In connection with the current legislative debate on benefit corporations in Tennessee (which has been gathering momentum since I last wrote on the topic), I have repeatedly asked about the impetus for the bill.  Of course, there is the obvious "push" for benefit corporation legislation by the B Lab folks, who have gotten the ear of folks at the Chamber, convincing them that the legislation is needed in Tennessee to protect social enterprise entities from the application of a narrow version of the shareholder wealth maximization norm (a conclusion that I dispute in my earlier post).  But what else?  What real parties in interest in Tennessee, if any, have expressed a desire that Tennessee adopt this form of business entity?

There is anecdotal information from one venture attorney that some Tennessee entrepreneurs have indicated a preference for the benefit corporation form and have specifically requested that their business be organized as a Delaware benefit corporation.  Leaving aside the Delaware versus Tennessee question, why are these entrepreneurs looking to organize their businesses as benefit corporations?  Where does this idea come from?

I start from the premise in asking this question that, as I earlier expressed, one can organize in Tennessee as a traditional for-profit business corporation and, with appropriate charter provisions, get the same (or, for most businesses I have looked at, at least close to the same) benefits.  So, the benefit corporation burdens of, e.g., additional reporting responsibilities seem to come with no or little benefit.  For a small entrepreneurial venture–like the ones we typically see in our for-profit venture clinic at UT Law, these burdens loom large.  Just getting these firms to engage in general corporate maintenance (e.g., filing annual reports, holding and documenting annual shareholder meetings and regular board meetings, etc.) in their early stages is tough. 

It is possible, however, that some entrepreneurs see more benefit in the benefit corporation than I do.  If I were to guess, giving credit (which may be unwarranted) to the engagement by these entrepreneurs in a well-informed, rigorous assessment of costs and benefits, I would posit that the benefit these folks see is a signalling one–that the "benefit corporation" label gives entrepreneurs and their businesses some market advantage or caché.  In other words, these entrepreneurs may have determined that benefit corporations are becoming or have become, from the perspectives of their relevant audiences, a desired brand.

That has some traction with me (although many social enterprise entities organized as other forms of entity seem to get their message out to the public in salient and sticky ways through their operations and other conduct, including by obtaining B Corp certification).  But the negative is that some of these firms may be over-signalling their social enterprise value, at least at the outset in the pre-revenue phase of operations.  (I suspect that many of the already-organized benefit corporations are in that stage of their existence, especially given the relative new-ness of the benefit corporation form.)  This concern can be a form of, or is akin to, greenwashing, which has been observed generally in the social enterprise space.  Query whether benefit corporation statutes will later be criticized for facilitating false or misleading signalling . . . .

It's also possible that the entrepreneurs are misinformed about the non-signalling benefits of benefit corporation status (especially as opposed to traditional corporation status, with or without B Corp certification).  This would disable them from making an accurate, complete cost-benefit assessment.  (Many of us who advise entrepreneurs know, for example, that they often come in asking for us to form an LLC for their business without really having a clue–or complete picture–as to why . . . .)  We can help guard against this possibility by purveying accurate information in the blogosphere, in other media, and in our scholarship.

Do any of you have any thoughts on this?  I wonder if a high-quality survey of the right sample population of entrepreneurs could tease out whether any of the rationales I posit here (or any you may come up with) have any validity . . . .  Maybe Haskell Murray, our resident co-blogger expert on social enterprise and benefit corporations, will want to take that on?!