Assume for a moment that you’ve invested a lot of money into a tech startup. While reviewing the company’s financials, you see that they’ve given 5% of their post-tax profits (a portion of which belongs to you) to arts education charities. How do you feel about that?
That specific question has been given a lot of thought, most famously by famed economist Milton Friedman, but it outlines a real, practical dilemma: Should investors allow managers spend a company’s profits on charity? What if the founders of the company specifically baked social purpose into the company’s DNA — could investors force the company to stop charitable giving because it cuts into their profits?
One relatively new solution is to formally organize the company as a benefit corporation. A benefit corporation is a for-profit that “allows a business to prioritize a social objective over a financial bottom line.” Laws in 30 U.S. States allow companies to organize as benefit corporations, and provide some protection from potential shareholder lawsuits alleging that managers are violating their fiduciary duty by not maximizing profits or share price.
States also require that benefit corporations provide some kind of annual report. Here’s where it gets really fun: Kickstarter, an online crowdfunding platform that focuses on creative projects, recently converted to a benefit corporation. And last week, they delivered their first annual benefit statement.
Read through Kickstarter's 2016 benefit statement and answer two questions: