Finding the Benefit in a New Administration: A Uniform B Corporation Legislation.

Date01 January 2018
AuthorAsmus, Kayleen
  1. INTRODUCTION: B CORPORATION LEGISLATION GOING FORWARD II. BACKGROUND: DEVELOPMENT OF B CORPORATIONS A. The Birth of B Lab B. B Lab Develops Model Legislation 1. Creation and Purpose 2. Accountability 3. Transparency 4. Adoption of the Model Legislation C. Alternative Legislation: Delaware Model 1. Creation and Purpose 2. Accountability 3. Transparency D. Hybrid Legislation: Colorado Model 1. Creation and Purpose 2. Accountability 3. Transparency E. The Legislation Being Adopted Today III. ANALYSIS: CURRENT SHAREHOLDER-CORPORATION RELATIONSHIPS IN NEED OF A Hybrid Legislation A. The Corporation-Shareholder Relationship 1. Interests of Millennial Investors 2. Business Judgement 3. Shared Interest in Transparent Reporting IV. RECOMMENDATION: A UNIFORM B CORPORATION LAW A. Creation and Purpose B. Accountability C. Transparency V. CONCLUSION: ADOPTING A UNIFORM B CORPORATION LAW I. INTRODUCTION: B CORPORATION LEGISLATION GOING FORWARD

    The benefit corporation form is likely to become an increasingly important entity choice as the Trump administration continues to roll back regulations on companies. (1) As the Federal Government takes its hands off of businesses, intending to eliminate inhospitable restrictions, corporations will have greater freedom than they have had since the Reagan administration. (2) While "many business groups are thrilled" with this newfound flexibility, corporations with social-minded goals may be wary of how this freedom could jeopardize their ability to safeguard social interests, which were previously protected by federal regulations, if the companies simply continue to operate under the traditional corporate form. (3)

    In light of the potential desirability of an entity form that allows companies to re-impose standards that serve social interests, this Note addresses the different options states have if they do not already have benefit corporation legislation and they choose to adopt their own laws: the Model statute, the Colorado statute, and the Delaware statute. This Note is intended to compare and contrast the current legislation governing B corporations. It begins with an exploration of the development of B corporations from their beginnings with B Lab's Model statute, to Delaware's version of the legislation, and finally Colorado's hybrid law. Part II will address the current shareholder and corporation relationship and address how this current interaction is reflected in the various legislation. This Note will then conclude that a uniform statute modeled after the hybrid laws should be available for states that have not yet adopted B corporation laws in order to create the best communication between shareholders and corporations and ultimately provide a medium for both liberal and conservative entrepreneurs to safeguard social goals without direct government regulation.


    Despite the dicta in Dodge v. Ford Motor Co., which misleadingly implies that for-profit corporations are meant to be aimed at "maximizing the financial returns to shareholders," businesses may actually be created for any legal purpose. (4) Within this legal framework, businesses are free to take on any social and environmental responsibilities they can shoulder as long these additional responsibilities do not create a conflict between shareholders and directors. (5) The director of a company must prioritize the business's fiduciary duties to its stockholders before considering any alternative goals. (6)

    In 1983, "constituency statutes" were created to combat the inflexible fiduciary duties of directors to their shareholders to "defend against a hostile takeover" of directors by a new wave of shareholders. (7) The purpose of these statues was to give directors a degree of discretion regarding what interests they wanted to prioritize. (8) Constituency statutes anticipated the need for statutory frameworks that would protect interests inconsistent with shareholder desires. (9)

    A well-publicized example where director fiduciary duties trumped social goals of a corporation is the Ben & Jerry's conflict in 2000. (10) Ben & Jerry's, an ice cream making company, partnered with Greyston, a socially-conscious bakery in Yonkers, New York, that hired "without respect to [its employees'] work histories." (11) Because of its hiring policy, Greyston gave jobs to people from "tough backgrounds--homelessness, poverty or worse" and put a portion of its profits towards "eradicating] poverty in southwest Yonkers." (12)

    In 2000, investors led by Ben & Jerry's founders, Ben Cohen and Jerry Greenfield, wanted to buy Ben & Jerry's and run the company so that it could maintain relationships with businesses like Greyston. (13) The investors were beat out by a higher offer from another company. (14) The directors of Ben & Jerry's were forced to sell the company to a buyer who did not intend to keep up associations with civic-minded companies because shareholders wanted the highest paying deal. (15) As a result, the social-minded goals of Ben & Jerry's had to be put aside in favor of the aims of profit-minded shareholders. (16)

    It is not only entrepreneurs, like Ben & Jerry's, that have become dissatisfied with the focus on profit-maximizing to the exclusion of social interests. (17) Consumers and investors have also taken issue with corporations having to put finances first. (18) Social and environmental concerns are on the minds of "[approximately 68 million U.S. consumers" who are conscientious of the interests the corporations they purchase from serve. (19) On the other hand, consumers are also wary of "greenwashing," the marketing scheme that uses conscientious language and advertisements without the promised payout to environmental and social interests that they promise. (20) Consumers, therefore, have started to demand businesses that not only serve social purposes but are also strictly held to serving those purposes. (21)

    Investors are similarly aligning themselves with socially-minded businesses. (22) Some investors, for example, avoid companies that produce environmentally unsafe products while rewarding businesses who sell a greener product. (23) Like the issue consumers face when attempting to select social-minded businesses to purchase from, investors have to distinguish companies who claim to protect social interests from those that are actually socially responsible. (23) It is important to entrepreneurs, consumers, and investors alike that businesses have the opportunity to prioritize social goals and be held accountable for serving those interests. (25)

    1. The Birth of B Lab

      "Benefit," "B corporations," or "Public Benefit corporations" were created as a way to meet the demands of socially conscientious consumers, investors, and, particularly, entrepreneurs. (26) B corporations are a product of B lab, a nonprofit company created in 2006 and aimed at organizing businesses to profit social and environmental interests. (27) Two of B Lab's co-founders, Jay Coen Gilbert and Bart Houlahan, worked as co-founder and president for And1, a basketball shoe retail company, before teaming up with Wall Street investor Andrew Kassoy to create B lab. (28) And1 was created as a socially responsible business to benefit its employees and the community. (29) Inside the office, employees were given extensive benefits and liberal parental leave (as well the use of an in-office basketball court). (30) In the community, And1 provided five percent of its profits to developing urban education and leadership programs. (31)

      By 2001, And1 was the second-most successful shoe brand in the United States behind Nike. (32) Despite the company's success, a shift in the industry pressured Gilbert and Houlahan to sell. (33) After the sale, the duo watched the community and employee-centric purposes of their company disappear. (34) What came next for Gilbert, Houlahan, and Kassoy, was B lab. (35) The goal after Andl was to do "the most good for as many people for as long as possible." (36) With this purpose in mind, the co-founders ruled out creating a single social enterprise, and even starting up an investment fund to build multiple social enterprises, as too small-scale. (37) Instead, they decided to build a legal framework that would safeguard the purposes of social enterprises. (38) B corporations emerged as the legal structure through which businesses wanting to positively impact society and the environment could operate. (39) The specific purpose of providing a "general public benefit," distinguishes B corporations from the more ambiguous, and consequently less successful, constituency statutes that were available in the 1980s. (40)

    2. B Lab Develops Model Legislation

      B Lab and Bill Clark, an attorney at Drinker Biddle & Reath, drafted the model legislation for B corporations. (41) The Model Legislation governs only B corporations and does not affect other types of businesses. (42) The organization of B corporations under the proposed statute "offers entrepreneurs and investors the option to build, and invest in, a business that operates with a corporate purpose broader than maximizing shareholder value." (43) The Model Legislation proposes a company's preliminary provisions, describes the purpose of B corporations, and provides measures for accountability and transparency. (44)

      1. Creation and Purpose

        The first subchapter of the Model Legislation establishes the incorporation and termination processes for B corporations. (45) A business must make clear that the corporation is a benefit corporation by stating so in the articles of incorporation (46) or by amending existing articles of incorporation to include the benefit corporation requirements. (47) When transitioning from a general corporation to a benefit corporation, the amendment to the articles of incorporation "must be adopted by at least the minimum status vote."(48) As defined in Section 102, the "minimum status vote" requires a two-thirds...

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