Last week, the online craft marketplace Etsy made its debut on the NASDAQ stock exchange. What makes Etsy different among other publicly listed companies is that it is a certified B Corporation, and is committed to balancing profit with its commitment to social and environmental responsibility.
At the close of its first day of trading, Etsy shares climbed to $US30 – almost twice the price of its initial public offering price (and has since levelled off at around $US25). An outstanding success, you may say, and I agree. However, as one of the most closely watched IPOs in the US this year, this success has attracted its fair share of detractors.
As a B Corporation, Etsy’s values are at the core of its appeal to investors. Central to its IPO is a “big ask” of ihttp://jamesmeldrum.com/wp-admin/edit.phpnvestors, especially money-hungry Wall Street traders: that, as an investor in the company, you recognise that Etsy management will not make business decisions solely to maximise profit.
This is a challenge to the prevailing modus operandi of Wall Street. And, for me, a refreshing change. But this direct challenge creates tension. Although Etsy has almost 20 million active buyers and sales increases 56 percent to $US196 million compared to the previous year, it generated a loss of $US15 million. Continued trading losses may spark some investors to pressure Etsy to stem the red ink or face the consequences.
However, if you invest in Etsy shares then you’re also investing in their business model. Informed investors would recognise that Etsy’s business model is not solely to maximise profits. To suggest that Wall Street and institutional investors would somehow pressure Etsy in the future to dump its commitment to B Corporation principles seems to me, well, somewhat ill-informed.
In its S-1 filing with the Securities Exchange Commission in the US, Etsy declared that “Adherence to our values and our focus on long-term sustainability may negatively influence our short- or medium-term financial performance.”
As an investor, you can’t really claim you didn’t know what you were buying into.
Indeed, as Etsy CEO Chad Dickerson made it clear after its debut on NASDAQ, “the investors we met on the roadshow understand that the key to Etsy’s long-term success is building on and extending what has made Etsy successful to date: an inspired community of creative entrepreneurs, buyers who want to buy unique merchandise that they can’t find anywhere else, and a values-led community-based business that focuses on the long term.”
The question then really becomes: can a B Corporation survive and thrive in a ruthless, profit-driven arena such as Wall Street?
The answer appears to be in the experience of Rally Software, the first and only other publicly listed B Corp in the US. Rally Software, based on Colorado, raised over $US84 million when they went public two years ago.
As noted in a recent article in Bizjournals, “The experience of Rally Software…might help to soothe any fears on Etsy’s part. Rally Software’s founder and chief technology officer, Ryan Martens, said that no shareholders had so far raised issues with its attention to social and environmental goals, which have included donating 1 percent of its equity to charity, making its facilities in the United States “zero-waste” and offering employees a year’s sabbatical after seven years of employment.”
I believe that more publicly listed B Corporations is actually a good thing. And companies like Australian Ethical and Natura are showing the way.
“… unlike other public companies, whose sole legal duty is to maximize profits for shareholders, executives at B-corps are also required to consider non financial interests when they make decisions. Indeed, the company has to create a material positive impact on society and the environment. That has the potential to rewire one of the most dangerous things about being a public company today: the requirement to keep growing, no matter what. B-corps can and will be listed on stock exchanges, just like any other public company. And there is no reason that they shouldn’t perform like normal shares. But investors and employees can take pride in the fact that their company is not just concerned with short-term financial gain. Best of all, the pressure to grow at all costs dissipates, and it becomes a lot harder for angry or litigious shareholders to agitate for changes just because they’re unhappy about the stock price.”
And rewiring that “growth-at-all-costs” mindset that pervades the corporate sector may be one of the most lasting benefits of B Corps going public.