Wednesday, August 7, 2019

Benefit Corporations at the SEALS Conference

Benefit Corporations at the SEALS Conference

Last Thursday I participated in a panel discussion at the SEALS (Southeastern Association of Law Schools) Conference in a multi-hour discussion of benefit corporations and other social enterprise structures. Kudos to Joan Heminway for pulling together such an outstanding panel (well, except for me) including Kenya Smith, Benjamin Means, Carol Liao, Cass Brewer, John Tyler and Joshua Fershee (who is recently transitioned from University of West Virginia to the position of Dean at Creighton University).

Themes that were raised include:

·         why there are so few benefit corporations both nationwide and in Delaware if the benefit corporation (and its perceived loosening of fiduciary duty standards with effect to the expenditure of company assets for application to social enterprise purposes) is the wave of the future;

·         questions as to whether those organizing benefit corporations have taken into account the additional costs that will be imposed, both in board consideration of various questions and the impact of any answer upon other constituencies such as the workforce, the environment and the community at large, as well the transaction costs imposed by the “requirement” to prepare a public benefit report;

·         the problem of the state permitting a particular business venture, by electing benefit corporation status and entirely without any level of scrutiny, to signal “virtue” by means of a state imprimatur;

·         the problem of signaling a virtue for those electing into benefit corporations status implying that other business ventures are not engaged in “virtuous” activity;

·         the due diligence burden imposed upon any potential consumer who may desire to patronize companies that are “doing good” beyond relying upon the “benefit corporation” label;

·         the problem of reliance upon third-party certification companies such as B Lab and the implicit adoption of their definition of virtue, even as significant portions of the economy (such as extractive industries) are ipso facto denied the possibility of certification.

With respect to the rate of adoption, it may be that we are thinking incorrectly. There is no point in looking at the number of LLCs organized in Kentucky in 1993 because we did not have an LLC statute until 1994. As such, comparing the number of benefit corporations to the total number of extant corporations it is an invalid measure, and we need to put on blinders to address how many benefit corporations have been organized since the effective date of the statute in each respective state. Still, even with that limited scope, it seems that the benefit corporation is barely a blip in the organizational universe.

With respect to the increased cost of both board review of decisions vis-a-vis the discharge of the public benefit purpose and the preparation of the report, the general impression seemed to be that the determination and explanation of those increased costs is likely seldom taking place at the organizational stage—or in public forums at which the benefit corporation form is discussed. With respect to public benefit reports, the anecdotal evidence is that they are seldom made available. Haskell Murray has written on this topic; HERE ARE A LINK, A LINK and yet ANOTHER LINK to several of his pieces on the topic.

In the conduct of the choice of entity calculus, the consensus was that absent a particular client raising the benefit corporation as a desired form, seldom will the benefit corporation even be raised as an option—no less suggested as a desirable choice.

The lack of understanding of the distinctions between benefit corporations and charitable corporations was highlighted as a significant education problem in both the bar and the public generally, especially since some states (an example being Tennessee; see Tennessee Code 48-68-104 – HERE IS A LINK to that statute) have nonprofit forms that are referred to as “public benefit corporations.”

There was highlighted as well the significant mis-matches that exist between the American benefit corporation and its form as imported into Canada and various countries in Europe.  B-Labs and other proponents of the benefit corporation format are lobbying foreign jurisdictions to adopt the benefit corporation.  Professors Carol Liao (University of British Columbia Law) and Nina Boeger (University of Bristol Law School) highlighted how these efforts fail to understand and accommodate existing legal regimens and create internal conflicts in both the law and the process of advising boards.
Clearly a great deal remains to be done.

The complete list of participants in the discussion were:

Moderator: Professor Joan Heminway, The University of Tennessee College of Law
Discussants: Professor Alina Ball, University of California Hastings College of the Law; Professor Tamara Belinfanti, New York Law School; Professor Nina Boeger, University of Bristol Law School (England); Professor Cass Brewer, Georgia State University College of Law; Dean Joshua Fershee, Creighton University School of Law; Professor Brian Krumm, The University of Tennessee College of Law; Professor Carol Liao, University of British Columbia, Allard School of Law (Canada); Professor Benjamin Means, University of South Carolina School of Law; Professor Alicia Plerhoples, Georgetown University Law Center; Professor Steven Ramirez, Loyola University Chicago School of Law; Professor Dana Brakman Reiser, Brooklyn Law School; Mr. Thomas Rutledge, Stoll Kennon Ogden; Professor Kenya Smith, St. Thomas University School of Law; Mr. John Tyler, Ewing Marion Kauffman Foundation; Professor Elaine Waterhouse Wilson, West Virginia University College of Law

No comments:

Post a Comment