"Laws, like sausages, cease to inspire respect in proportion as we know how they are made." — John Godfrey Saxe

This is a brief legislative update on the progress of Tennessee's current bills, introduced in the house (HB0767–amendment not yet filed) and senate (SB0972), to institute the benefit corporation as a distinct for-profit business corporation in the State of Tennessee.  The links provided are to the current versions of the bill, which reflect a significant amendment, as described below.

As you may know from my prior posts (including here and here), I am a benefit corporation skeptic.  Please read those posts for details.  And within the Tennessee Bar Association (TBA) Business Law Section Executive Council and Business Entity Study Committee (our state bar committee that vets changes to Tennessee business associations and other business laws), I am not alone.  We have rejected bills of this kind several times over the past few years when the matter has been put to us for review by the TBA.  This year was no different.  We opposed the benefit corporation bills that were introduced in Tennessee this year, too.

What was different this time around, was that the folks at B Lab had gotten the attention of the Chamber of Commerce and Industry in Tennessee, who appear(ed) to have some misunderstandings about the current state of Tennessee corporate governance law and came to push for adoption of the bill in committee in both houses of the legislature. Given that we were late to the party and that the members of our TBA Council and Committee are very busy lawyers, our efforts to re-educate members of the relevant committees were not as effective as we would have liked.  But we ultimately were afforded two weeks to attempt to write an amended bill–one that better reflected Tennessee law and norms.

Now, any of you who have worked on a project like this before know that two weeks is not enough time to do a professionally responsible job in spotting and tracking down all of the issues that the introduction of a new business form routinely and naturally raises.  Heck.  We couldn't even get all the constituents around the table that we would want around the table to debate and review the legislation in two weeks!  [It seems hardest to find a plaintiff's bar lawyer to sit in with us, but we found a great one for our recent work on the Tennessee Business Corporation Act (TBCA).]  Our requests for more time to work on the proposed legislation were, however, rejected.

So, we set out to make a better sausage . . . .

The current versions of the bills to which I link above are the output of our endeavors.  Those who know something about the Colorado, Delaware, and Minnesota benefit corporation statutes will see traces of those efforts in our proposed legislation.  Among the many issues we (quickly) wrestled with:

• The fact that Tennessee (like many jurisdictions) has a non-profit "public benefit corporation" with which the name "benefit corporation" may be easily confused;
• The balance between commitment to a public benefit purpose and benefit purpose flexibility that incorporates and encourages more types of social enterprise;
• The precise, consistent articulation of the board's obligations in exercising its management authority consistent with its fiduciary duties;
• The types of basic corporate changes relating to corporations organized under the statute that should require supermajority shareholder approval;
• The nature and efficacy of additional disclosure and compliance burdens;
• The monitoring of, and effects of noncompliance with, those burdens;
• A concern that any benefit corporation legislation do no harm to a for-profit corporation organized under the TBCA that has a public benefit purpose included in its charter; and
• The effective date of the legislation.

Some issues and the drafting that addressed them generated unanimous agreement; others did not.  But our expectations had to be set low, given the nature of the process.  Personally, I am not a short-order chef or cook.  I think through recipes and cook slowly.  That just wasn't possible here.

Your thoughts, if any, on the proposed legislation are welcomed.

[Note: Changes were made to this post to link to the correct amended version of the senate bill and note that the house bill amendment has not yet been fled.]