Can Private Equity Help Make Business Good?
One of the World’s Leading Investors Backs a Benefit Corporation
In October, Laureate Education, an international for-profit campus-based and online university education provider, announced its intention to become the largest publicly traded benefit corporation in the United States. Benefit corporations are companies that incorporate a positive impact on society or the environment as part of their legally defined goal. The announcement that Laureate intends to become the largest publicly traded benefit corporation is especially significant because Laureate is owned by KKR, one of the largest and most successful private equity firms in the world. KKR was one of the chief innovators of the leveraged buyout in the 1980’s and is now pioneering a new kind of investment - investing in a company that wants to generate attractive returns for shareholders and also do good in the world. If the Laureate IPO is successful, it will provide a roadmap for institutional investors, family offices and individual investors that want to invest capital in businesses that generate a good return and make valuable contributions to society at large. And it will provide a strong counterpoint to skeptics that believe that businesses cannot access institutional capital unless they focus exclusively on “maximizing value” for shareholders.
Benefit corporations are reimagining the way that business is done by fundamentally redefining what it means to be successful. The benefit corporation ideology, “people using business as a force for good,” seeks to align shareholder and other stakeholder incentives to promote successful, sustainable business. The benefit corporation movement, started in 2006, has been characterized by the likes of Patagonia, Ben & Jerry’s, Warby Parker, and The Honest Company to name a few. The number of certified benefit corporations is growing rapidly, increasing by 50% since May 2014 to over 1,575 today. It includes companies across 130 industries and in 42 countries. The benefit corporation community boasts impressive statistics from their member companies, ranging from sustainability metrics, to employee benefits, to women and minorities in management positions. However, public companies represent a small portion of the benefit corporation movement today, and there has been skepticism about whether benefit corporations make viable public companies (NYTimes, Fortune). In the United States, several public companies have subsidiaries that have become certified benefit corporations. Plum Organics, a subsidiary of Campbell’s Soup, incorporated as a benefit corporation in 2013 under Campbell’s leadership. Ben & Jerry’s, which was acquired by Unilever in 2001 has been a leading benefit corporation since 2012. In Brazil, Natura, the country’s leading cosmetic company became the largest and the world’s first public benefit corporation. And in Europe, Unilever, which is the 3rd largest consumer products company in the world, is exploring becoming benefit corporation.
Access to traditional institutional capital in the United States, both public and private, could unleash the benefit corporation movement and cause a fundamental change in the global economy by making business more sustainable and better aligning businesses with the environment, their employees, their communities and ultimately their customers. As more companies become benefit corporations and more capital providers learn about the incredible power of benefit corporations, capital will flow into the sector. KKR could be just the tip of the iceberg.
The news that Laureate Education intends to become the largest publicly traded benefit corporation in the U.S. demonstrates that the benefit corporation movement is getting closer to reaching the critical mass needed to bring traditional investment capital to bear for other benefit corporations. Once again, KKR has positioned itself to be a leader in financial markets. This transaction is particularly important as it will serve as a precedent for other benefit corporation transactions in the future. It will be heavily scrutinized and the merits of the benefit corporation movement will be tested; however, I am optimistic that it will be successful and that the benefit corporation movement will continue to grow and flourish.