LAW AND SOCIAL ENTREPRENEURSHIP

Woulfe on Connecticut Benefit Corporation Law

James Woulfe, who was involved in the legislative process around Connecticut benefit corporations, and I have had a number of interesting conversations about social enterprise law over the past few years.  Recently, I asked James to share his thoughts on the new Connecticut benefit corporation law for the blog.  His contribution is below.

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After two previous tries, Connecticut recently became the 24th state in the Union to pass benefit corporation legislation. While some may argue that the fact it took Connecticut so long to pass the bill is a sign of problems with the legislature, our state’s business climate, etc., coming a little late to the game was actually an asset. Waiting to pass the legislation gave lawmakers an opportunity to take a look at national and international trends in social enterprise legal structures, and experiment. As a result, Connecticut tweaked the “model” benefit corporation legislation passed in other states, and included an innovative first in the nation clause in Connecticut’s statute, called a “legacy preservation provision.”

Connecticut’s legacy preservation provision gives social entrepreneurs the opportunity to preserve their company’s status as a benefit corporation in perpetuity, despite changes in company leadership or ownership. In other words, the (optional) provision locks in the company’s social or environmental mission as a fundamental part of its legal operating structure. The provision may be adopted following a waiting period of two years and unanimous approval from all shareholders, regardless of their voting rights. Once the provision is adopted, it requires the company, if liquidated, to distribute all assets after the settling of debts to one or more benefit corporations or 501(c)3 organizations with similar social missions.

To learn more about Connecticut’s benefit corporation statute, and to take a look at the specific language of the legacy preservation provision, you can visit CTBenefitCorp.com.

About the Author:

James Woulfe is the Public Policy and Impact Investing Specialist at reSET – Social Enterprise Trust, a Hartford, Connecticut-based 501(c)3 non-profit organization whose mission is to promote, preserve and protect social enterprise as a viable concept and a business reality. You can contact James at Jwoulfe@socialenterprisetrust.org.

Cross-Posted at Business Law Prof Blog.

NUMBER OF PBCS AND BENEFIT CORPORATIONS

87 PBCs formed in Delaware.  California leads with 139 benefit corps.

More information available here.

YOCKEY ON PLAYING FAIR AND SOCIAL ENTERPRISE

Joseph Yockey (Iowa) is blogging on social enterprise law on the Conglomerate.

His first post is available here.

It is good to see more and more scholars enter the conversation around social enterprise law.

Professor Yockey’s recent article, Does Social Enterprise Law Matter?, is available on SSRN.

JOB POSTING: DIRECTOR, HARVARD BUSINESS SCHOOL, SOCIAL ENTERPRISE INITIATIVE

“Harvard Business School (HBS) is now accepting applicants for the role of Director, Social Enterprise Initiative. HBS pioneered the concept of “social enterprise” with the founding of its Social Enterprise Initiative in 1993. From the outset, SEI adopted a problem-focused approach toward understanding the management and leadership challenges facing organizations involved in creating social value regardless of whether their structure is as a nonprofit or for profit and regardless of where they operate on the spectrum from a grant-funded organization to a commercial enterprise. As the Initiative commemorates its 20th anniversary, it has established a significant role within the HBS community through the engagement of its key constituencies—faculty, students, alumni, and practitioners. For more information, visit: http://www.hbs.edu/socialenterprise.”

More information about the position here.

INNOVATION IN SOCIAL ENTERPRISE LAW │ WESTERN CAROLINA UNIVERSITY │ MARCH 3, 2014

More information here.

SOCIAL ENTERPRISE CONFERENCE AT UNIVERSITY OF ST. THOMAS │ 4/24/14 │ MINNEAPOLIS, MN

More information available at the Business Law Professor Blog.

SOCIALLY RESPONSIBLE PURCHASING?

Over at the Business Law Professor Blog, I have a post examining my purchasing habits, providing a few links to further reading on consumer behavior, and profiling a glorious picture of my well-loved Patagonia shoes.

PLERHOPLES ON “REPRESENTING SOCIAL ENTERPRISE”

Alicia Plerhoples is leading an innovative Social Enterprise and Nonprofit Clinic at Georgetown University Law Center.  She presented her “Representing Social Enterprise” article at AALS in 2013, and her article was recently published by the Clinical Law Review.  I recommend the article to all those interested in social enterprise and/or clinical education.  The article will be helpful to the academic, practitioner, and clinician (perhaps because Professor Plerhoples has experience in all three roles).   “Representing Social Enterprise” includes a deep discussion of the models of social enterprise, thoughtful analysis of the corporate governance issues that are likely to arise when representing social enterprises, and interesting insights into Georgetown’s clinic.

The abstract is reproduced below and the entire article can be found on SSRN here:

“This article explores the representation of social enterprises — i.e., nonprofit and for-profit organizations whose managers strategically and purposefully work to create social, environmental, and economic value or achieve a social good through business techniques — in the Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center. The choice to represent social enterprise clients facilitates a curriculum that explicitly focuses on the business models, governance tools, and legal mechanisms that these organizations use to accomplish sustainability and charitable objectives. By serving social enterprise clients, clinic students learn to solve novel and unstructured problems and engage in information sharing and knowledge creation essential to legal advocacy. Legal issues unique to social enterprises compel clinic students to question corporate law and its underlying normative values and employ transactional lawyering for public interest purposes.”

Cross-posted at Business Law Prof. Blog.

HHS MANDATE AND SOCIAL ENTERPRISE LEGAL FORMS

Here, Professor Bainbridge kindly asks for my thoughts on Keith Paul Bishop’s article Would Hobby Lobby Stores, Inc. Have A Stronger Case As A Flexible Purpose Corporation?

I agree with Bishop’s conclusion that the question is still open.  Both the Flexible Purpose Corporation (“FPC“) and the Benefit Corporation version of social enterprise legal forms are quite new and each became available in California as of January 1, 2012.  The FPC is only available in California (though Washington state’s social purpose corporation is similar in many respects) and the Benefit Corporation legislation has passed in 20 U.S. jurisdictions (19 states and Washington D.C.), starting with Maryland in 2010.  As the name suggests, the FPC allows managers more flexibility in choosing their particular corporate purpose(s), whereas most of the Benefit Corporation statutes require a “general public benefit purpose” to benefit “society and the environment” when “taken as a whole” but also allow additional “specific public benefit purpose(s).”  Delaware’s version of the benefit corporation law (called a “public benefit  corporation”) requires the choosing of one or more specific public benefit purposes.

Converting to an FPC or a Benefit Corporation, without more, likely would not be much help to companies fighting the HHS mandate.  The statutes are simply too broad, and I think courts would want more evidence regarding the corporation’s stance on the issue.  Obviously, people would disagree on whether a “socially focused”  corporation would oppose certain types of contraceptives.  And it seems that the majority (though certainly not all) of those in the social enterprise area lean left of the political center. But, if an FPC or Benefit Corporation made its particular social/religious purpose(s) clear in its articles of incorporation, including enough information to determine a stance against certain types of contraceptives, I think the entity’s argument could be strengthened.

In some states, like Oregon and Texas, relatively recent amendments to their state corporation statutes make clear that a social purpose can be included in the articles of incorporation of a traditional corporation.  In other states, whether such a social purpose would be acceptable in a traditional corporation is a debatable question, and thus social enterprise legal forms would clear the way toward including a social/religious purpose that would suggest (or clearly state) opposition to the mandate.

In short, the social enterprise forms, without customization, are likely insufficient, but use of a social enterprise form, with language in the articles of incorporation that suggest that the corporation would be opposed to the mandate, could strengthen the argument of those fighting the HHS mandate.  In some states, as mentioned above, a social enterprise form would likely be unnecessary, and a traditional corporation with customized language could be used.

I think the question posed by Keith Paul Bishop and Professor Bainbridge is an interesting one and would love to hear additional thoughts from others, especially any Constitutional Law scholars.

Cross-posted at Business Law Prof Blog.

FIRM COMMITMENT BY COLIN MAYER

After meeting Colin Mayer (Oxford) and hearing him present at Vanderbilt’s 2013 Law and Business Conference, I purchased and read his recent book, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in it.  The book is organized in three parts: (1) how the corporation is failing us; (2) why it is happening; (3) what we should do about it.  While the first two parts contain some helpful background and interesting case studies, I found the third part the most useful.  In the third part, Professor Mayer suggests:

“These three straightforward adaptations of current arrangements – establishing corporate values, permitting the creation of a board of trustees to act as their custodians, and allowing for time dependent shares – together solve the fundamental problems of breaches of trust in relation to current and future generations.” (pg. 247)

In discussing corporate values, Professor Mayer writes:

“Corporate social responsibility was rightly dismissed as empty rhetoric and jettisoned when recession forced a return to more traditional shareholder value.  Why should I trust an organization that is owned and controlled by anonymous, opportunistic, self-interested wealth seekers?  Without commitment, there is no reason why there should be any trust in the corporation, however much its fine promotional material suggests otherwise.  Values need value.  They need to be valuable to those upholding them and costly to those who do not.  They need to inflict pain on those who abuse them and gain on those who do not.” (pg. 244)

While Professor Mayer was writing about corporations generally, and not benefit corporations specifically, the same commitment concern is present with these new corporate forms (called benefit corporations or public benefit corporations) that claim to be focused on society and the environment.

As one possible solution to the commitment problem, Professor Mayer suggests time dependent shares.  Time dependent shares would provide greater voting power to shareholders who commit to hold shares for a longer period of time.  This feature, Professor Mayer argues, would focus the managers on long term value, which could benefit all stakeholders.  Professor Mayer does not favor requiring time dependent shares for all corporations, but suggests that time dependent shares might be useful for those firms that need or desire long-term investment and commitment.  I am still thinking through all the possible implications of time dependent shares, especially in the M&A context, but appreciate the effort to fight short-termism and focus management on longer term goals for the corporation.

Interested readers can find Firm Commitment through Oxford University Press.

Cross-Posted at Business Law Prof Blog.