Choose Your Own Master: Social Enterprise, Certifications, and Benefit Corporation Statutes

By Murray, J. Haskell | American University Business Law Review, January 1, 2012 | Go to article overview

Choose Your Own Master: Social Enterprise, Certifications, and Benefit Corporation Statutes


Murray, J. Haskell, American University Business Law Review


In the wake of the most recent financial crisis, interest in social enterprise has increased exponentially. Disillusioned with the perceived shareholder wealth focus of corporate law, entrepreneurs, investors, customers, and governments have become more receptive to new paradigms. In the past four years, nineteen states have passed at least one of five different types of social enterprise statutes and many additional states are considering similar legislation. Focusing primarily on the benefit corporation form, this Article examines three main issues: (1) whether social enterprise statutes are potentially useful; (2) how social enterprise law can be improved; and (3) whether the social enterprise movement will be sustainable. First, regarding usefulness, this Article recognizes that the traditional legal framework already provides social entrepreneurs most of the flexibility they seek, but posits that the social enterprise statutes may better combat perceptions of a shareholder wealth maximization norm arising from existing for-profit corporation law (especially in Delaware). As a potential alternative to social enterprise statutes, this Article suggests that states like Delaware could simply amend their existing corporate codes to expressly allow for a societal- or environmental-focused objective in a corporation's charter. Second, regarding improvements to existing social enterprise law, the Article suggests: (i) statutorily requiring social entrepreneurs to choose their own primary master; (ii) recognizing modified versions of traditional corporate law concepts; (iii) lowering transaction and uncertainty costs; and (iv) eliminating or modifying certain mandatory rules. Third, regarding sustainability, this Article concludes that the most intensive social enterprise branding efforts should be leftto the private sector organizations like B Lab; and social investors, perhaps using new vehicles like crowdfunding and Social Impact Bonds, must fill the funding gap leftby hesitant traditional investors.

INTRODUCTION

Yvon Chouinard, the esteemed founder of the outdoor apparel company Patagonia, Inc., opens his book, Let My People Go Surfing: The Education of a Reluctant Businessman, with these words:

I've been a businessman for almost fifty years. It's as difficult for me to say those words as it is for someone to admit to being an alcoholic or a lawyer. I've never respected the profession. It's business that has to take the majority of the blame for being the enemy of nature, for destroying native cultures, for taking from the poor and giving to the rich, and for poisoning the earth with the effluent from its factories.

Yet, business can produce food, cure disease, control population, employ people, and generally enrich our lives. And it can do these good things and make a profit, without losing its soul.1

Unfortunately, over the past dozen years, the headlines have not been dominated by corporations enriching lives. Rather, the media has focused on corporations-including Enron, WorldCom, Tyco, Adelphia, Lehman Brothers, Bear Stearns, AIG, BP, Massey, Olympus, and MF Global-that have led the way to massive economic, social, and environmental destruction.2 In the wake of these headlining corporate misdeeds, some entrepreneurs, managers, governments, and investors have become more open to rethinking the traditional corporation.3 From this openness has sprung an impassioned social enterprise movement.4

Recently, a number of states have passed statutes to facilitate the creation of social enterprises, businesses that focus on creating "blended value"5 to benefit a triple-bottom line of "people, planet and profit."6 To date, nine states-Illinois, Louisiana, Maine, Michigan, North Carolina, Rhode Island, Utah, Vermont, and Wyoming-have passed low-profit limited liability company ("L3C") statutes,7 and twelve states-California, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, New Jersey, New York, Pennsylvania, South Carolina, Vermont, and Virginia-have passed benefit corporation statutes. …

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