A Skeptic's View of Benefit Corporations

• Publication year: 2014

A Skeptic's View of Benefit Corporations

Kent Greenfield

A SKEPTIC'S VIEW OF BENEFIT CORPORATIONS

Kent Greenfield^*

The harm that can flow from businesses pursuing profits above all else has become more obvious over the last few years. The global financial crisis, the Deep Horizon well disaster, and the factory collapse of Bangladesh all show the dangers of allowing businesses to focus on profit while ignoring externalities and potential risks.

We are in the midst of a historical moment in which some of the core ideas of business, and of the law that governs it, is being reconsidered. What are corporations for? Do they owe responsibilities to stakeholders other than shareholders? To society in general?

There is something of a bandwagon effect occurring now around the notion that a narrow focus in corporate boardrooms on shareholder interest and shareholder profit is not only bad for society as a whole but also bad for shareholders. An article in the Harvard Business Review last year proclaimed that "there's a growing body of evidence . . . that the companies that are most successful at maximizing shareholder value over time are those that aim toward goals other than maximizing shareholder value. Employees and customers often know more about and have more of a long-term commitment to a company than shareholders do."¹ Joe Nocera, a popular, non-business, essayist in The New York Times wrote that "it feels as if we are at the dawn of a new movement—one aimed at overturning the hegemony of shareholder value."²

This rethinking is most obvious around the issue of "benefit corporations," a new type of business classification increasingly popular around the country. Benefit corporations are for-profit corporations that are also required to create "a material, positive impact on society and the environment and to meet higher

[Page 18]

standards of accountability and transparency."³ At the time of this writing, eighteen states—including Massachusetts, Rhode Island, and Vermont—have adopted legislation allowing corporations to opt-in to the benefit corporation framework of obligations. Even Delaware, the most popular state for business incorporations, recently adopted a benefit corporation statute.

The supporters of benefit corporations argue that the framework will liberate businesses from the market demands of Wall Street and the legal demands of shareholder plaintiffs seeking to hold management accountable for decisions that fail to put shareholder interests first. They also say that companies choosing the status can brand themselves as green and...