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The Social Enterprise Revolution in Corporate Law: a Primer on Emerging Corporate Entities in Europe and the United States and the Case for the Benefit Corporation

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The Social Enterprise Revolution in Corporate Law: a Primer on Emerging Corporate Entities in Europe and the United States and the Case for the Benefit Corporation William & Mary Business Law Review Volume 4 (2013) Issue 2 Article 7 April 2013 The Social Enterprise Revolution in Corporate Law: A Primer on Emerging Corporate Entities in Europe and the United States and the Case for the Benefit Corporation Robert T. Esposito Follow this and additional works at: https://scholarship.law.wm.edu/wmblr Part of the Business Organizations Law Commons, and the International Law Commons Repository Citation Robert T. Esposito, The Social Enterprise Revolution in Corporate Law: A Primer on Emerging Corporate Entities in Europe and the United States and the Case for the Benefit Corporation, 4 Wm. & Mary Bus. L. Rev. 639 (2013), https://scholarship.law.wm.edu/wmblr/vol4/iss2/7 Copyright c 2013 by the authors. This article is brought to you by the William & Mary Law School Scholarship Repository. https://scholarship.law.wm.edu/wmblr THE SOCIAL ENTERPRISE REVOLUTION IN CORPORATE LAW: A PRIMER ON EMERGING CORPORATE ENTITIES IN EUROPE AND THE UNITED STATES AND THE CASE FOR THE BENEFIT CORPORATION ROBERT T. ESPOSITO ABSTRACT Remarkably, in the face of a global recession, the social enterprise sector continued to experience extraordinary growth in both financial support and the number of newly authorized corporate entities aimed at social entrepreneurs who seek to use the power of business to simultaneously achieve profit and social or environmental benefits. This Article highlights recent developments in the social enterprise movement in Europe and the United States and focuses on the emergence of a surprisingly broad range of newly authorized corporate entities on both continents in response to the needs of social entrepreneurs. These include social cooperatives and the community interest company in Europe, as well as the L3C, the flexible purpose corporation, the social purpose corporation, and the benefit corporation in the United States. In so doing, this Article emphasizes the truly international scope of the social enterprise movement and explains the growing divergence in approaches to social enterprise between continental Europe and the United States. This Article suggests that the benefit corporation, which imposes a new duty to consider stakeholder interests, is currently the most effective vehicle through which social entrepreneurs can ensure their blended value goals are being considered and achieved. This Article concludes by responding to critiques of profit-distribution in social enterprise, making the case for the benefit corporation, and suggesting some statutory and tax reforms to further foster the social enterprise revolution. * Dartmouth College, B.A., 2007; Wake Forest University School of Law, J.D., 2010; The George Washington University Law School, LL.M., 2012. The author thanks Theresa Gabaldon, Miriam Galston, Kyle Westaway, Benjamin Leff, J. Haskell Murray, Dana Brakman Resier, David Carter, William H. Clark, Jr., William J. Callison, and Bruce Campbell for their valuable insight and helpful comments on earlier drafts. 639 640 WILLIAM & MARY BUSINESS LAW REVIEW [Vol. 4:639 TABLE OF CONTENTS INTRODUCTION ........................................................................................ 642 I. A REVIEW OF CORPORATE RESPONSIBILITY AND REGULATION ............ 650 A. Corporate Responsibility ................................................................ 653 1. Corporate Responsibility Reporting ........................................... 653 2. Corporate Codes of Conduct ...................................................... 656 3. Constituency Statutes .................................................................. 660 4. Conclusion .................................................................................. 662 B. Regulation of Multinational Corporations ..................................... 662 1. Disclosure Requirements ............................................................ 663 2. Private Enforcement ................................................................... 666 a. Trade Practice Actions ........................................................... 666 b. OECD Actions ......................................................................... 667 c. Alien Tort Statute .................................................................... 669 C. Conclusion ...................................................................................... 670 II. SOCIAL ENTERPRISE IN EUROPE: SOCIAL COOPERATIVES AND THE COMMUNITY INTEREST COMPANY ....................................................... 671 A. Introduction to European Social Enterprise .................................. 671 B. Social Cooperatives ........................................................................ 672 C. Community Interest Companies (CICs) ......................................... 674 D. The Future of Social Enterprise in Europe .................................... 679 III. SOCIAL ENTERPRISE IN THE UNITED STATES ...................................... 681 A. First Generation Entities ................................................................ 681 B. L3Cs ................................................................................................ 682 C. Flexible Purpose Corporations ...................................................... 688 D. Social Purpose Corporations ......................................................... 692 E. Benefit Corporations ...................................................................... 695 1. Distinguishing “B Corporations” from Benefit Corporations ..... 695 2. The Benefit Corporation at a Glance .......................................... 697 a. Corporate Purpose: Creating General and Specific Public Benefits ......................................................................... 697 b. Accountability: The Duty to Consider Stakeholder Interests ... 699 c. Transparency: The Annual Benefit Report ............................. 700 d. Variations in the Statutes ........................................................ 702 F. Conclusion ...................................................................................... 706 IV. THE CASE FOR THE BENEFIT CORPORATION ...................................... 708 A. Responding to the “Social Business” Critique .............................. 708 2013] THE SOCIAL ENTERPRISE REVOLUTION 641 B. The Valuation Problem .................................................................. 710 C. Benefit Corporations Going Forward ............................................ 711 1. Statutory Reform ......................................................................... 711 2. Tax Credits .................................................................................. 713 CONCLUSION ............................................................................................ 714 642 WILLIAM & MARY BUSINESS LAW REVIEW [Vol. 4:639 INTRODUCTION I would leave this to the Consideration of all who are concern’d for their own or their Neighbor’s Temporal Happiness; and I am humbly of Opinion, that the Country is ripe for many such Friendly Societies, whereby every Man might help another, without any Disservice to himself.1 An increasing number of voices are calling for a corporate revolution that promotes socially and environmentally responsible business practices, and in turn gives sustainable goods and services greater market access. Business luminaries like Muhammad Yunus,2 Bill Gates,3 and Richard Branson4 have voiced their frustrations with the predominance of share- holder wealth maximization, and have joined the ranks of long-time sus- tainability advocates like John Elkington5 in encouraging a new generation of entrepreneurs to consider stakeholder interests and embrace socially and environmentally responsible business models. In other words, they argue that doing good will be good for business.6 Moreover, they submit 1 Benjamin Franklin, Silence Dogood, No. 10, NEW-ENGLAND COURANT, Aug. 13, 1722, at 1, reprinted in BENJAMIN FRANKLIN, SILENCE DOGOOD, THE BUSY-BODY, AND EARLY WRITINGS 32–33 (J.A. Leo Lemay ed., 2002). 2 See MUHAMMAD YUNUS, BUILDING SOCIAL BUSINESS: THE NEW KIND OF CAPITALISM THAT SERVES HUMANITY’S MOST PRESSING NEEDS xv–xvi (2010). Yunus argues that our existing theory of capitalism is flawed insofar as it misrepresents human nature, and concludes that capitalism’s portrayal of human beings as “one-dimensional beings whose only mission is to maximize profit” represents a “badly distorted picture” because it fails to recognize that human beings are also driven by selfless motivations. Id. at xv. 3 See Bill Gates, Remarks at the 2008 World Economic Forum: Creative Capitalism (Jan. 24, 2008) (transcript and video available at http://www.gatesfoundation.org/speech es-commentary/Pages/bill-gates-2008-world-economic-forum-creative-capitalism.aspx). Gates submits that, in general, people benefit in inverse proportion to their need in a pure capitalist system and challenges his audience to find ways for businesses and govern- ments to “create measures of what companies are doing to use their power and intelli- gence to serve a wider circle of people.” Id. 4 RICHARD BRANSON, SCREW BUSINESS AS USUAL 96 (2011) (“One of the more devastating theories of the 1970s was that no matter what it took to achieve it, the primary purpose of business was to maximize value for its shareholders. This principle has led to a variety of social ills where businesses discard employees (at the drop of a hat), pollute our air and waters, or create short-term gains that are unsustainable.”). 5 John Elkington, co-founder
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