Committing to Doing Good and Doing Well: Fiduciary Duty in Benefit Corporations

Abstract

Can someone running a business do good while doing well? Can they benefit society and the environment while still making money? Supporters of social enterprises believe the answer is yes, as these companies aim at making money for shareholders, while also pursuing other social benefits. Since 2010, states have begun to enact statutes creating the "benefit corporation" as a new legal form, one designed to fit social enterprises. Benefit corporations proclaim to the world that they will pursue both social good and profits, and those who run them have a fiduciary duty to consider a broad range of social interests as they make their decisions, rather than a duty to focus solely on increasing shareholder value. Does this novel fiduciary duty effectively commit these businesses to doing good? How will courts actually apply this duty in practice? Will this new duty accomplish its goals without unduly high costs? This article is among the first to analyze in detail the fiduciary duty provisions in several versions of these new benefit corporation statutes. It compares duties in benefit corporations to duties in traditional corporations in the leading categories of fiduciary duty cases. It argues that there is likely to be a modest "flattening" in the risk of liability for directors and officers of benefit corporations. That is, as compared to the level of risk in ordinary corporations, the risk of being held personally liable will be greater for decisions where that risk is smaller in ordinary corporations, while the risk of liability will be smaller for decisions where that risk is greatest in ordinary corporations.

Critical Success Factors in Implementing Enterprise Resource Planning Systems for Sustainable Corporations

“…The business model of social enterprises seems to have many benefits for society. However, unfavorable factors may arise, such as higher administrative and legal costs and greater litigation risk because of the high legal uncertainty [63,64]. Thus, they have been legislated in the United Kingdom (UK) and United States (US) and delivered concrete results [65].…”

Stakeholder-Oriented Firms Have Feelings and Moral Standing Too

“…Southwest Airlines and Ryanair have been used to exemplify stakeholder vs. profit elements before ( Bridoux and Stoelhorst, 2014 ). Patagonia, as a benefit corporation, has a “duty to consider and pursue the interests of a variety of stakeholders” ( Mcdonnell, 2014 , p. 22), making it a real-life example of a firm featuring stakeholder elements ( Murray, 2012 ). Inditex is well-known for its short-term production ( Zott and Amit, 2010 ) and arms-length transactions ( Sancha et al, 2016 ), making it a real-life example of a firm featuring profit elements.…”

The Public Benefit of Benefit Corporations

“…Critics debate not only whether benefit corporations are necessary to protect the social purpose mission of for-profits (Chu 2012; Cohn and Ames 2014; Murray 2012; Neubauer 2016) but also whether current legislation is sufficient to compel companies to continue to meet their public benefit goals and prevent “greenwashing.” 11 Proponents (e.g., McDonnell 2014; Stecker 2016) argue that benefit corporation legislation has achieved the “Goldilocks” balance by providing sufficiently stringent requirements to prevent greenwashing without unduly constricting the ability of directors and officers to act in the company’s overall best interests.…”