May 07, 2012
Benefit Corporations: New Paradigm
Posted by Haskell Murray

In my last post I discussed the traditional corporate paradigm, which focuses on shareholder wealth maximization. Even with my caveats, I received some push-back. I encourage you to read the thoughtful comments (many arguing against the shareholder wealth maximization norm) and Professor Bainbridge’s impressive 7 responsive, detailed posts, linked to here (many defending the shareholder wealth maximization norm, at least as it applies to directors' duties).

While the distinguished commenters represented a wide range of views, they did appear to acknowledge the existence of a persistent belief that U.S. corporate law (primarily DE) directs for-profit directors to focus on shareholder wealth maximization. That persistent belief might be as powerful as any “reality.” (Bill Callison referred to it as the "conventional wisdom.")  Just ask your average corporate director to explain the end to which the law says his/her powers should be employed. I would bet a pretty penny that the vast majority will mention some form of the phrase “shareholder wealth maximization.”

Benefit corporation statutes are designed to break the persistent belief that directors should primarily focus on shareholder wealth maximization in their governance of corporations. 

Outside of breaking this persistent belief, I agree with my commenters that social enterprise statutes, including the benefit corporation statutes, may not be necessary. As Professor Manesh correctly noted in the comments, the Delaware LLC is flexible enough to meet many, if not all, of a social entrepreneurs’ needs. (See, e.g.Professor Cass Brewer's Using LLCs for Quasi-Charitable Endeavors (a/k/a "Social Enterprise")). In some states, with more flexible notions as to the beneficiaries of director fiduciary duties, the corporate form might also be an appropriate vehicle for social entrepreneurs.

The designers of the benefit corporation statutes leave the old corporate paradigm behind and make crystal clear the importance of non-shareholder stakeholders  The benefit corporation statutes mandate the consideration of various corporate stakeholders in directorial decisions. I will save addressing the question of whether the mandate is wise or realistic for another time.  Also, I leave open the possibility that there are more elegant solutions to the persistent belief problem than the current benefit corporation statutes. 

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