Academic journal article American University Law Review

Beyond Puffery: Providing Shareholder Assurance of Societal Good Will in Crowdfunded Benefit Corporations

Academic journal article American University Law Review

Beyond Puffery: Providing Shareholder Assurance of Societal Good Will in Crowdfunded Benefit Corporations

Article excerpt


Going "green" has become a very big business. Companies are filling the store shelves with environmentally conscious, eco-friendly alternatives. The organic food market has shown the strongest "green" growth with revenue increasing 238% from 2002 to 2011 as compared with an overall food market revenue growth of only 33% during the same period.1 Whole Foods, a leader in organic products, saw its stock price rise from $4.27 in late 2008 to $51.55 as of the first quarter of 2014.2 This surging growth, coupled with consumers' admitted willingness to pay a premium for "green" products,3 naturally explains why big corporate players are trying to establish market share in the "green" market. For example, Clorox recently funded and produced an entire web series seeking to plug and sell its line of "green" product cleaners.4

Conglomerates have expressed concern though because, despite consumers' claims that they are willing to pay more for "green" products, well intentions have not translated into sales.5 A recent study, however, has shown that where a "high trust relationship" exists between the business and consumer, consumers' environmental concerns do translate into higher sales for "green" alternatives.6 This fact might explain how, even with its large advertising budget, Clorox ranks third in market share for "green" cleaning products,7 behind Seventh Generation, a corporation based out of Vermont,8 and Method, a corporation originally based out of San Francisco until acquired by a Belgian conglomerate.9

Although larger corporations may have found difficulties establishing a foothold in the "green" market, the Small Business Sustainability Report, which was based on the responses from 1305 small businesses, found that 75% of small businesses saw an increase in sales of "green" products during the Recession years of 2008- 2011.10 With such numbers, it is no surprise that 79% of the small businesses surveyed believed that being "green" gave their business a competitive advantage, and 75% of those businesses intended to expand their portfolios of "green" products and services.* 11 As small businesses seem to grow more dominant in the "green" market and the traditional players attempt to establish a stronger market share, the potential threat (or windfall profit) of takeovers and acquisitions of these small businesses becomes very real.12

To provide a safeguard against those potential takeovers, several states have enacted new statutes allowing businesses to focus on social issues as much as, or more than, profit maximization.13 While legal scholars have delved into whether these new legal entities would in fact allow directors to ignore shareholder profit maximization when acquisition is imminent,14 this Note focuses on the opposite issue: whether these new legal entities grant shareholders a right to ensure that the businesses' societal promise is properly considered when a tender offer is made. This Note is concerned with companies using a social enterprise entity-particularly the benefit corporation-merely as an advertising gimmick to lure in "green" investors and later selling out regardless of whether the buyout served the corporation's stated societal purposes.

Currently, there are no publicly traded benefit corporations, but that could soon change once the United States Securities and Exchange Commission ("SEC") finalizes its regulations on equity crowdfunding15 and benefit corporations utilize those regulations. Investors who crowdfunded and bought shares online in a benefit corporation because of its societal mission could soon find themselves opposing a tender offer from an entity with a conflicting corporate ideology. Almost no legal scholarship has been written about any rights a shareholder in a benefit corporation has to ensure that the societal value of his or her investment is properly valued and considered by the entity's directors when deciding to approve a buyout offer. …

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