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The Case for the B Corp

By March 16, 2015Business, Featured

by: Neil Rens

 

In January, Halliburton and Baker Hughes announced plans to layoff workers to meet revenue targets. The companies provide oilfield services and are in the process of a merger. With the steep fall in crude oil prices, drilling activity is slowing and the companies are reacting to make sure they hit their revenue targets.

Contrast that description with this one:

Halliburton and Baker Hughes are the second and third largest oilfield services companies in the world, with market capitalizations of $34.83B and $25.95B, respectively. Baker Hughes posted record revenues last quarter and Halliburton showed 15% growth in revenues. In January Baker Hughes announced 7,000 job cuts and Halliburton announced 1,000 cuts. In February, Halliburton announced another 5,200 to 6,400 job cuts.

What’s going on here? Both descriptions are true: both companies reported strong numbers last quarter, but crude oil prices have dropped sharply. While the companies’ numbers do not reflect the price drop yet, they soon will. In preparation, they are reducing expenses so that when revenues decline, profits will not suffer as much as they would otherwise.

Still, it’s hard to stomach a company like Halliburton reporting profits of $901M (up from $793M last year) and deciding to cut over 8% of its workforce. Is this unethical? How could it be just to take away thousands of people’s jobs despite making $901M?

For-profit corporations have a legally defined goal of generating profits. If a CEO is not maximizing shareholders’ return on investment, then the CEO is not doing her or his job correctly. Halliburton is doing exactly what it was created to do: make money. How can people expect companies to be socially responsible if being responsible comes into conflict with a company’s primary goal of making money?

Perhaps it is time redefine the goals of companies. Enter the benefit corporation. In addition to making profits, companies that register as B corps have an obligation to make a positive impact on society and the environment. Unlike ordinary companies, directors of B corps have an expanded fiduciary responsibility to serve non-financial stakeholders in addition to financial stakeholders.

For B corps, success is not determined solely by profits. Therefore, they can be held accountable for their impact on society. In 2010, Maryland was the first state to pass legislation for the B corp, and now 27 other states have followed. Is the B corp the future of the corporation? Currently, not many exist and the ones that do are not nearly as large as companies like Halliburton. Nevertheless, the notion that companies like Big Oil or Big Pharma could have their customers, workers, and communities as primary stakeholders is an attractive one.

 

 

 

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