ESOP Plus Benefit Corporation: Ownership Culture with Benefit Accountability

What is it about?

Stakeholder capitalism seeks to benefit multiple stakeholders, rather than primarily shareholders. Two increasingly popular forms are the employee stock ownership plan (ESOP) and the benefit corporation. But what happens when a company combines these structures? While the benefit corporation’s expanded stakeholder mandate may appear to come at the expense of employee-owner wealth and the potential for shared power, in fact they can complement one another. Being a benefit corporation can strengthen the employee-owned company’s ownership culture through enhanced engagement and creation of a meaningful work environment. And in turn, employee owners can add a layer of accountability to help them meet the benefit corporation’s expanded stakeholder mandate.

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Why is it important?

------------------------------------------------------- Contribution to Academic Scholarship ------------------------------------------------------- Stakeholder capitalism captures the need to rethink capitalism in a way that directly benefits multiple stakeholders rather than solely shareholders. Two forms are the employee stock ownership plan (ESOP) and the benefit corporation. Through an institutional logics analysis, this paper demonstrates how the marriage of the two vehicles can address inherent weaknesses of the other. Being a benefit corporation can strengthen the employee-owned company’s ownership culture through enhanced engagement and creation of a meaningful work environment. And employee owners can add a layer of accountability to meet the benefit corporation’s expanded stakeholder mandate. ------------------------------------------------------- Contribution to Management Practice ------------------------------------------------------- A company that chooses to become both employee owned and a benefit corporation will reap synergies. The combination will establish for the company a broader identity, greater legitimacy that it is compatible with societal values, bolster its mission, broaden its appeal to employees and clients, fortify resistance to hostile takeovers, and reinforce an ownership culture and a commitment to an enhanced stakeholder mandate. In addition to these benefits, managerial implications include conditions for success and likely costs. ---------------------------- Author Perspective ---------------------------- Historically, the public purpose of a corporation, required by the state, was written in its charter. The benefit corporation is a relatively new legal form that requires for-profit companies to focus on stakeholders in addition to shareholders when making decisions. On the one hand are arguments that the form is redundant, because shareholder primacy is not legally mandated, despite popular belief. On the other, advocates see the benefit corporation as an opportunity to reintegrate capitalism. I am interested in the question of What does it mean to reintegrate capitalism in the 21st century? And what role might the benefit corporate structure play in this journey?