The Transaction Costs of Stakeholder Board Membership. The Case of Ben & Jerry’s Homemade, Inc.

Abstract

If board voting membership for stakeholders is inefficient and thus likely to be unfeasible, as Transaction Cost Economics (TCE) posits, how can Ben & Jerry’s (B&J) be accounted for? This question, overlooked by TCE scholars and stakeholder advocates alike, is answered in this paper. Shareholder-centric corporate boards are the only feasible option according to TCE. However, just as the U-form firm structure is costlier in terms of governing transactions than the M-form, yet the U-form is warranted when a more fine-grained follow-up on decisions is required and diversification is uncalled-for, stakeholder board voting membership may also be needed for the survival of transactions specific to social-purpose hierarchies, despite admittedly being costlier than proprietary, shareholder-centric hierarchies. This paper’s finding is that by granting board voting membership to stakeholders, B&J has spearheaded a departure from motivational credible commitments that rely on reciprocal bilateral exchanges, and toward a form of imperative credible commitments, which represent a stringent form of commitment that is plausibly costlier compared to alternatives, yet they are warranted to increase the reliability of transactions with stakeholders who otherwise would be left with a circumstantial assurance of continuity.

Keywords: Transaction costs; board voting membership; board informational membership; credible commitments, benefit corporations

JEL Classification: G3, D23, L2