The Benefit Corporation: Corporate Governance and the For‐profit Social Entrepreneur

• DOI: http://doi.org/10.1111/basr.12044
• Date: 01 December 2014
• Published date: 01 December 2014
• Author: Thomas A. Hemphill,Francine Cullari

The Benefit Corporation:

Corporate Governance and the

For-profit Social Entrepreneur

THOMAS A. HEMPHILL AND FRANCINE CULLARI

ABSTRACT

The adoption by 19 states and the District of Columbia of

a new variant of the business corporation form—known

as the benefit corporation—presents several issues for

legislatures, for entrepreneurs electing to organize as

benefit corporations, for existing corporations that are

converting to the new form, and for the stakeholders

(other than shareholders) who are intended to be con-

sidered in benefit corporation governance. The article

presents the history and structure of the new business

form and a discussion of what has become its

predecessor—the constituency statute. The model benefit

corporation statute provisions are reviewed, which many

states have adopted in toto. The authors address the

obstacles that should be overcome by legislatures,

businesses, and stakeholders before further legislative

Thomas A. Hemphill is an Associate Professor of Strategy, Innovation and Public Policy at the

School of Management, University of Michigan-Flint, Flint, MI. He received his PhD in

Business Administration with a primary field in Strategic Management and Public Policy and

secondary field in Technology and Innovation Policy from The George Washington University’s

School of Business. E-mail: thomashe@umflint.edu. Francine Cullari is an Adjunct Professor

of Business Law, Labor and Employment Law and International Business Law at the School

of Management, University of Michigan-Flint, Flint, MI. She operates a private law practice in

business, real estate, and estate planning law. She received her MBA from the University of

Michigan-Flint and her JD degree from Michigan State University College of Law. She received

the 2003 George M. Bashara Distinguished Alumni Award from the law school. E-mail:

fcullari@umflint.edu.

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adoptions occur, as well as considerations for effective

implementation by government, corporations, and stake-

holders under existing and proposed variations of the

statute.

Over the last few years, a new variant of the traditional

legal form of the American public corporation has been

enacted in the legislatures of America’s state capitals.

This new legal entity is referred to as “benefit corporation.” Advo-

cates of the benefit corporate form argue that it offers a legal

alternative to the traditional public corporation structure, which

is not designed to address the needs of those entrepreneurs

whose social benefit purpose is central to, or at least part of, the

entity’s existence. There are three major provisions common in

benefit corporation statutes addressing corporate purpose,

accountability, and transparency (all critical components of cor-

porate governance): (1) a corporate purpose to create a material-

positive impact on society and the environment; (2) expanded

fiduciary duties of directors that require consideration of nonfi-

nancial interests; and (3) an obligation for the corporation to

report on its overall social and environmental performance as

assessed against a comprehensive, credible, independent, and

transparent third-party standard.1A state’s benefit corporation

statute is located within existing for-profit corporation law, so

that existing state corporation law applies to the benefit corpora-

tion with the exception of those explicit provisions that are unique

to the benefit corporation.

A primary motivation behind the enactment of state legislation

creating benefit corporations is the recent phenomenon of for-

profit social entrepreneurs. While the precise definition of who

qualifies as a “for-profit social entrepreneur” is still evolving,

Forbes magazine, whose editors assembled its first “Impact 30: A

List of the World’s Leading Social Entrepreneurs” in 2011, offers a

succinct definition of a for-profit social entrepreneur “as a person

who uses business to solve social issues.”2Universities have

increasingly embraced the concept of social entrepreneurship, as

the business schools at Columbia University, Duke University,

Northwestern University, Oxford University, University of

520 BUSINESS AND SOCIETY REVIEW