided many CEOs and boards of directors in the decades that followed. These days, Friedman’s clarion call is under fire, with many business leaders arguing that the world now has evolved and that power wielded by the most dominant corporations must be more consistent with the public interest and directed toward pressing societal problems. With a new year ahead, I’m seeing this in my own transactional practice with growth companies preferring M&A with like-minded partners, CEO’s mapping out financing rounds with “principled” investors, and teams of entrepreneurs planning new mission-driven businesses. Change is in the air. When that happens, I head to the new release section of my independent bookstore to learn more — and I usually leave with a stack of books.
Lucky for me, plenty of people are seeing the same trends and developments. Among them, Ron Levin, reader, blogger and author of the insightful new book Higher Purpose Venture Capital. Levin, managing director at Alumni Ventures, is a social venture capitalist and his single-minded focus on making money while also making change is pretty unique among his peers. Levin chronicles the start and financing of 50 innovative ventures focused in areas like climate change, access to credit, financial wellness and literacy, upskilling and opportunity, food and water security, and childcare. These are substantial problems and the entrepreneurs tackling them are intense, inspired and inspiring. In example after example, Levin argues persuasively that these companies, which are investing in their people, their environment, and their community, can make a difference — and also earn substantial and consistent returns. We’ll all be better off if they succeed. Levin is betting that they will.
History tells us that he’s not the only one. More than a century ago, Henry Ford and his corporation were sued by investors unhappy that he was diverting surplus funds to improving manufacturing processes and to employ more people. “A business that earns nothing but money is a poor business,” Ford contended, and he ultimately prevailed when the court deferred to him, reasoning that his strategy ultimately would benefit corporate shareholders rather than humanity. So, what if corporate shareholders could demand that community and the greater good have a greater role in strategy? Well, they might need a new form of corporation from the very start, according to law professor Michael Dorff, author of the instructive new book: Becoming a Public Benefit Corporation: Express Your Values, Energize Stakeholders, Make the World a Better Place. Dorff uses the Dodge v. Ford Motor Co. case as a springboard for a historical discussion of the purpose and evolution of corporations and their place in our economy. He traces the rise of the benefit corporation, the development of the B-Lab, and the practical advantages of using this new kind of structure in a new economy. Even established corporations now can become “B” corporations. Thoughtful advisors and motivated entrepreneurs will want to know this background and own this book.
Of course, today’s world has no shortage of problems that need solving, including income inequality and climate change. For insight on those two issues in particular, I’d recommend The Injustice of Place: Uncovering the Legacy of Poverty in America, a searing portrait of historical and entrenched poverty in rural America, across Appalachia, the cotton and tobacco belts of the Deep South and South Texas, by Princeton professors Kathryn Edin and Timothy Nelson and University of Michigan professor H. Luke Shaefer; and also Crossings: How Road Ecology is Shaping The Future of Our Planet, a fascinating look at how innovators, engineers, and designers are shaping our Nation’s roads to minimize harm to our treasured wildlife, by science journalist Ben Goldfarb.
These new and important books belong in the hands of every mission-driven entrepreneur, investor, and policymaker.
Milton Friedman’s advice to corporate leaders is clear, simple, and plain. Yet, the world that corporations navigate now is none of those things. Businesses large and small already are beginning to play a greater role in reshaping lives and communities. This is just the beginning — and the future is coming fast.
Read in the Boston Business Journal
Larry Gennari is a business lawyer and chief curator of Authors & Innovators, an annual business book and ideas festival. Watch recent interviews with authors here. Gennari also teaches Project Entrepreneur, a business fundamentals bootcamp for returning citizens, at BC Law School.