August 20, 2012
Chick-fil-A as a social enterprise?
Posted by Haskell Murray

Thank you Erik for allowing me to write a follow-on post to the Chick-fil-A/Corporate Social Responsibility Masters Forum.

As a native Georgian, I have followed the Chick-fil-A controversy closely.  My former roommate works in Chick-fil-A’s tax department and Chick-fil-A has been my favorite fast food restaurant for many years.  The food is incredibly good (KFC does not even come close) and Chick-fil-A is one of the few companies that still cares about providing excellent customer service.  As Usha noted, Chick-fil-A has a history of giving back to the community.  In addition to her list, Chick-fil-A tends to treat its retail and corporate employees very well, sponsors numerous community activities like local 5Ks, sponsors a values-based education curriculum for grades K-5 (that my wife used this year in her classrooms), and contributes to its WinShape Foundation, which does much more than donate to the organizations at the center of the controversy

The questions I want to raise in this post are:  (1) could Chick-fil-A become a social enterprise after the controversy?; and (2) if Chick-fil-A were already a social enterprise, how would the controversy have impacted the company differently?  These questions are tangentially related to the Masters Forum because some, including Professors Katz and Page (Indiana Law), have asked if social enterprise is the new CSR.

Currently, I am most interested in the benefit corporation form of social enterprise and the certified B corporation.  I explained the differences between the two here and I have posted a draft of my symposium article on benefit corporations here.

Under the law of the 11 states that have passed a benefit corporation statute, I see no serious obstacle to Chick-fil-A converting to a benefit corporation post-controversy.  Chick-fil-A would, in most states, simply need the vote of at least 2/3rds of its shareholders and an amendment to its articles of incorporation stating that the company is a benefit corporation.  (For the record, I do not have any information to suggest Chick-fil-A is considering such a conversion).

Once a benefit corporation, however, Chick-fil-A would be required to pursue a “general public benefit” purpose, which is defined as:

  • “[a] material positive impact on society and the environment, taken as a whole, assessed against a third-party standard, from the business and operations of a benefit corporation.”

Shareholders may bring a “benefit enforcement proceeding” for failure to pursue a “general public benefit.”  You can read more about the proceeding in the model legislation, which has a number of very recent changes, some of which respond to issues raised in my draft article.  I need to update my draft accordingly.

Also, the benefit corporation statutes require that the “general public benefit” be accessed against a  “third party standard.”  While there are various third-party standard providers, B Lab, which provides the "certified B corporation" label, is the most well known.  I asked Jay Coen Gilbert, B Lab’s co-founder, my questions and he provided some interesting information:  

  • (1) any company that meets B Lab’s standards can become a certified B corporation; (2) B Lab’s independent Standards Advisory Council reserves the right to not certify or de-certify any company that acts inconsistently with the values of the B Corp community as expressed in their Declaration of Interdependence; (3) to date, that right has never been exercised; and (4) there are a number of faith-based companies among the 574 certified B corps.

I, for one, would be very interested to see B Lab’s reaction if Chick-fil-A actually applied to be a certified B corp.  I also wonder whether being formed as a benefit corporation would make Chick-fil-A more (or less) vulnerable to shareholder lawsuits stemming from the controversy (if the company stock were more widely held).  

We at Regent University School of Law, along with a distinguished list of participants that include Glom Master Joan Heminway, will be exploring emerging issues in social enterprise on October 6.  Please join us at this symposium if you can make it to Virginia Beach.

Social Entrepreneurship, Social Responsibility | Bookmark

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