Over the past week, there has been a lot of discussion of policies designed to address price gouging. Some say these are a necessary and appropriate response to increasing consumer, and especially food, prices. Others say such policies distort the market, prevent competition and ultimately backfire. Missing from this debate is a more fundamental discussion about the role of companies in our economy, and our society. 

The reality is that market dynamics are driven by multiple and often complex factors, both standard assumptions about supply and demand as well as major market disruptions and corporate opportunism.

There is good reason for policymakers to address price gouging, especially when high consumer prices on essential goods and services coincide with record levels of corporate earning and stock buybacks at those same companies. 

Senator Sherrod Brown recently declared: “Let’s be clear: The fact that prices and corporate profits are going up at the same time is no coincidence. A study by the Kansas City Fed found that corporate profits drove half of the price increases in 2021.”

But there is also good reason to worry that such policies could prove difficult to implement, or backfire. The government may not be well positioned to provide ongoing oversight of prices in a dynamic market environment, especially where expensive geopolitical and climate-driven risks are becoming the norm. And we need to ensure that price stability does not come at the expense of workers’ wages or suppliers’ ability to stay afloat.

A missing link here is the role of corporate governance in determining how to balance benefit to shareholders with benefits to consumers, workers, suppliers and the environment. If we want companies to do more than maximize profits for investors, we need to give them that mandate. 

Benefit corporations

At a typical US company, directors have a fiduciary duty to manage the corporation in the best interests of the shareholders. This includes complying with all applicable laws and regulations, but it does not include any explicit or affirmative obligation to consider the needs of other stakeholders, such as employees, suppliers, the environment or customers. 

Fortunately, the past decade has brought significant innovation in corporate governance. There are now thousands of companies in the US that are legally incorporated as benefit or public benefit corporations, which means they must be “managed in a manner that balances the stockholders’ pecuniary interests [with] the best interests of those materially affected by the corporation’s conduct.” There is also growing interest in purpose trusts and other innovations in corporate governance that expand fiduciary responsibilities beyond pure profit maximization. 

This does not mean a company needs to maximize benefits to all of those ‘materially affected’ – indeed, that would be impossible. But it does mean a company must consider the impacts of its actions on more than just its stock price. A well-governed benefit corporation would likely still need to raise prices in response to supply shocks, or extreme weather or rising labor costs – but it would need to balance those choices against the interests of its customer. 

Vital case study

A good example of this is Vital Farms, a Delaware public benefit corp. and a certified B Corporation. The company did raise prices on its eggs in 2022, as a result of increasing diesel and grain prices – but the percentage increase was less than the industry average for eggs. In early 2023, Russell Diez-Canseco, Vital Farms’ CEO told Yahoo Finance: “Our approach to price increases has been to take them reluctantly in small amounts.” He then added: “We don’t see a short-term supply and demand shock as an opportunity to just goose our profits and that’s not how we’re operating.”

This approach to corporate operations necessarily expands what it means to manage, or govern, that corporation. As such, it likely requires a more expansive set of skills and perspectives to be represented on corporate boards, and it complicates the job of corporate directors. 

There are already nearly two-dozen publicly traded public benefit corporations (including Vital Farms), who have proven that it is possible. And public company directors are typically well compensated for their labor: the average annual compensation of a S&P 500 corporate director last year was over $300,000. 

If our policymakers want to address price gouging, they should look closely at modern corporate law and custom as root causes – and look there for corresponding solutions.

Margot Brandenburg is a senior program officer on the mission investments team at Ford Foundation.

Disclosure: Ford Foundation is an investor in ImpactAlpha.