May 30, 2017

Activism: B Corps Aren’t Immune

This BloombergBusinessWeek artlcle discusses Etsy’s recent travails with activist investors.  Etsy is a “certified B corporation,” which means that it is committed to social responsibility and considers the interests of its workers, communities and the environment in conducting its business. Despite its idealistic goals, Etsy recently learned the hard way that its B corp status does not exempt it from Wall Street’s version of the “Golden Rule” –  as in “the one with the gold makes the rules.”

Led by Seth Wunder of Black-and-White Capital, activist investors have pushed Etsy to improve its performance. The article points out that those efforts came to a rather dramatic head in early May, with the board’s decision to replace CEO Chad Dickerson:

In March, Wunder laid out his thinking in a letter to Etsy’s board requesting a meeting about the declining stock price and “what appears to be a lack of cost discipline at the company.” A second letter, in early April, made reference to a private conversation between Wunder and Fred Wilson, in which Wilson, co-founder of Union Square Ventures and Etsy’s longest-serving board member, had shared a “frank, private opinion” on an unspecified matter.

In early May, just hours before Etsy was slated to report earnings, Wunder went public, releasing the letters on the web and publishing a press release that accused Dickerson and the board of overspending and of failing to take investors’ concerns seriously. It suggested that Etsy drastically cut costs and remove Dickerson as chairman, often a precursor to firing a CEO. It also suggested that Etsy “begin evaluating any and all strategic alternatives for creating shareholder value,” or, in English, consider selling itself.

Hours later, Etsy announced that it was laying off 80 employees—about 8 percent of its staff—and that Dickerson had been fired by the board.

What about Etsy’s B corp status? In order to maintain its certification, Etsy needs to formally reincorporate under a state benefit corporation statute this summer. The article says that even before the events of the past month, that was unlikely to happen.

John Jenkins