On May 18th, Harvard Business Review published an interesting article on how existing laws and regulations can sometimes interfere with the desire that businesses have to structure their businesses in such a way as to have a positive social impact. Specifically, the article looked at to what extent U.S. business laws are oriented towards shareholder primacy, and how both law and culture affect how companies think about purpose.
According to the article, many business leaders point out that, while they would like to structure their businesses as to have a positive social impact, they encounter two recurring obstacles in trying to do so: 1) a culture of short-termism and 2) corporate law placing shareholders first. In this respect, working with a corporate attorney during your business entity formation and/or in restructuring your business can be helpful in figuring out what your options are if you’ve found yourself frustrated in this respect.
In the U.S. and around the world, there are companies (known as “B Corps”) that have signed up to have their social and environmental performance assessed by an organization called B Lab. There are now approximately 2,000 of these companies around the world, often redefining the idea of success in business to include both social and environmental goals in addition to profits.
What the researchers who published the article found was that there are more B Corps in countries that are culturally more oriented toward the short term because in these cultures, entrepreneurs interested in building purpose-driven organizations feel the need to engage with entities like B Lab. Conversely, in long-term oriented cultures, entrepreneurs feel more compelled to pursue this type of purpose under more traditional structures.
Interplay Between Culture & Law
In addition, according to the article, they also found more B Corps in countries with a higher degree of shareholder primacy in the law, indicating that both culture and law affect to what extent purpose-driven companies can achieve scale and profitability. However, unfortunately, conversations involving culture and law typically happen independently of one another, which isn’t necessarily conducive to creating a more sustainable form of capitalism in this respect.
In this sense, the article called for a cultural shift away from short-termism in order to effectuate overall change in corporate law in an effort to support business leaders interested in promoting purpose-driven entities.
Experienced Business & Corporate Law Attorneys
At Cloud Willis & Ellis, our experienced business & corporate law attorneys can assist you with any and all aspects of structuring (or restructuring) your business. We are able to work in a similar capacity to in-house counsel by focusing on what is best for your business needs and how we can be the most effective legal counselors possible. One of our main focus areas is business entity formation, for example, and this includes helping businesses structure themselves in a way as to have a positive social impact. Contact us today to find out how we can provide you with assistance here in Alabama.