Be good: the benefit corporation structure provides protection for boards to think and act beyond simply profit maximization.

• Author: Raymond, Doug
• Position: LEGAL BRIEF - Dodge v. Ford

THE CORPORATE FORM WAS originally developed, in part, to encourage risk taking and entrepreneurship by shielding investors from personal liability for losses incurred by their new ventures. However, beyond this, it has for almost 100 years been generally accepted that the primary purpose and role of corporations is to create shareholder value. For example, in Dodge v. Ford (1919), the court stated: "A business corpora tion is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end."

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Today, this view of the role of a corporation is engrained both in popular culture and corporate law. Although there has been some debate in recent years regarding conflicts between the interests of short-term holders (e.g. day traders) and long-term investors, the discussion is still framed around shareholders and profits.

While many corporations take on charitable or other socially conscious projects, corporate decisions are nonetheless framed in the context of maximization of shareholder value. For example, making a significant charitable donation is justified as creating good will among customers and other important constituencies. Directors and their advisors are generally wary of straying too far from wealth maximization principles.

In recent years, this narrow focus has been questioned by companies, investors and others. While the financial "bottom line" obviously is essential to the survival of any business, the focus on this as the principal driver for corporate activity, at least for some, does not accommodate the broadening view that business has a responsibility to people and to the environment, as well as to profits--a "triple bottom line." This reflects the desire of shareholders and other stakeholders to use the power of business to positively impact their communities and environment, in ways that the more traditional model has not had the flexibility to achieve.

In 2005, a nonprofit called B Lab proposed legislation to provide for a triple bottom line-focused business entity, known as a "benefit corporation." To date, the legislation has been adopted in seven states, including New York and California. This approach maintains most of the familiar characteristics of a traditional corporation, including the liability shield, while providing new flexibility and meaningful requirements with respect to purpose, accountability and transparency.

Unlike a...