Social Enterprise

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For those interested in some empirical research on the new hybrid entities (a/k/a social enterprise):

There are still relatively few of these hybrid entities being formed, but they have definitely started a lot of conversations.  

As the amount written on social enterprise law increases, I thought it might be useful to create a list of journal articles.  That list is now posted on SSRN here. 

The list is limited to law review articles and purposefully excludes student authored articles, except for one LLM thesis.  (I may be persuaded to include some of the better student notes in the future).  I stayed away from general CSR articles and focused on articles regarding the new social enterprise legal forms.  I stuck mainly to legal academics, but included some of the major practitioner authors.

The list is undoubtedly incomplete, and I welcome suggestions for additions. 

Over at realclearpolitics.com, a number of leading thinkers, including some leading business law folks such as Richard Epstein and Jonathan Adler, among others, have signed a public statement: Freedom to Marry, Freedom to Dissent: Why We Must Have Both.  Following is a portion of the statement:

The last few years have brought an astonishing moral and political transformation in the American debate over same-sex marriage and gay equality. This has been a triumph not only for LGBT Americans but for the American idea. But the breakthrough has brought with it rapidly rising expectations among some supporters of gay marriage that the debate should now be over. As one advocate recently put it, “It would be enough for me if those people who are so ignorant or intransigent as to still be anti-gay in 2014 would simply shut up.”

The signatories of this statement are grateful to our friends and allies for their enthusiasm. But we are concerned that recent events, including the resignation of the CEO of Mozilla under pressure because of an anti-same-sex- marriage donation he made in 2008, signal an eagerness by some supporters of same-sex marriage to punish rather than to criticize or to persuade

…

They really don’t. 

To be clear, this is not a post bashing corporations (or government). It’s not really extolling the virtues of corporations, either. Instead, it’s just to make the point that, notwithstanding Citizens United or Hobby Lobby and other cases of their ilk, the idea that corporations are people is still a legal fiction.  A useful and important one, but a fiction nonetheless.  

On April 11, Corey Booker posted the following on Facebook:

In awful years past, corporations polluted the Passaic river to the point that it ended the days where people could eat from it, swim in it, and use it as a thriving recreation source. Today we announced a massive initiative to clean the Passaic river and bring it back to life again. The tremendous clean up effort will create hundreds of jobs and slowly over time restore one of New Jersey’s great rivers to its past strength and glory.

The river needs the clean-up, and I applaud the effort. Still, the reality is corporations did not pollute the Passaic River, at least not literally.  People working for the corporation did. It is agency law that allows a corporation to act in the first place, because the…

Recently, I came across a post on the Wall Street Journal’s website by Warby Parker co-founder Neil Blumenthal entitled My Advice? Stop “Networking.”

This short post caught my eye for two reasons.

First, Warby Parker is a certified B corporation and one of the more visible (they sell glasses… humor is not my strong suit) and successful companies in the for-profit social enterprise movement. 

Second, since my move to a business school last fall, I have heard the term “networking” with increasing frequency.  Sure, “networking” is discussed in law schools and there are some networking events, but in business schools the term “networking” is ubiquitous and the events focused on “networking” are constant. 

“Networking” has some negative connotations, but I think Blumenthal’s attack is misplaced.  Instead of attacking “networking,” Blumenthal would have done better to attack “selfishness.”  

There is nothing wrong, and much good, in the dictionary definition of “networking”:

the exchange of information or services among individuals, groups, or institutions; specifically: the cultivation of productive relationships for employment or business.

Networking can be a wonderful thing, for everyone involved, if you can keep the selfishness at a minimum.  Unfortunately, many people …

A little more than six weeks ago The Lego Movie hit theaters. Without getting into too much detail for those of you who have not yet seen the movie or who will never get around to seeing the movie, in essence it’s about an ordinary guy who’s mistakenly identified as an extraordinary “MasterBuilder”. He is recruited to fight against a Lego villain (President Business-we can call him P.B.) who is intent on gluing everything together. The anti-PB crusaders like having the freedom to dismantle, break, and re-make their Lego creations and shudder at the thought of having everything permanently fixed in place. PB, on the other hand, is intent on perma-gluing the Lego bricks together because he likes the certainty and control of knowing where everything is, and he is wary of innovation or change. Hence, his admonition- “EVERYTHING MUST STAY IN PLACE.”

Now as I watched this battle unfold between President Business’ pro-gluing supporters on one hand, and the pro-change supporters on the other, I could not help but see some similarities between the Lego people’s contested views on the purpose of Legos and our society’s contested views on the purpose of corporations. In The Lego Movie…

Statutory provisions allowing for the formation of Delaware Public Benefit Corporations (“PBCs“) went effective August 1, 2013.  According to the latest data I have, 87 PBCs have been formed in Delaware .

While 87 is an extremely small number when compared to the more than 1 million entities formed in Delaware, Delaware has already bested all states that have passed a benefit corporation statute, except for California.  California, which has a 20 month head-start on Delaware, has 139 benefit corporations.

Some states, like New Jersey and South Carolina have been stuck at fewer than 5 benefit corporations for well over a year.

The group of researchers I am working with now estimates that there are about 350 benefit corporations in the U.S. (including PBCs), though the data is relatively difficult to obtain from the secretary of state’s offices and obtaining reliable, complete data is even more difficult.

Currently, there are no significant tax benefits (at the state or federal level) for social enterprises (like PBCs and benefit corporations) in the U.S., but the U.K. recently announced 30% tax relief for their social enterprises. (The U.K. social enterprises are a good bit different than those in the…

A hearing in the Delaware Court of Chancery highlights the question raised in my earlier post of institutional shareholder activism and provides a timely example of one brand of shareholder activism:  issue activism.

Yesterday, Vice Chancellor J. Travis Laster denied Hershey’s motion to dismiss a books-and-records suit brought by shareholder Louisiana Municipal Police Employees’ Retirement System. The suit seeks inspection of corporate books to investigate claims that the chocolate company knowingly used suppliers violating international child labor laws.  A full description of the hearing is available here.

UPDATE, Kent Greenfield who has been involved in the case, provided me with a copy of the Hershey hearing & ruling ( Download Hershey Ruling) as well as some context for the case.  Yesterday’s hearing did two things. First, it clarified the standard of review for motions to dismiss section 220 books and records demands. Citing to Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 118 (Del. Supr. 2006), the proper standard is whether a shareholder has provided “some evidence to suggest a ‘credible basis’ from which a court can infer that mismanagement, waste or wrongdoing may have occurred.”    Second, the books and record request was brought on …

Are the directors of Hobby Lobby and Conestoga Wood breaching their fiduciary duties by challenging the contraceptive mandate, seemingly without serious regard to the financial consequences?

Mark Underberg says “perhaps”.

Stephen Bainbridge says “no”.

Professor Bainbridge focuses on the facts that both Hobby Lobby and Conestoga Woods are family-owned, closely-held corporations, and that Conestoga Woods is incorporated under Pennsylvania law, which has a nonshareholder constituency statute.  I am not going to jump into their disagreement directly, but, instead, will use a story I saw about Apple to extend the conversation.

Unlike Hobby Lobby and Conestoga Woods, Apple is a publicly-traded, California corporation.  California does not have a constituency statute.  Recently, Apple CEO and director, Tim Cook, discussed the company’s commitment to the environment, the blind, and making the world a better place.  Cook supposedly told investors:

If you want me to do things only for ROI reasons, you should get out of this stock.

More forcefully, Cook said:

When we work on making our devices accessible by the blind, I don’t consider the bloody ROI.

In Cook’s first statement, he seems to be saying that ROI is one of the reasons (just not the only reason) Apple makes…