December 8, 2017
This is the fifth (and final) in a series of client advisories to commemorate the 5th anniversary of the MA benefit corporation statute
Reading for the Greater Good: Two New Engaging and Informative Books on Social Venture
This fall saw the release of two notable books that discuss social enterprise in meaningful measure: Benefit Corporation Law and Governance: Pursuing Profit with Purpose by Frederick H. Alexander and Social Enterprise Law: Trust, Public Benefit, and Capital Markets by Dana Brakman Reiser and Steven A Dean.
These two books, written by experts in the field of corporate law and governance, collectively offer an in-depth overview of social venture as it is evolving within the corporate landscape.
Benefit Corporation Law and Governance: Pursuing Profit with Purpose
Rick Alexander, the author of Benefit Corporation Law and Governance, is the head of legal policy at B Lab, the nonprofit that certifies “B Corps” and that has been a driving force behind the adoption of the Model Benefit Corporation Act (MBCA). (The MBCA has been the model followed by a majority of states, including Massachusetts. See this client advisory for more details.) He was a corporate partner at a prominent Delaware law firm for many years, chaired the bar committee that recommends changes to the Delaware General Corporate Law (DGCL), and helped to draft the public benefit corporation (PBC) statute in Delaware. (A summary of the Delaware statute can be found here and a comparison between the Massachusetts statute and the Delaware public benefit corporation law can be found here.)
His book is an excellent primer for anyone interested in knowing more about the context out of which benefit corporations developed (at B Lab as well as in Delaware), the limitations of the “shareholder primacy” model of corporate governance, the pros and cons of the MBCA and the Delaware public benefit corporation statute, and the value of establishing a governance model that addresses the needs of a spectrum of stakeholders from a long-term perspective.
Benefit Corporation Law and Governance asks the question at the beginning of Chapter One: “Should the purpose of corporations encompass obligations to protect the systems that serve all of their stakeholders?” The discussion that follows through the ensuing chapters answers that question in the affirmative and makes the case that the corporate citizen model embodied in a form of corporate governance that considers all stakeholders – and not just shareholder primacy – is better suited to increase and create value for shareholders as well as other stakeholders.
In an increasingly relationship-driven world – accelerated by the rise and spread of social media – businesses would do well to consider how they can build meaningful relationships with stakeholders – including customers, employees and the community. In Benefit Corporation Law and Governance, Alexander makes a strong case that the benefit corporation model establishes a sustainable framework for establishing such relationships while freeing corporate culture from a monolithic (and often dysfunctional) focus on shareholder primacy.
Social Enterprise Law: Trust, Public Benefit, and Capital Markets
Dana Brakman Reiser and Steven A. Dean write from a depth of experience regarding corporate law in general and social enterprise in particular. Brakman Reiser has been teaching and writing about social enterprise and nonprofit law since joining the faculty at Brooklyn Law school in 2001. Dean practiced transactional law at two global law firms for many years before transitioning to academia. Together, they provide a thoughtful albeit decidedly critical overview of current forms of social enterprise and propose novel approaches for social ventures to gain access to and acceptance within the capital markets.
In particular, Social Enterprise Law makes the case that the law can be an effective tool for collapsing “the traditional barrier between for-profit and nonprofit.” The book includes a discussion of the ways in which unconventional but practical legal tools are able to connect capital with ideas. Brakman Reiser and Dean express skepticism that what they term “first-generation hybrid forms” (including benefit corporations) will be able successfully to navigate the divide between seeking a profit and pursuing a social mission. They assert that “for-profit corporate law will not generate sufficient trust between social entrepreneurs and their potential investors to make capital flow.”
Instead, Brakman Reiser and Dean propose that a “mission-protected hybrid” (MPH), which prioritizes the pursuit of social good above profit-making, could emerge as a type of “second generation” hybrid entity and bridge that trust gap. In addition, the authors assert that sustainable access to capital for social enterprises may be more effectively achieved by such MPHs through creative approaches to accessing the capital markets.
The premise that first-generation hybrids will have trouble gaining access to the capital markets is somewhat undermined by the successful fundraising track record of several benefit corporations cited by Alexander in Benefit Corporation Law and Governance. For example, Alexander notes that Laureate Education raised $490 million in early 2017 through the first initial public offering of a Delaware public benefit corporation. Brakman Reiser and Dean mention Laureate Education’s IPO as well, yet still express skepticism. However, Social Enterprise Law‘s thoughtful and nuanced exploration of the various means by which capital may be accessed is of value to any social entrepreneur who wants to seek funding to amplify the impact of his or her social venture.
If you would like more information regarding benefit corporations, please contact Sharon C. Lincoln or your Casner & Edwards lawyer.