Document Type

Article

Publication Date

2021

Abstract

Etsy was a crown jewel of socially responsible businesses. It prioritized female entrepreneurship, its employees, and environmental stewardship. It was widely admired as a company pursuing social goals alongside profit goals. But after scaling up through an IPO, Etsy fell apart both socially and financially. Similar stories proliferate in the world of socially conscious business. What happened? Standard accounts point to greedy investors, capitalism, and short-termism as the culprits.

But this Paper identifies a more fundamental problem: business law is not designed to facilitate scale-ups for companies that articulate objectives beyond profit. It lacks a durable commitment mechanism for these companies to bind themselves to long-term pursuit of their multiple objectives. To help address this problem, the Paper argues for providing a voluntary commitment mechanism in business law. The proposed commitment mechanism would require multiple stakeholder board representation and socially conscious executive compensation for public benefit corporations that IPO, get acquired, or exceed a certain size. Such legislation could better enable companies to bind themselves to their objectives beyond profit at scale — facilitating large-scale social impact instead of just large-scale profit.

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Library of Congress Subject Headings

Corporations--Growth, Social responsibility of business, Corporate profits

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