Socially-Conscious Corporations and Shareholder Profit

Citation data:

84 George Washington Law Review 121 (2016)

Publication Year:
2015
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SSRN
SSRN Id:
2586099
Author(s):
Kevin V. Tu
Tags:
benefit corporation; b corp; special purpose coropration; flexible purpose corporation; L3C; corporate law; corporate governance; shareholder profit; wealth maximization; profit maximization; social responsbility; social enterprise; sustainability; business associations; business entitites
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paper description
What is the proper role of the corporation in society? This question, in its many iterations, has inspired decades of debate. The normative question of whether corporations should be viewed as purely private enterprises with the singular objective of maximizing shareholder wealth or alternatively as possessing broader obligations to the public may never be settled. However, the legal question of the extent to which the traditional corporate form permits the pursuit of both shareholder profit and the pursuit of a social missions has taken on new found importance. In light of increased interest and demand for corporations that are also good citizens, the legal uncertainty about the existence of a duty to maximize profits is increasingly problematic for corporate managers and shareholders. The widespread addition of the Benefit Corporation as a new legal entity capable of facilitating dual objectives of profit and social missions only adds to the immediacy of the need to resolve this question. While Benefit Corporation statutes provide added certainty for those that elect to organize in that form, the broader impact on existing business entities may be significant. This Article evaluates several unintended consequences that may adversely impact the existing legal framework for traditional corporations, and concludes that the adoption of Benefit Corporation statutes without further efforts to clarify the fundamental question of the extent to which traditional corporations may pursue social missions will result in a more complex and inefficient environment for corporate decision-making.