American business is changing. The largest generation in history, Millennials, will soon make up 75% of the workforce, and their influence has already sent seismic waves throughout the economy. But Millennials are not just employees and consumers. They're business owners too.
In fact, in terms of attitude, Millennials have been deemed the most entrepreneurial generation ever. Nearly three-fourths claim to want to start their own business.
But what kind of businesses are Millennials starting? What companies will they form in the future?
The answer to those questions may reshape American business forever.
Few generations have mixed economics and personal values like Millennials.
According to the 2016 Deloitte Millennial Survey, over half of these young workers refuse to work for a particular organization “because of its values or standard of conduct.” The study found this is not merely high-minded rhetoric. Two-thirds of Millennials are employed by companies that share their personal values.
The importance of values increases as Millennials climb the corporate ladder. Deloitte found 64% of those in senior positions cite their values and morals as the greatest influence on work decisions. These leaders' goal: “to rebalance business priorities by putting people before profit.”
This values-first mentality is already altering global economics. According to an Edelman study, 86% of international consumers believe corporations should place equal weight on society's interests and business interests, and two-thirds say donating money to social causes isn't enough: companies should “integrate good causes into everyday business.”
Pondering the long-term effects of value-first capitalism, a Brookings Institute paper concluded: “As Millennials become CEOs, or determine the fate of those who are, they will change the purpose and priorities of companies in order to bring their strategies into alignment with the generation's values and beliefs.”
The Problem With Traditional Corporations
The average start-up founder is forty, an age the oldest Millennials are fast approaching. With some 80 million Millennials in America, it seems likely this will be the largest entrepreneurial generation in history.
But the traditional corporate structure, which places stockholder profits above all else, is not aligned with Millennial values.
In 1919, Henry Ford declined to issue special dividends to stockholders. Instead, he put profits towards helping his employees “build up their lives and their homes.” Stockholders sued, and the Michigan Supreme Court struck down Ford's decision.
“A business corporation is organized and carried on primarily for the profit of the stockholders,” the Court determined. “The powers of the directors are to be employed for that end.”
Though some commentators have claimed this 1919 decision is not universal, no less an authority than a Chancellor of the Delaware Court of Chancery has concurred with it.
Writing in the Wake Forest Law Review, Chancellor Leo Strine, Jr. expressed his view:
“We act as if entities in which only capital has a vote will somehow be able to deny the stockholders their desires when a choice has to be made between profit for those who control the board's reelection prospects and positive outcomes for the employees and communities who do not...The whole design of corporate law in the United States is built around the relationship between corporate managers and stockholders, not relationships with other constituencies.”
When corporations place profits second, legal battles ensue. The results are fairly conclusive.
Profits win. Other constituencies lose.
Middle Ground: Benefit Corporations
Money does matter to Millennials.
When it comes to remaining loyal to employers, for example, 29% of Millennials say higher salaries are their number one concern. Another study found that Millennials see “making enough money” as their greatest challenge.
It's how this generation wants to make money that matters. And if traditional corporations are at odds with Millennial values, should we be surprised that a new corporate structure is on the rise?
The benefit corporation is a new hybrid entity available in 31 states (with seven more considering B-corp legislation). Distinct from non-profits, benefit corporations are for-profit companies with a socially-beneficial purpose written into their charters.
That distinction is key. Benefit corporations are legally obligated to pursue and fulfill socially-beneficial goals in addition to maximizing shareholder value. While profits are not secondary, nor are they the primary motivation.
Consider King Arthur Flour, America's oldest flour company, and a benefit corporation since 2007. In addition to making and selling flour and baking products, King Arthur Flour has committed to:
- Building stronger communities through feeding the hungry
- Providing cooking education in public schools
- Improving the environment
- Supporting sustainable farming practices
In order for King Arthur Flour to maintain its charter, it must maintain its “triple bottom line of people, planet and profit.”
Benefit corporations can form to pursue any social benefit: environmental, medical, educational, etc. But these goals cannot be shunted aside in favor of maximizing profits. Not even by disgruntled shareholders willing to sue.
No one has a crystal ball. Whether or not benefit corporations will catch on—with Millennials or any other generation—remains to be seen. Currently, with only some 3,000-odd b-corps in existence, they make up a tiny minority of American businesses.
On the other hand, the B-corp movement began in 2007. Less than a decade later, over half the states in the nation have passed benefit corporation legislation. Major brand names like Kickstarter, Patagonia, and Etsy are all b-corps.
Perhaps the greatest impact is the intersection of two significant events: the coming-of-age of the Millennial generation and the collapse of the world economy in 2008, a collapse that was largely seen as the result of corrupt corporate values. Even now, the ripple effect of these two coinciding events is not wholly clear.
But one thing is true: Millennials are looking for change. Benefit corporations may be just what they're looking for.
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.