March 20, 2014
Complexity of Mission and the Power of Form
Posted by Joseph Yockey

Consider two different social enterprises: Blue River Technology and Greyston Bakery.

Blue River applies expertise in robotics to develop new agricultural technologies. Recognizing that $25 billion is spent annually on herbicides that pose environmental risks, the company offers farmers the option to reduce their chemical usage by switching to robots pulled behind tractors that can quickly identify and kill weeds with a rotating blade.

Greyston sells brownies (including some found in Ben & Jerry’s ice cream), but it also adheres to a strict workforce development program. The company staffs its operations with hard-to-employ individuals and teaches them skills that they can use when looking for jobs across the wider foodservices industry. As Greyston’s slogan says, “We don’t hire people to bake brownies, we bake brownies to hire people.”

Greyston is organized as a benefit corporation; Blue River is not. That probably makes sense.

Blue River approaches what some call “the hybrid ideal” – a situation where everything a company does generates social value and revenue. The company’s social objectives are market driven. There is little tension between profits and impact. Mission drift is relatively easy to monitor. I wouldn’t think Blue River has much to gain by becoming a benefit corporation. Indeed, it seems to be doing just fine.

Greyston is different. It can’t align profits with public good quite as neatly. Its social mission is broader and open to greater interpretation. What does it mean for someone to be “hard-to-employ?” How should we measure something as fuzzy as workforce development? Even if we say that Greyston is near the hybrid ideal, can we be sure it won’t move toward greater pursuit of profits at the expense of public benefit? This might follow from something as simple as a change in ownership or leadership, and it could be hard to detect. Blue River’s products strike me as easily observable, but if Greyston makes discrete changes to its hiring policies, those decisions seem easier to keep under wraps.

The provisions found in benefit corporation statutes do not fully resolve these issues. However, I’m not ready to say that benefit corporation statutes are a mistake, or that becoming a benefit corporation is only about greenwashing. Instead, I argue that the benefit corporation’s best opportunity for influence is to be seen as a new institutional structure—one that can motivate the development of self-regulatory standards and provide a normative framework for social entrepreneurs and pro-social investors. This framework, in turn, can be particularly helpful to companies like Greyston that pursue more complex social missions.

First, the benefit corporation form offers a rallying or focal point that ought to make it easier for like-minded private actors to come together and collaborate on issues ranging from corporate governance practices to the development of social impact metrics. Seeing benefit corporation laws as focal in this way does not mean they will dictate particular standards. Rather, they simply incentivize firms and stakeholders to participate in a self-regulatory process by providing an archetype and hub that can facilitate communication and standards development. The form’s mandate to consider multiple interests should make such cooperation more palatable. Firms that prioritize profits above other objectives often lack the incentive to share information with their competitors. In that case, first-movers will see their profits slip if information sharing allows others to easily replicate their strategies. However, by definition, the benefit corporation form means that profits are not the overriding focus. It thus creates more room for cooperation and coordination—and as Haskell Murray reports, this already appears to be happening.

Additionally, a key step in addressing issues like mission drift is to recognize that, just as they send broader signals about values to the market, legal forms also influence corporate behavior. The people within an organization are the most significant determinants of its commitment to mission. With respect to the benefit corporation, forms that reflect a specific ideological commitment can influence internal culture by signaling the values that should inform employee decision-making. Patagonia cited this belief as a motivating factor in its decision to become a benefit corporation. 

Finally, establishing a culture that leads to the internalization of values is easier when organizational goals match employees’ personal beliefs. The benefit corporation’s emphasis on dual objectives should attract socially minded employees by signaling that they will find a supportive structure in place. When employees then enter organizations that reflect their own values, they often exhibit greater motivation to act consistently with those values.

There is obviously much more to say about these points, and for anyone looking to wade deeper into them, I offer a fuller explanation here.

Unless the rapid spread of benefit corporation laws is evidence of an enthusiastic or cynical mistake (which I think is possible but unlikely), then there must be some underlying logic to unpack. My aim is to keep working to explain the social enterprise phenomenon, to put it into a clear theoretical framework, and to distill the best justifications for offering special organizational options for social entrepreneurs.

Permalink | Business Organizations| Corporate Governance| Corporate Law| Organizational Theory| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

March 18, 2014
When Corruption and Social Enterprise Collide
Posted by Joseph Yockey

In addition to social enterprise, I’m also interested in how foreign corruption affects corporate governance and compliance. One of my current projects involves looking at where these areas intersect.

I was drawn to this topic because the developing world is often where social enterprises can do the most good, but, sadly, the developing world is also where corruption tends to be the most prevalent. Can a social enterprise do business in a country where nearly every public official demands bribes? Most traditional corporations will probably answer that question in the affirmative. A transnational oil and gas firm, for example, ought to have the resources to resist or at least mitigate the compliance challenges presented by corruption. Moreover, some traditional firms will likely approach corruption from a strictly economic perspective. The U.S. Foreign Corrupt Practices Act (FCPA) prohibits firms from paying bribes to foreign officials for the purpose of getting business. Firms that violate the statute face stiff monetary and reputational sanctions. But if the risk of detection is low and the potential gains from a corrupt transaction are high, managers could be tempted to go ahead and make a payoff to improve the financial bottom line. 

The issue arguably becomes more complex in the case of a social enterprise. Social enterprises seek first and foremost to create a public benefit. Their managers must balance the mission and profit goals of socially oriented investors, employees, and other stakeholders. Accordingly, the question of whether to bribe is not simply a matter of weighing detection probabilities and potential gains. Managers will also need to anticipate, assess, and work through the ancillary effects of corruption—including market distortion, erosion of the rule of law, and negative effects on employee morale—when making decisions.

Perhaps some social-enterprise managers will elect to pay bribes on the theory that they will be serving the greater good by getting their products to those in need. They might conclude that the harms and enforcement risks from bribery are worth the benefit of providing people with, say, healthier sanitation options or cheaper energy. Others, though, will surely resist bribery altogether on moral or social welfare grounds. For these managers, the question becomes whether they can remain in markets with endemic corruption. This is a tough situation. If social enterprises decide to withdraw or otherwise limit their activities in certain markets, the obvious downside is their inability to positively affect citizens in distress. Whether other actors will step in and fill the gaps they leave behind is an open question.

Permalink | Business Ethics| Corporate Governance| Social Entrepreneurship| White Collar Crime | Comments (0) | TrackBack (0) | Bookmark

March 13, 2014
The Social Enterprise Effect
Posted by Joseph Yockey

When Pope Francis began his papacy one year ago today, how many people thought he would soon become Time’s Person of the Year or grace the cover of Rolling Stone magazine? I'm guessing that the so-called “Francis Effect” has at least something to do with the Pope’s message of inclusion. For example, when speaking about tolerance and how to approach people from different backgrounds, Francis famously recommended, "do good: we will meet one another there."

Apart from any theological considerations, those words remind me of the concept of bracketing. My understanding of bracketing is that it refers to a mode of negotiation or analysis where the most contentious issues are set to one side so that the focus can remain on matters of common agreement. William Simon probably puts it best in an article in the Wisconsin Law Review:

“The hope [with bracketing] is that progress can be made without fully addressing the hard issues, or that discussion of the other issues will lead to a reframing of the hard ones in ways that will make them more tractable. Think, for example, the progress that occurred in discussions of the death penalty when discussion was diverted away from issues the ultimate legitimacy of state killing toward a discussion of the reliability of the process of guilt determination.”

In my recent paper, Does Social Enterprise Law Matter? (Alabama Law Review, forthcoming), one of my claims about the potential role of social enterprise legislation is similar. Benefit corporations, and social enterprises more generally, cannot solve every social problem. There will always be critical roles for nonprofits, government, and traditional corporations to play. However, discussions about “corporate social responsibility” and the proper roles of nonprofits and government remain highly contentious. By contrast, I’ve noticed that social enterprise as a general concept often receives strong support from both sides of the political spectrum. Observers on the right like its free-market approach to social issues, and those on the left like how it supplements other philanthropic efforts. It’s only when actual social enterprise laws pop up that controversy tends to arise (i.e., do benefit corporations offer anything new, or will they just undermine CSR efforts at existing firms?).

Yet, if commentators who all agree that social enterprise has value come together to discuss experiments like the benefit corporation form, the resulting dialogue may prompt them to reconsider how they approach more controversial issues in the field. It's plausible that this dialogue might even render some of the new legal forms obsolete, if, for example, it causes participants to reframe ideological disputes surrounding corporate purpose or duty in ways that lead social entrepreneurs to feel less dependent on a separate statutory regime.

In this way, founders and investors might come to see corporate law as reaching a stage where distinctions between “regular” corporations and benefit corporations appear unnecessary - thanks in part to using social enterprise law as an initial rallying point and source of common ground.  

Permalink | Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

March 12, 2014
Playing Fair
Posted by Joseph Yockey

I’m helplessly drawn to soccer and have been for nearly sixteen years. The sport has shown me countless moments of transcendent genius, like that goal by Arsenal’s Thierry Henry, and it continues to inform my thoughts on issues ranging from globalization to personal fashion.

One of the biggest stories in the footballing world this week comes out of the German Bundesliga, Germany’s top professional league. Sunday’s match between Werder Bremen and Nürnberg saw Bremen’s captain Aaron Hunt deny his team a penalty—and a near-certain goal—by admitting to the referee that he had not been fouled after seeming to “trip” over an opponent’s foot. Werder was leading at the time and eventually won the game 2-0. Afterwards, Hunt told the media that he had tried to provoke the penalty “out of instinct” but then thought that doing so “was wrong.”

Most are treating this as an example of good sportsmanship. My reaction is slightly different. I see Hunt’s conduct as a potential teaching tool for discussing social enterprise.

When I first started looking into social enterprise, it felt like the movement’s supporters saw it principally as a response to concerns about shareholder wealth maximization. Their worry was that an undue corporate emphasis on profit making was to blame for the financial crisis, climate change, and other problems. Social enterprise was seen as the antidote, since it captures firms that seek to go beyond profits in order to do “well” (financially) while doing “good” (socially).

I’m a fan of social enterprise, and I think social enterprise law can add real value. Yet I’d caution against placing it in direct opposition to traditional corporate behavior. Social enterprise is growing at a time when notions of shareholder prioritization continue to evolve. While it is true that courts generally hold that directors must act for the benefit of the “corporation,” what this means as a practical matter is open to debate. Some managers probably do see the singular pursuit of wealth as their obligation, but many others now see a strong relationship between a firm’s social footprint and its impact on shareholder value.

This brings me back to Mr. Hunt. I like to imagine that something similar to his phantom foul situation plays out in corporate decision-making. Even if traditional corporate managers often start with a view toward maximizing profits “out of instinct,” I’m not ready to concede that many won’t still pull back to consider the wider social effects of their decisions. The difference between corporate managers and professional footballers is that not every ethical quandary in the C-suite happens in front of a live worldwide audience. But that’s not to say that every manager needs or wants to check her ethical sensibilities at the door, or that existing corporate law is not already flexible enough to permit most social/economic tradeoffs.

Whatever the justifications are for supporting social enterprise—and I believe there are many—they should not include a wholesale rejection of the traditional corporate model. Generating meaningful social impact is always going to be less about form and more about management’s sense of purpose, virtue, and ideals. So where does that leave the role of social enterprise and social enterprise law? That’ll be the subject of my next few posts.

Permalink | Business Ethics| Business Organizations| Corporate Governance| Social Entrepreneurship| Sports | Comments (0) | TrackBack (0) | Bookmark

March 08, 2014
New Paper on SSRN (Mine): Pricing Disintermediation: Crowdfunding and Online Auction IPOs
Posted by Christine Hurt

Good morning!  Were you looking for some beach reading material as Spring Break draws nearer?  I just posted my latest paper, Pricing Disintermediation:  Crowdfunding and Online Auction IPOs.  Were you wondering what the future holds for raising equity online after Proposed Regulation Crowdfunding?  Have you ever thought that maybe the quick birth and death of the online auction IPO could inform that question?  Moreover, have you ever thought that maybe the social entrepreneurship crowdfunding space might fare differently?  That corporate finance might solve the mission drift problem, not corporate governance?  Have I got a page-turner for you!

Permalink | IPOs| JOBS Act| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

October 31, 2013
Delaware Public Benefit Corporations - Specific Public Benefit Purpose(s)
Posted by Haskell Murray

Over the past few weeks, a handful of attorneys and academics have asked me exactly how specific the specific public benefit purpose(s) required by §362(a) of the DGCL for Delaware public benefit corporations (“PBCs”) must be.  Section 362(a) reads, in pertinent part:

  • “In the certificate of incorporation, a public benefit corporation shall. . . Identify within its statement of business or purpose . .1 or more specific public benefits to be promoted by the corporation”

Some of the early Delaware PBCs have used the general public benefit language from the benefit corporation’s Model Legislation to describe their specific public benefit purpose(s).  (See, e.g., Farmingo, PBC; Ian Martin, PBC; Method Products, PBC; New Leaf Paper, Public Benefit Corporation; and RSF Capital Management, PBC).  For those who are unfamiliar, the general public benefit language from the Model Legislation reads:

  • “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.” 

At least one early Delaware PBC has added the following to the general public benefit language:

  • “specific public benefit . . .may be further specified from time to time in the Bylaws of the Corporation . . . or a resolution or resolutions of the Board of Directors of the Corporation.” (Socratic Labs, PBC).  
Some Delaware PBCs have been more specific in their certificates of incorporation:
  • “for the specific public benefit of furthering universal access to the Internet” (Unifi Communications, PBC)
  •  "giving people access to, and the benefit of, health knowledge that is as complete and unbiased as possible." (Profile Health Systems, PBC)

In my personal opinion, using only the Model Act’s general public benefit purpose as a Delaware PBC’s specific public purpose is a bit risky and possibly conflicts with the drafters' intent.  To be clear, I have not yet spoken with the drafters on this issue, and will update this post if I do.  However, if the drafters had intended to allow the general public benefit language to suffice, then I think they would have simply followed the lead of the Model Legislation and would have defined and used the term "general public benefit". 

Further, the FAQ about Public Benefit Corporations circulated by the drafters contained the following question and answer. 

  • Q: “Why does the statute require both the identification of a specific benefit or benefits and that the corporation be managed for the best interests of all those materially affected by the corporations conduct?” (emphasis in original)  
  • A: “….The requirement of a specific public benefit is intended to provide focus to the directors in managing toward responsibility and sustainability, and giving investors notice of, and some control over, specific public purposes the corporation serves.” 
I would argue that the Model Act’s general public benefit language does not give directors the desired focus, and if the specific purpose is regulated to the bylaws then shareholders may not have the notice and control the drafters seemed to have desired.

That said, the Model Legislation’s general public benefit language is more specific than “any lawful purpose” and Section 362(a) has no limit on the number of specific purposes that can be listed, so a Delaware PBC could conceivably list all of the specific interests the Model Legislation requires directors to consider and achieve the same lack of focus as listing the Model Legislation’s general public benefit language.  

I have spoken to a few people in the Delaware Secretary of State’s office in an attempt to understand their stance on the specific public benefit issue.  The main take-aways from those conversations were:

  1. they are aware of the controversy surrounding whether the Model Legislation’s general public benefit purpose suffices as a specific public benefit under the statute;
  2. they are currently accepting the Model Legislation’s general public benefit language as a valid specific public benefit, until it is formally challenged or they are told to do otherwise;
  3. they will not accept “any lawful purpose” language as a specific public benefit.    

Also, for those who are interested, there were 49 public benefit corporations formed in Delaware between the August 1, 2013 effective date and October 16, 2013.

Thanks to Boston attorney Bruce Landay for excellent, in-depth conversation on this topic and for some of the certificates of incorporation cited in this post.  As an academic, it is always nice to connect with attorneys who practice in my areas of interest.  Thanks to Alicia Plerhoples at Georgetown Law who also provided some of the certificates of incorporation cited in this post.     

Permalink | Business Organizations| Corporate Governance| Delaware| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

August 24, 2013
GiveDirectly: What if We Just Gave People Fish?
Posted by Christine Hurt

Researching microfinance for the past four years, I have read and heard the adage about teaching people how to fish countless times.  The essence of microfinance is that providing business capital is a form of sustainable philanthropy instead of a handout.  If you have 18 minutes, I highly recommend this TED talk by Jessica Jackley, a founder of Kiva, talking about the power of microloans versus charitable giving.  To sum up, charitable giving is about "us" giving to "them" out of guilt; microloans is about creating equal relationships and instilling a sense of pride, not shame.

But, the one thing that microfinance has not offered a lot of is proof of long-term economic value versus traditional philanthropy.  Is it better to just give a poor person money versus giving them a microloan or a cow or school tuition?  It seems like a "handout" just can't possibly be better, but studies are sparse and have problems.  Why?  Because most find it unethical to put poor people into randomly chosen groups and give one group a microloan and the other group none.  Or one group a loan and the other a straight gift.  Or school fees, or whatever.  These types of human experiments make people feel very uncomfortable, so we don't have a lot of data that teaching people to fish is better than anything else.

So now comes a charity called GiveDirectly.  The premise is that you give to GiveDirectly, and they give it (via cell phone) to the poorest people they can find in Kenya.  And, they give a sizeable sum -- $1000 or $200 per household member to a household that lives under $1 a day.  GiveDirectly argues this is efficient -- no money is spent on administration costs of microloan repayment or support, or agricultural training or monitoring.  No money is spent on glossy brochures or websites or catalogs.  GiveDirectly also argues that giving money with no strings attached is empowering -- recipients choose how to use the money; how much to save, how much to spend and what to spend the money on.  Of course, this system flies in the face of the conventional wisdom of philanthropy today, and it is getting a lot of press.  Here is a Morning Edition story on GiveDirectly, a NYT article by the same reporter, and another NPR story where GiveDirectly criticizes Heifer International and microfinance organizations for not doing studies to prove their "teach them to fish" theories.  GiveDirectly is doing those experiments.  Interestingly, when asked about studies, Elizabeth Bintliff of Heifer replied "It's just not that linear. It's not an equation. It's an ecosystem. That's the only way I can describe it."  She then suggested she would send Melissa Cornish, the reporter, studies that support Heifer International's system, but later said that she could not make those studies public.

At that point, my eleven year-old said, "I agree with GiveDirectly."  I'm not sure, but I am interested to see the results of the experiments.

Permalink | Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

July 20, 2013
Delaware's Benefit Corporation Act
Posted by Usha Rodrigues

It's effective August 1.  Cass Brewer of SocEntlaw has some excellent thoughts, including this conclusion:

Perhaps the ultimate lesson here is that absent a much more uniform and rigorous qualification and enforcement regime under prevailing law—like the regime that exists for tax-exempt entities—only a few, overly diligent individuals will know whether and which companies genuinely care about stakeholders as opposed to shareholders. If this is indeed the case, then maybe all that is really needed and in fact effective to instill public trust in socially beneficial businesses is a commonly-accepted rating system, not a change in corporate law. B Lab and other such rating agencies already understand and are responding to this reality.

Go read the whole thing.

Permalink | Delaware| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

April 30, 2013
Delaware Public Benefit Corporations: Director Guidance
Posted by Haskell Murray

Cross-posted at SocEntLaw

One of my main criticisms of the Model Benefit Corporation Legislation (the “Model”) has been (and still is) the lack of guidance for directors. (See, e.g., here and here).  The Model requires directors to “consider” seven different stakeholder groups (§301(a)), and directs them to pursue “general public benefit” but does not provide any priorities to guide directors. (§§102, 201(a)).  The Model allows companies to choose one of more “specific public benefit purposes,” in addition to the “general public benefit purpose,” but does not require that any specific public benefit purpose be chosen. (§201(b)).

In contrast, Delaware’s proposal does require public benefit corporations (“PBCs”) to choose one or more specific public benefits (§362(a)), though the statute is not crystal clear on priorities and requires directors to “manage or direct the business and affairs of the public benefit corporation in a manner that balances [1] the pecuniary interests of the stockholders, [2] the best interests of those materially affected by the corporation’s conduct, and [3] the specific public benefit or public benefits identified in its certificate of incorporation.” (§365(a)) (emphasis added).   (As a side note, the PBC's requirement to “balance” the stakeholder interests seems more onerous than the Model’s requirement to “consider” the interests.)

Even if directors' duties are owed to the corporation as a whole, I suggest that clear priorities are important.  I attempted to explain the importance of priorities in my response to Professor Lynn Stout’s thought-provoking recent book:  The Shareholder Value Myth:

  • Professor Lynn Stout and others reject the need for a single metric and have argued that directors, like other human beings, balance the interest of various stakeholders.   Among other examples of balancing by human beings, Professor Stout points to the ability of people to balance work and family.   This article admits that directors do and should balance various stakeholder interests and does not argue for myopic focus on a single metric, but rather posits that clear corporate priorities can make that difficult balancing job easier.
  • Using Professor Stout’s work/family example of balancing can help illustrate the point.  Clearly defined priorities can help an individual make difficult decisions in the constant work/family balance.  If an individual prioritizes family over work, that obviously does not mean that every decision leads to direct, short-term benefits for the family.  For example, on occasion, that family-primacy individual will rightly choose to stay late at work and miss dinner.  While that individual decision may have seemed to prioritize work over family, viewed in the long-term, the family may benefit from the resultant career security.  Even if the long-term benefits do not actually come to fruition, most would agree that the individual should not be judged for her well-intentioned decision.
  • The fact that humans certainly balance interests of various constituents, however, does not mean that priorities are unimportant.  Priorities can help guide and can also provide weightings for the costs and benefits of any decision.   Also, priorities most clearly help in critical situations.   To continue with the work/family example, in a zero-sum game, how does one decide between work and family when the outcome of that decision is of critical importance to both?   If an individual has clearly stated that family is a higher priority than work, this critical decision is more easily answered.  Even if the priorities are not clearly stated, priorities will still drive the decision.  Transparency as to the priorities makes things clearer to all involved and makes it less likely that the individual will drift from his or her true priorities.   Similarly, directors would benefit from a clear corporate objective that includes specific corporate priorities.

While I would have preferred the proposed Delaware amendments to have made clear that the PBC’s top priority is its specific public benefit purpose, I think requiring PBCs to identify a specific public benefit purpose is a move in the right direction and likely to aid directors in decision making.

In my third and final post, on Delaware’s proposed amendments involving the PBC, I will talk about the social enterprise statutes and branding.

Permalink | Corporate Governance| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

April 23, 2013
Delaware Public Benefit Corporations: Private Ordering
Posted by Haskell Murray

Cross-posted at SocEntLaw.

This is the first of three posts analyzing the proposed Delaware Public Benefit Corporation (“PBC”) amendments.  The posts will compare the proposed PBC amendments to the Model Benefit Corporation Legislation (the “Model”). 

In a few key areas, the PBC allows more private ordering that the Model.  Perhaps the most striking difference is that the PBC does not require a third party standard for measuring public benefit (a cornerstone requirement of the Model) unless the requirement is included in the PBC’s certificate of incorporation or bylaws (§366(c)).  In some ways, Delaware’s approach in the benefit corporation debate reminds me of how it handled the proxy access debate:  expressly allow, but leave most of the details to the individual corporations.

That said, the PBC is not as flexible as the Flexible Purpose Corporation (“FPC”) (California) or the Social Purpose Corporation (“SPC”) (Washington); the PBC requires that the PBC be operated in a “responsible and sustainable manner” (§362(a)).  That broad general statement in the proposed PBC amendments, which is not present in the FPC or SPC statutes, seems to be one of the main reasons B Lab, the primary force behind the benefit corporation movement, has expressed public support for the PBC.  Whether B Lab is completely supportive of the PBC and all its deviations from the Model is not entirely clear.

Below, I compare and contrast some of the key provisions of the Delaware’s PBC and the Model.

  • Benefit Director.  PBC – not mentioned.  Model – required for public companies. (§302(a)).
  • Benefit Officer.  PBC – not mentioned.  Model – optional (§304(a)).
  • Benefit Report (Preparing).  PBC – no less than biennially (§366(b) & (c)).  Model – annually (§401(c)).
  • Benefit Report (Public Posting).  PBC - optional (§366(c)).   Model - required to post benefit report on company website; if no website must provide the benefit report for free to anyone who asks for a copy (§402).
  • Identification of Specific Public Benefit Purpose(s).  PBC – required (§362(a)).  Model – optional (§201(b)).
  • Minimum Ownership for Shareholder Standing in Derivative Lawsuits.  PBC – 2%; or if the PBC is publicly traded then the lesser of 2% and $2 million in market value (§367).  Model – 2% (§305(b)(2)(i)).
  • Third Party Standard.  PBC – optional (§366(c)).  Model – mandatory (§§102 & 402).
  • Third Party Certification.  PBC – optional (§366(c)).  Model – optional (§401(c)). 

The only area above where the PBC is less flexible than the Model is in requiring the identification of specific public benefit purpose(s), which will be discussed in the next post on director guidance.

Permalink | Corporate Governance| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

April 18, 2013
Public Benefit Corporations and SocEntLaw
Posted by Haskell Murray

Thanks to Usha for asking me to guest blog about the proposed Public Benefit Corporation amendments to Delaware’s General Corporation Law.  This summer one of my planned projects is writing an article tentatively entitled Governing Public Benefit Corporations, and I will be floating some of my early ideas here.  Comments will be appreciated.

On March 20, I mentioned the proposed Delaware Public Benefit Corporation (“PBC”) amendments on the Social Enterprise Law Blog (“SocEntLaw”)* shortly after I received word from Professor Brian Quinn and some of my friends in Delaware.  Last week, both Usha and Stephen Bainbridge added thoughtful posts about the PBC.

For this guest blogging stint, I plan on authoring three additional posts, starting next week.  Each post will compare and contrast the proposed PBC amendments with the model benefit corporation legislationThe twelve states that currently have benefit corporation statutes follow the structure and main provisions of the model legislation without too much variation.  (The variations can be seen in my chart that Usha mentioned).  Delaware, however, cuts its own path.  In the three posts, I will focus on private ordering, director guidance, and brand strength.

* I will cross-post my guest posts on the Conglomerate at my permanent blogging home over at SocEntLaw.  Last year, Cass Brewer (Georgia State), Deborah Burand (Michigan), Alicia Plerhoples (Georgetown), Dana Brakman Reiser (Brooklyn), a handful of practicing attorneys, and I (Regent) joined social enterprise lawyer Kyle Westaway (who is a Regent Law alum and a Lecturer on Law at Harvard Law School) at his blog.  We welcome any and all readers. 

Permalink | Corporate Governance| Delaware| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

April 11, 2013
Public Benefit Corporation Amendment to DGCL
Posted by Usha Rodrigues

From the Harvard Law School Forum on Corporate Governance and Financial Regulation, via Allen M. Terrell, Jr. of Richards, Layton & Finger, comes a summary of proposed amendments to the Delaware General Corporation Law. I had heard about the elimination of the vote in second-step mergers, but the public benefit corporation was news to me.

It sounds a lot like the benefit corporation legislation that's been spreading across the country (see this chart by Haskell Murray.  At first blush I was surprised to see Delaware contemplating this kind of social enterprise legislation, since it's not really a stakeholders' rights kinda state.  But on further reflection I guess a "let a thousand flowers bloom" attitude makes sense for Delaware's let-the-market-decide, opt-in attitude.  Here's the description:

In general, under the proposed legislation, a public benefit corporation would be a corporation managed in a manner that balances the stockholders’ pecuniary interests, the interests of those materially affected by the corporation’s conduct, and one or more public benefits identified in its certificate of incorporation. To this last point, each public benefit corporation would be required, in its certificate of incorporation, to identify itself as a public benefit corporation and to state the public benefits it intends to promote. The proposed legislation generally defines “public benefits” as positive effects (or minimization of negative effects) on persons, entities, communities or interests, including those of an artistic, charitable, cultural, economic, educational, literary, medical, religious, scientific or technological nature.

Central to the proposed new subchapter’s operation is the statutory mandate that would be imposed on directors. The new subchapter would provide that directors, in managing the business and affairs of the public benefit corporation, shall balance the pecuniary interests of the stockholders, the interests of those materially affected by the corporation’s conduct, and the identified public benefits. The new subchapter also would provide that directors shall not have any duty to any person solely on account of any interest in the public benefit and would provide that, where directors perform the balancing of interests described above, they will be deemed to have satisfied their fiduciary duties to stockholders and the corporation if their decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve.

The new subchapter would impose special notice requirements on public benefit corporations, mandating periodic statements to stockholders regarding the corporation’s promotion and attainment of its public benefits. The new subchapter also would provide a means of enforcing the promotion of the public benefits. By statute, stockholders holding at least 2% of the corporation’s outstanding shares (or, in the case of listed companies, the lesser 2% of the outstanding shares or shares having at least $2 million in market value) would be able to maintain a derivative lawsuit to enforce specified requirements in the subchapter.

Update: Steve Bainbridge makes a good point: Delaware is moving to protect its market share.

Permalink | Business Organizations| Delaware| Social Entrepreneurship | Comments (0) | TrackBack (0) | Bookmark

November 16, 2012
Family Christian Bookstores -- Private Equity, Mission Drift and the Religious Corporation
Posted by Christine Hurt

A couple of years ago, I was fascinated to learn the behind-the-scenes story of Veggie Tales, as recounted in Me, Myself & Bob by Phil Fischer.  Fischer started Veggie Tales with funds from friends and family, then eventually took on funding partners, creditors and a leadership team that pushed Veggie Tales away from its original Christian-based mission to one that became more secular but no more financially stable.  Vischer eventually lost Veggie Tales in bankruptcy court, when it was purchased by a secular bidder.  In my microfinance class, we talk a lot about the differences in for-profits and nonprofits, if there is any, and mission drift.  I received an email today from Family Christian Stores, the world's largest Christian retailer, that seemed to suggest that management at FCS was fighting against mission drift, at least from now.

FCS' press release is here.  FCS is a privately owned (private equity-backed) company that has stores nationwide that sell Christian bibles, books, decorations, jewelry, DVDs and music (including Veggie Tales).  Now, FCS' management and three outside purchasers have joined together to buy back FCS from its private equity owners.  In doing so, the new owners have pledged to recommit to their mission and give 100% of the profits to charity (instead of the 10% it was earlier).  From a law professor's perspective, however, I'm interested to know whether (and why) it is maintaining its for-profit status.  At first glance, it seems like being a nonprofit would serve the same purpose as giving away all profits.  The nonprofit could either funnel surplus to charitable uses or reduce the cost of its religious wares (which would probably be tricky with vendors).  Here, the charitable purpose is outsourced to a number of external ministries.

This article from Christianity Today links to earlier articles chronicling the mission drift of Christian bookstores and FCS in particular.  This link is to an article debunking FCS's rationalization of its move to open on Sundays (presenting religious reading material as necessary in spiritual crises that may arise any day of the week).

Permalink | Social Entrepreneurship| Social Responsibility | TrackBack (0) | Bookmark

October 23, 2012
Chilecon Valley: a Startup Community Ferments in Chile
Posted by Erik Gerding

The latest edition of The Economist has a fascinating article on “Chilecon Valley” that discusses the emergence of a startup community in Chile. The article focuses on a unique program of Startup Chile (a new Chilean governmental body) that gives grants to entrepreneurs in the United States and elsewhere to move to Chile for several months as they work on building their company and developing their technology. The grant recipients are then expected to network with, speak to, and mentor Chilean entrepreneurs.

The article touches on how law can foster or hinder the growth of a startup community, including by liberalizing immigration laws and allowing failed ventures to get a fresh start in bankruptcy.

Chile is making considerable efforts to diversify its economy beyond extractive industries like mining and agriculture. My spouse is co-organizing a fantastic three-day conference in Santiago from November 28 to December 1st that will focus on social entrepreneurship, sustainability, and innovation. The conference includes a fantastic line-up of speakers, including a keynote address by Al Gore, a pitch competition for social entrepreneurship startup companies, and some awesome music, including Devendra Banhart and Denver’s own Devotchka. Several panels will analyze the contribution of law to developing a entrepreneurial ecosystem in Chile.

You can check out my wife’s newly launched blog and website on the Chilean startup community here.

Permalink | Conferences| Economic Development| Entrepreneurs| Entrepreneurship| Family| Globalization/Trade| Innovation| Investing| Social Entrepreneurship| Venture Capital | Comments (0) | TrackBack (0) | Bookmark

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.

Permalink | Social Entrepreneurship| Social Responsibility | Comments (0) | TrackBack (0) | Bookmark

Bloggers
Papers
Posts
Recent Comments
Popular Threads
Search The Glom
The Glom on Twitter
Archives by Topic
Archives by Date
July 2014
Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31    
Miscellaneous Links