Emerging Tension Between Conscious Business and Traditional Capitalism

In November 2017, Etsy’s CEO Josh Silverman announced that the company decided to give up its B Corp Certification in order to maintain its existing corporate structure.

The impetus for this decision was a new requirement of B Lab, the company that administers the B Corp Certification, that starting April 1, 2018, any company located or incorporated in a state that provides for the benefit corporation legal structure is required to be or convert into a benefit corporation.

Etsy became a B Corp in 2012 to show its public commitment to running a sustainable, socially responsible business. But after it went public, Etsy did not want to change its corporate structure from a C Corporation to a P.B.C., “because converting is a complicated, and untested process for existing public companies.”

Silverman’s announcement came out the same day the New York Times published an in-depth piece about changes at Etsy under Silverman’s watch. These changes appear to be moving Etsy away from the “socially-conscious, mission-driven” priority to the more profits-driven, shareholder-value-maximizing priority of traditional U.S. capitalism.

According to the NYT piece, Silverman’s changes were not necessarily welcomed by many of the employees at Etsy’s headquarters, nor many of the long-time sellers on Etsy’s online marketplace.

Abby Glassenburg, one of the first Etsy sellers and a prominent “indie crafter” and blogger, wrote earlier this month:

Etsy [has] been a public company now for more than two years. A management shakeup in May [2017] set a clear mandate: grow. This marketplace needs to generate as many sales as possible, as quickly as possible.

. . .

It seems to be working. In the fourth quarter of 2017 $1 billion worth of merchandise sold on Etsy, a record amount.

. . .

Still, I think the company needs to take a minute to look at what makes Etsy special in a seller’s eye. Money is certainly a part of it, but I also think sellers want an acknowledgment of our humanity, of our skill and dedication. We are not nameless, faceless machines churning out ‘special’ at an ever-increasing pace in order to line shareholders’ pockets. We came to craft because we value the act of making something by hand. We came to Etsy in order to share that radical notion with consumers who value it, too. We are the core and growth isn’t our only mandate.

As small, socially-conscious startups begin to see success, they will probably find themselves at this same major crossroads sooner or later: Should we accept venture capital (with an eye to go public) in order to grow, or should we stay small (but perhaps, cash-strapped!) to stay true to our principals? Today, as socially-conscious businesses indeed find global success, we seem to be seeing the tension between these two paths again and again.

Given this reality, a socially-conscious company’s founders need to at least be aware of the consequences of accepting venture capital or other “traditional” investment funds. The reality is that this may jeopardize many of the mission-driven elements of the original business idea.

What do you think? If you are looking to start a new socially-conscious, mission-driven business, please contact our Small Business team today! Our legal experts can help you navigate the process from business formation, to contract review and drafting, to financing and expanding.

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