Benefit Corporation Law and Governance: Pursuing Profit with Purpose.

• Author: Brownstein, Howard Brod
• Position: BOARDBOOK: Boardroom Reads

In his book, Benefit Corporation Law and Governance: Pursuing Profit with Purpose (Berrett-Koehler Publishers, 2018), Frederick H. Alexander has provided valuable insight into one of the most important developments in corporate law--the advent and development of the benefit corporation.

Benefit corporations create a legal commitment for board members to consider the interests of "stakeholders" beyond just shareholders and may provide a right to seek injunctive (but not monetary) relief for a failure to balance stakeholder interests or to disclose the broader impact of company actions, Benefit corporation status also may provide a "safe harbor" for boards if they accept a lower share value for the sake of such broader impacts, even in the context of a sale of the company.

Alexander is an appropriate guide to explain this new form of entity. A longtime prominent corporate attorney in Delaware, he was directly involved in formulating that state's benefit corporation statute, which has influenced the statutes in some of the 40 states and five countries that have adopted similar legislation. Seeing corporate law as an ideology that could change with the times rather than as a fixed set of rules, Alexander believes that the benefit corporation provides a potentially better model for businesses, especially as investors begin to recognize that their interests may not be best served by requiring each company in a portfolio to maximize its own return to shareholders. After 26 years of practicing law, he joined B-Lab, "a nonprofit organization that serves a global movement of people using business as a force for good," as its head of legal policy and subsequently founded The Shareholder Commons, a nonprofit "committed to change in the capital markets."

Board members are increasingly being called upon by their own shareholders, as well as other stakeholders, to look beyond "shareholder primacy," i.e., considering only the maximization of shareholder value, and they often struggle with how to navigate potential tradeoffs between financial return and accommodation of the broader objectives of investors. The implicit question faced is often, "If we consider purposes other than profit maximization, doesn't that imply reduced financial return?" as well as "How will we be judged as board members, including legally?"

It is noteworthy that the foreword to Alexander's book is written by Leo E. Strine, Jr., former chief justice of the Delaware Supreme Court, who...