THE BLOG
09/13/2010 02:29 pm ET Updated May 25, 2011

How to Help our Food System? Try the L3C or the B-Corp

One way of improving the United States food system has more to do with business practices than it has to do with food.

The now-popular idea of corporate social responsibility (CSR) dictates that businesses should take it upon themselves to forgo profits their shareholders demand so they can address social problems. But, as Aneel Karnani posits in a recent essay in the Wall Street Journal, the reasoning behind CSR is flawed. Publicly traded companies, including those that produce the lion's share of our food, are required by law to prioritize maximizing profits to satisfy their shareholders, who are generally taken to desire profit above all else.

Executives who have a mind to put the public good over profits are invariably stopped short, since they are seen to be acting against their stakeholders' interests. "The movement for corporate social responsibility is in direct opposition, in such cases, to the movement for better corporate governance, which demands that managers fulfill their fiduciary duty to act in the shareholders' interest or be relieved of their responsibilities," Karnani writes.

This obsession with profit at all cost plays out in many ways in the U.S. food system. Companies that advertise unhealthy foods to kids and market an endless smorgasbord of processed crap in the face of an obesity epidemic are galling examples. Add to that list restaurants that offer massive portions to a population too fat for its own good, companies that cut corners with sanitation to get ahead, and agribusinesses that destroy our productive soils and drain our water supplies.

In a perfect world, we could subscribe a simple return to ethical standards of behavior to fix this problem. But Karnani by necessity holds out several other solutions, including government regulation and watchdog groups. But he doesn't mention one of the most innovative possibilities: public companies that are allowed to be as motivated by a quest for societal good as they are by profit. Luckily, we already have these, in the form of the Low-profit Limited Liability Company (L3C) and the B-Corp.

The L3C and the B-Corp structures let shareholders demand more than just money. In both of these instances, the companies in question are tasked both with remaining profitable and maximizing social benefit. Profits may be reduced by the company's hybrid goals, but shareholders expect and support such compromise. Companies with such joint priorities are referred to as "double bottom line" enterprises.

The L3C is a new form of business entity classified by the IRS, which is meant to work as a link between for-profit investing and philanthropic action for socially beneficial ends. The B-Corp, on the other hand, is a regular corporation that has been certified by Pennsylvania's B Lab as being a socially responsible business. Part of this process involves the corporation rewriting its articles of incorporation to signify that the business plans to take the interests of societal stakeholders such as communities and the environment into account.

These new types of businesses could, if they come to take a prominent enough position in our business universe, basically replace CSR. Karnani argues compellingly that CSR is a mirage, and that any who spend their time trying to institutionalize this illusory principle are distracting us from more proactive action we could be taking for the common good.

He writes:

Very simply, in cases where private profits and public interests are aligned, the idea of corporate social responsibility is irrelevant: Companies that simply do everything they can to boost profits will end up increasing social welfare. In circumstances in which profits and social welfare are in direct opposition, an appeal to corporate social responsibility will almost always be ineffective, because executives are unlikely to act voluntarily in the public interest and against shareholder interests.

Instead of demanding that profit-motivated companies work against their stated interests, we should be working to increase support and demand for companies that have the quest for social benefit built into their priorities. We are far more likely to secure the common good by working with allies than trying to force CSR concessions from businesses with no motivation to compromise their profits.

Food businesses are particularly appropriate for these new types of double-bottom-line structures because food is not just another commodity like, as Bill Clinton once said, "a color television set." The availability, cost, and abundance of food and the health, stability, and well-being of societies go hand in hand, so it's hardly a stretch to say that food-related businesses should be concerned with the larger social picture.

This idea might have a major impact if we all started understanding, supporting, and investing in it. I, for one, imagine a future in which such double-bottom-line models are standard practice, and profit-only companies are seen as relics of a barbaric past.