I submitted this "essay" a while back to a contest put on by an advertising firm with the prompt "Can brands maximize profits and be a force for good?".
The legal requirement to maximize profit eclipses the opportunity to be a force for good. To make this case convincingly it is necessary to define the terms.
Profit Maximization: Maximum profit is the greatest possible difference of total cost from total revenue. To achieve maximum profit, a corporation must not only maximize revenue, it must also minimize cost.
Force for Good: Being a force for good entails designating something specific and superlative – measurable progress toward solutions to well-defined social problems.
Brands: This essay will use the terms “brand” and “corporation” interchangeably and in both cases be referring to the sum total of a corporation’s activities and impact.
What limits a corporation's ability to be a force for good?
Not only is profit maximization required by law but creating good can be illegal. In 1914 Henry Ford stated that:
It is better for the nation, and far better for humanity, that between 20,000 and 30,000 should be contented and well fed than that a few millionaires should be made. (Thomas A. Edison, ”Henry Ford Explains Why He Gives Away $10,000,000,” The New York Times, Jan. 11, 1914)
However, in Dodge v. Ford Motor Company (1919), “The Court held that a business corporation is organized primarily for the profit of the stockholders, as opposed to the community or its employees.”
In a more recent (2010) but very similar case, eBay won a decision against Craigslist, where Craigslist was explicitly trying to codify and sustain its unique corporate culture. According to an article in Forbes, “Craig [Newmark] does not want eBay to change Craigslist’s mission and practices from a focus on creating public good to a focus on creating private wealth.” The court held that:
Directors of a for-profit Delaware corporation cannot deploy a [policy] to defend a business strategy that openly eschews stockholder wealth maximization – at least not consistent with the directors’ fiduciary duties under Delaware law.
A third example, Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., ruled in 1986 that a corporation’s board of directors is required to accept any purchase offer that would maximize shareholder value. Subsequently, in 2000, Ben and Jerry’s was forced to sell to Unilever. These cases and others set the explicit precedent that:
- A corporation has a legal responsibility to maximize profit
- If creating “good” has an associated cost that does not increase profit, then creating that good is actually illegal.