How to get more companies to put people over profits

Corporate profits are soaring. Yet Americans’ paychecks are inching upward by comparison. It’s no wonder many Americans feel anxious despite an economy that, by the numbers, is booming.

by Anne Kim, Vice President, Domestic Policy | Progressive Policy Institute

Corporate profits are soaring. Yet Americans’ paychecks are inching upward by comparison. It’s no wonder many Americans feel anxious despite an economy that, by the numbers, is booming.

This disconnect between shareholders’ prosperity and workers’ precarity has led many on the progressive left to question the very future of capitalism. Some 2020 presidential candidates, such as Sens. Elizabeth Warren and Bernie Sanders, now routinely paint Big Business as the enemy of middle-class mobility and have called for drastic measures to rein in corporate power and mandate better behavior.

It might be too soon, however, to write off U.S. companies as a force for good.

A growing number of firms are in fact doing right by their workers, taking the high road as “triple-bottom line” concerns committed to worker welfare, environmental stewardship and responsible corporate governance. Many of these are so-called “benefit corporations” legally chartered under state law to pursue goals beyond maximizing profits. Many are also “certified” as living up to these multiple missions.

According to the nonprofit B Lab, which essentially provides a Good Housekeeping seal of approval for benefit companies that have met strict standards for worker treatment, environmental stewardship and social responsibility, more than 2,500 businesses globally are now certified B Corps.

While the vast majority of these businesses are small, they also include such well-known U.S. and global brands as outdoor clothing maker Patagonia, Cabot Creamery, Ben and Jerry’s Ice Cream, and New Belgium Brewery, the makers of Fat Tire beer. A small but growing number of B Corps are now publicly traded, including cosmetics company Natura; Sundial Brands, a subsidiary of Unilever; and Silver Chef, a company that finances commercial kitchen equipment purchases for restaurateurs.

Patagonia, for instance, puts a premium on work-life balance for its employees, allowing workers to set their own hours and offering such perks as free yoga classes and on-site child care, in addition to generous traditional benefits for health care and retirement. New Belgium Brewery, which is 100 percent employee-owned, offers profit-sharing, paid four-week sabbaticals for long-term employees, an adoption assistance program and other perks. The company also donates $1 to community-based nonprofits for every barrel of beer it sells.

These are the kinds of companies we need to see more of, which is where public policy steps in.

As I’ve proposed for PPI, Congress can encourage more companies to become better corporate citizens by reserving the tax breaks included in the 2017 tax bill for high-road companies with a proven track record of good corporate citizenship, including better wages and benefits for their workers.

One way to do this is to modify the new corporate tax rate to establish a preferential “public benefit corporation” rate for businesses that meet “high-road” requirements (more details here). Only the most deserving companies should qualify for the new 21 percent corporate tax rate; all others should pay a rate that is two to three percentage points higher.

A second option for structuring a high road company tax incentive is to create a tax credit for benefit corporations like the “sustainable business tax credit” offered by the city of Philadelphia. Under this benefit, first launched in 2012, Philadelphia businesses that are either certified B Corps or that can show they meet similar standards of social and environmental responsibility can qualify for a tax credit of up to $8,000 against their revenues. Up to 75 firms can apply for the credit on a first-come, first-served basis.

This structure might be especially helpful for small and medium-sized benefit corporations structured as “pass-through” entities not subject to the corporate tax rate. As Jenn Nicholas, co-founder of the Philadelphia-based graphic design firm Pixel Parlor told Governing magazine, the credit has helped her afford higher wages and other benefits for her 10 workers. “It’s a challenge to be profitable and provide benefits to our employees,” Nicholas said. “Every tiny bit helps, and it feels like somebody is looking out for us when the general climate [for small businesses] is the opposite.”

Some policymakers have proposed requiring companies to treat their workers more fairly, with strict mandates on wages and benefits. But tax incentives for high-road businesses are a better approach. Top-down mandates tend to invite resistance or evasion and won’t succeed in changing the overall spirit of corporate culture in favor of shareholders over workers. Encouraging companies to reform themselves will ultimately prove the more enduring tactic. As more businesses see that they can indeed “do good and do well,” both companies and workers will benefit.