May 13, 2013
Delaware Public Benefit Corporations: Branding
Posted by Haskell Murray

Cross-posted at SocEntLaw

This is my third and final substantive post comparing the Model Benefit Corporation Legislation (the “Model”) to the proposed Delaware Public Benefit Corporation (“PBC”) amendments.

"Branding" is one area where proponents of the Model may argue that the Model is better than the PBC.  As mentioned in my first substantive post, the PBC favors private ordering more than the Model, which makes the PBC more flexible, but also makes it more difficult to maintain a consistent brand.  Branding could be useful to investors, consumers, and governments that wish to quickly identify socially responsible companies. 

Some proponents of the Model may point to the required annual report (PBC only requires a biennial report) and the requirement of measuring general public benefit against a third party standard (optional under the PBC) as building the Model’s brand.  In my opinion, however, neither the required annual report nor mandatory use of a third party standard is likely to facilitate creation of a useful brand under the current language of the Model. 

First, the Model does not expressly provide an enforcement mechanism for assuring the public posting of an annual report and the use of a third party standard.  Currently, a number of benefit corporations are in violation of the statute, but nothing seems to be done about the violations.  Second, most of the few annual reports available are full of fluffy self-promotion and do not include much of value.  Third, the available third party standards vary wildly, so simply requiring a third party standard is not likely to lead to a consistent and valuable brand.  The updated version of the Model requires that the third party standard be “comprehensive,” “independent,” “credible,” and “transparent,” but those requirements will be difficult to enforce and, in any event, do not appear aimed at creating a consistent brand.  A benefit corporation that does not see the value in using a third party standard may use the lowest standard available, provide little to no useful information to the market, and waste company resources in the process. 

If the Model proponents wished to create a brand via statute they would do better requiring an annual charitable giving floor and a partial asset lock, as I suggest here.  In my opinion, however, the heavy lifting in the branding department of social enterprise should be left to private organizations like B Lab.  The social enterprise space is evolving quickly, and I think it unlikely the state governments would keep up with the changes and engage in the type of enforcement needed to maintain a valuable brand.  Also, the term “social good” means very different things to different people, and therefore it is likely better to have private organizations develop various standards and allow the market to determine which standards, if any, are useful and valuable. 

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