Is It Only About Profits? The corporations-should-care-about-society movement reaches a crescendo with Elizabeth Warren's proposed bill.

• Author: Raymond, Doug
• Position: LEGAL BRIEF

There's a growing and important debate about corporate governance, particularly viewed against the backdrop of significant criticism of recent corporate action (or inaction) around social media issues, the #metoo movement and other current controversies.

Sitting at the center of this is Sen. Elizabeth Warren, who recently introduced legislation (the Accountable Capitalism Act) requiring any U.S. company that has more than $1 billion in annual revenue to obtain a newly created federal charter.

The charter would be in addition to its state constituent documents (e.g., articles and bylaws) and would mandate significant changes in corporate governance.

In many jurisdictions, including Delaware, the board's primary obligation is to manage the business of the corporation "in the best interests of the stockholders." However, some jurisdictions take a more expansive view of the board's obligations and are expressly permitted to consider factors other than shareholder value in discharging their fiduciary duties.

For example, in Pennsylvania the board instead must act in the "best interests of the corporation," and may (but does not need to) take into account all "pertinent factors," including the interests of shareholders, but also the interests of customers, employees, suppliers, creditors and the communities in which the corporation operates. Pennsylvania also emphasizes a principle that has been judicially recognized in many jurisdictions --that short-term interests are not necessarily more important than long-term interests. Importantly, the board does not need to treat the shareholders' interest as paramount.

These broader "constituency" statutes were originally adopted largely to assist boards in resisting hostile takeovers, but more recently have been cited to authorize a greater scope of corporate responsibility outside of the takeover context. An expanded version of this approach is reflected in the "benefit corporation," a relatively new form of business organization for which enabling legislation has been adopted in 34 states. (See related BCorp article on page 34.)

The benefit corporation concept reflects the perspective that businesses affect more than just their owners and have extensive impacts on other interests, including employees, customers, communities and the environment. These include environmental, social and political impacts that are not reflected in the costs typically recognized in running the business--for example, air or...