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(Note:  This is a cross-posted multiple part series from WVU Law Prof. Josh Fershee from the Business Law Prof Blog and Prof. Elaine Waterhouse Wilson from the Nonprofit Law Prof Blog, who combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides.  The previous installment can be found here (NLPB) and here (BLPB).)

What It Is:   So now that we’ve told you (in Part I) what the benefit corporation isn’t, we should probably tell you what it is.  The West Virginia statute is based on Model Benefit Corporation Legislation, which (according to B Lab’s website) was drafted originally by Bill Clark from Drinker, Biddle, & Reath LLP.  The statute, a copy of which can be found, not surprisingly, at B Lab’s website, “has evolved based on comments from corporate attorneys in the states in which the legislation has been passed or introduced.”  B Lab specifically states that part of its mission is to pass legislation, such as benefit corporation statutes.

As stated by the drafter’s “White Paper, The Need and Rationale for the Benefit Corporation: Why It is the Legal Form that Best Addresses the Needs of Social Entrepreneurs, Investors, and, Ultimately, the Public” (PDF here), the benefit corporation was designed to be “a new type of corporate legal entity.”  Despite this claim, it’s likely that the entity should be looked at as a modified version of traditional corporation rather than at a new entity. 

To read the rest of the post, please click below. 

West Virginia is the latest jurisdiction to adopt benefit corporations – the text of our legislation can be found here.   As with all benefit corporation legislation, the thrust of West Virginia’s statute is to provide a different standard of conduct for the directors of an otherwise for-profit corporation that holds itself out as being formed, at least in part, for a public benefit.  (Current and pending state legislation for benefit corporations can be found here.)

As WVU Law has two members of the ProfBlog family in its ranks (Prof. Josh Fershee (on the Business Law Prof Blog) and Prof. Elaine Waterhouse Wilson (on the Nonprofit Law Prof Blog)), we combined forces to evaluate benefit corporations from both the nonprofit and the for-profit sides.  For those of you on the Business Prof blog, some of the information to come on the Business Judgment Rule may be old hat; similarly, the tax discussion for those on the Nonprofit Blog will probably not be earth-shaking.  Hopefully, this series will address something you didn’t know from the other side of the discussion!

Part I: The Benefit Corporation: What It’s Not:  Before going into the details of West Virginia’s…

I have posted an updated draft of my latest piece, “Corporate Social Responsibility & Concession Theory” (forthcoming __ Wm. & Mary Bus. L. Rev. __) on SSRN (here). Here is the abstract:

This Essay examines three related propositions: (1) Voluntary corporate social responsibility (CSR) fails to effectively advance the agenda of a meaningful segment of CSR proponents; (2) None of the three dominant corporate governance theories – director primacy, shareholder primacy, or team production theory – support mandatory CSR as a normative matter; and, (3) Corporate personality theory, specifically concession theory, can be a meaningful source of leverage in advancing mandatory CSR in the face of opposition from the three primary corporate governance theories. In examining these propositions, this Essay makes the additional claims that Citizens United: (A) supports the proposition that corporate personality theory matters; (B) undermines one of the key supports of the shareholder wealth maximization norm; and (C) highlights the political nature of this debate. Finally, I note that the Supreme Court’s recent Hobby Lobby decision does not undermine my CSR claims, contrary to the suggestions of some commentators.

I expect to have at least one more meaningful round of edits, so all comments…

James Woulfe, who was involved in the legislative process around Connecticut benefit corporations, and I have had a number of interesting conversations about social enterprise law over the past few years.  Recently, I asked James to share his thoughts on the new Connecticut benefit corporation law for the blog.  His contribution is below.

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After two previous tries, Connecticut recently became the 24th state in the Union to pass benefit corporation legislation. While some may argue that the fact it took Connecticut so long to pass the bill is a sign of problems with the legislature, our state’s business climate, etc., coming a little late to the game was actually an asset. Waiting to pass the legislation gave lawmakers an opportunity to take a look at national and international trends in social enterprise legal structures, and experiment. As a result, Connecticut tweaked the “model” benefit corporation legislation passed in other states, and included an innovative first in the nation clause in Connecticut’s statute, called a “legacy preservation provision.”

Connecticut’s legacy preservation provision gives social entrepreneurs the opportunity to preserve their company’s status as a benefit corporation in perpetuity, despite changes in company leadership or ownership. In other words, the…

So, the Hobby Lobby decision is out.  I wrote my thoughts here and here after oral arguments, and I think the court got this wrong.  Not the concept, but the execution. 

Rather than try to rehash what is now done, I will pose a different question: How does one reconcile this religious exercise with the profit-seeking mandate that the Delaware court imposes from time to time.  As Chancellor Chandler noted in eBay v. Newmark (more here):

The corporate form in which craigslist operates, however, is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment. 

Note that “purely” is not an entirely accurate modifier here.  Craigslist made a profit and had some ventures that raised money.  They just did not monetize the majority of the endeavors

So what about an entity that operates for purely religious ends? Hobby Lobby and those similarly situated seem to be saying that religion trumps profit (see, e.g., Chik_Fil-A closing on Sundays).  This is not the argument that our business model is stronger because of our choices, which I have argued before should be protected, but this is saying we…

On Steve Bradford’s recommendation, I chose William Easterly’s (NYU) The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor (2014) as the book for my annual beach trip with the in-laws and cousins. (Last year was Daniel Kahneman’s (Princeton) Thinking, Fast and Slow – and yes, my wife’s side of the family makes fun of my beach reading material).  Easterly is an author I have wanted to read for a while now, and I still need to read some of his earlier books. 

Easterly

More after the break.

A few weeks ago, Tim Carney wrote a piece in the Washington Examiner that is stuck in my mind. The piece titled Conservatives, big government and the duty to care for the poor discusses what Carney sees as a shift in the rhetoric conservatives are using in reference to the poor and other vulnerable populations.  Carney notes that Senate Minority Leader Mitch McConnell (R-KY) recently referenced a “shared responsibility for the weak.”  Carney continues:

Step away from policy debates and think about that phrase. Do you have a responsibility to help the weak? Do you have a responsibility to feed the hungry? To aid the poor?

 I think I do. I think everyone does. The Catholic Church teaches us we do.

Conservatives sometimes shy away from this idea, though. One reason is a strong (and overblown) distaste to “helping the lazy.” Another reason is that conservatives fear it implies the Left’s answer: big federal programs.

But, in fact, you can grant that you have a duty to the poor and the weak, and then have a really good debate:

Is that duty individual, or some sort of a communal duty?

Does the government have the legitimate right to transfer wealth to satisfy

…

Brett McDonnell (Minnesota) recently posted a new article entitled Committing to Doing Good and Doing Well: Fiduciary Duty in Benefit Corporations.  I have not read the article yet, but it is printed and in my stack for the summer.  The abstract is below. 

Can someone running a business do good while doing well? Can they benefit society and the environment while still making money? Supporters of social enterprises believe the answer is yes, as these companies aim at both making money for shareholders while also pursuing other social benefits. Since 2010, states have begun to enact statutes creating the “benefit corporation” as a new legal form designed to fit social enterprises. Benefit corporations proclaim to the world that they will pursue both social good and profits, and those who run them have a fiduciary duty to consider a broad range of social interests as they make their decisions rather than a duty to focus solely on increasing shareholder value. Does this novel fiduciary duty effectively commit these businesses to doing good? How will courts actually apply this duty in practice? Will this new duty accomplish its goals without unduly high costs?

This article is among the first to

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As of earlier this week, B Lab has now certified 1,000 entities as “certified B corporations.”

Given over 1 million entities in Delaware alone, coupled with the fact that B Lab seems willing to certify any type of entity, anywhere in the world, (if the company scores above an 80 on B Lab’s 200 point survey and pays a fee) 1,000 is a relatively small number. Every movement has to start somewhere, however.

As a side note, I have told a number of folks at B Lab that “certified B corporation” is an inappropriate name, given that they certify limited liability companies, among other entity types, but they do not seem bothered by that technicality.  I am guessing my fellow blogger Professor Josh Fershee would share my concern.   

The number of benefit corporations is more difficult to pin down, but is somewhere in the neighborhood of 400 (including public benefit corporations in Delaware and Colorado).

For the major differences between certified B corporations and benefit corporations, see here. Confusingly, both are sometimes called “B Corps.”

While the numbers are currently small, and I have critiques for some of the ways both the certified B corporation and…