Academic journal article St. Thomas Law Review

Facilitating Stakeholder-Interest Maximization: Accommodating Beneficial Corporations in the Model Business Corporation Act

Academic journal article St. Thomas Law Review

Facilitating Stakeholder-Interest Maximization: Accommodating Beneficial Corporations in the Model Business Corporation Act

Article excerpt

  I. Introduction
 II. Beneficial Corporations
     A. General Structure
     B. Why Current Corporate Law Is Insufficient to Guarantee
        Stakeholder-Interest Maximization
        1. Articles of Incorporation
           a. Takeovers As a Threat to the Corporation's Original
              Purpose
           b. Corporate Adherence to Social Missions
        2. Corporate Bylaws
        3. Constituency Statutes
     C. Examples of Socially Responsible Corporate Forms
        1. United Kingdom: Community Interest Companies
        2. Vermont: Low-profit Limited Liability Company ("L3C")
        3. Minnesota: Socially Responsible Corporation
III. Potential Conflicts
     A. Shareholders
     B. Stakeholders
     C. Takeover Threats by Other B Corporations
     D. Standards of Liabilities for Directors
 IV. Recommended Provisions for a B Corporation Amendment to the
     Model Business Corporation Act
  V. Conclusion

I. INTRODUCTION

Milton Friedman noted in 1970, that "the social responsibility of business is to increase its profits." (1) This notion has continued to permeate the U.S. corporate system for nearly four decades, (2) and until recently it was primarily social investors who examined a corporation's social and environmental agenda when making investment decisions. (3) Now, however, more traditional investors, including those on Wall Street, are evaluating companies on a range of corporate social responsibility issues in addition to conventional financial analysis. (4)

The basic idea is that a "good record on corporate social responsibility and governance is good for business," which is in the long-term best interests of shareholders. (5) Thus, there is a growing acceptance among investors that a for-profit corporation can both generate a financial return for shareholders, while also pursuing social, environmental, or community agendas. (6)

One notable problem is that there does not currently exist in U.S. corporate law a widely accepted corporate form to accommodate those social businesses that seek to adhere to a social, environmental, or community agenda while also providing a return to investors. However, one proposed model to embody this idea is the beneficial corporation (also known as a B Corporation), (7) which is a new corporate form that straddles the for-profit and nonprofit sectors. (8) A B Corporation, also known as a socially responsible corporation ("SRC") or a "for-benefit organization," (9) uses the power of business to solve social and environmental problems. (10)

The basic idea behind the beneficial corporation is to formalize what social investors have been doing for a number of years by embedding social, environmental, or community goals into the corporation's governing documents, such that the board of directors and officers are charged with creating economic value for shareholders while also adhering to its stakeholder based agenda. (11)

Despite the lack of a widely accepted B Corporation form in the fifty states' corporate laws, over 160 corporations in thirty industries have already attempted to configure their articles of incorporation to become a B Corporation. (12) Collectively, B Corporations are responsible for generating significant amounts of revenue. (13) Thus, there is a strong need for a new corporate form because for-profit corporate directors have a fiduciary responsibility to maximize shareholder wealth, which can be incompatible at times with the corporation's social agenda. This is especially true in situations where the board must make zero-sum decisions in which some stakeholders inevitably gain while others lose. (14)

It remains unclear at this time if simply having the articles of incorporation reflect the corporation's primary commitment to stakeholder based goals will suffice to withstand the judicial system's scrutiny of whether directors are complying with their fiduciary duties to shareholders. …

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