Benefit Corporation Law and Governance: Why Isn’t Your Company a Benefit Corporation Yet?

Rick Alexander’s Benefit Corporation Law and Governance: Pursuing Profit with Purpose is the most important book about corporate law in decades, if not ever.  Mr. Alexander, Director of Policy at B Lab, senior Delaware corporate lawyer and co-drafter of Delaware’s benefit corporation legislation, has just published a legal masterpiece that will be the definitive guide to the benefit corporation and shape the post-shareholder primacy economy for decades to come.

Benefit Corporation Law and Governance eloquently establishes corporate governance as an urgent policy issue. In short, to solve universal issues such as income inequality and climate change, we need to change the way we govern our corporations. Shareholder primacy – the dominant corporate doctrine that the primary purpose of the corporation is to make profits for shareholders – threatens the long-term health of society and the environment.

Benefit Corporation Law and Governance raises the fundamental policy questions of our time: should corporations exist solely for the benefit of their shareholders or for the benefit of other stakeholders as well? Shouldn’t the purpose of the corporation also encompass obligations to protect the systems that serve all of its stakeholders? If society grants all of the privileges of incorporation to corporations, shouldn’t corporations in return be managed to create a benefit for society? The benefit corporation addresses these policy questions by structuring the rules of corporate governance to ensure that all of society benefits from these rules not just shareholders.

It is important to place Benefit Corporation Law and Governance in its historical context. Seven years ago, William Clark and Larry Vranka co-authored a White Paper: The Need and Rationale for the Benefit Corporation, which included the Model Benefit Corporation Legislation. The White Paper and the Model Legislation were instrumental in getting benefit corporation legislation passed in 33 US states. Just as the White Paper established the need for the benefit corporation and inspired its adoption in state legislatures,  Benefit Corporation Law and Governance not only establishes the imperative for, and legitimacy of, a new kind of corporate governance but will also inspire its adoption by traditional corporations.

This book will likely have the greatest impact in the board rooms of public corporations that will convert into benefit corporations over the coming years. Directors and their general counsel often have to go through a lengthy process of transformation that can take years in order to become comfortable adopting the form. This book will greatly accelerate that process and corporate lawyers will find it invaluable in educating boards of directors, general counsel and ultimately, shareholders about why it is not only safe but smart business to adopt the benefit corporation. For example, for boards seeking to create and maintain long-term enterprise value, the benefit corporation provides directors with an additional tool to use against activist shareholders seeking only to profit from a quick sale of the company.

For the lawyer advising corporations considering becoming benefit corporations, the book deftly neutralizes the biggest obstacle to its adoption – fear – by directly articulating all of the primary concerns and patiently addressing them. Benefit Corporation Law and Governance provides a comprehensive review of how standards of judicial review, the business judgement rule and precedents from constituency statute cases will apply to benefit corporations that will give risk-adverse corporate lawyers comfort that their directors can use the new form without fear of additional liability exposure.

Benefit Corporation Law and Governance was designed to make corporations feel safe and confident to organize as benefit corporations. Leo Strine, the Chief Justice of the Delaware Supreme Court, arguably the most authoritative interpreter of corporate law in the world, contributed the foreword and endorses the benefit corporation. According to Justice Strine “the benefit corporation movement represents a refreshing and substantial step forward for those who believe that corporations – and all business entities – not only can but should do well, not only by their investors but also by their workers and the societies in which they operate.”

Far more than just a primer, Benefit Corporation Law and Governance will delight corporate lawyers, general counsels, boards of directors, impact investors and policy makers with its crisp, concise prose and comprehensive and scholarly analysis of the benefit corporation. The book should be required reading in corporate law courses in law schools and integrated into the business school curriculum.

Benefit Corporation Law and Governance will also inspire asset managers responsible for managing the $70 trillion of stock of our publicly traded companies for individual and institutional investors to support the market’s adoption of the benefit corporation as the vehicle of choice for building long-term sustainable value. Benefit Corporation Law and Governance reveals the fundamental flaw of the shareholder primacy doctrine and the neo-liberal, free market philosophy: that the “free market” exists independent of society and the environment.

Most investors now own the market through mutual and index funds, not through individual stocks. Such “Universal Owners” will no longer tolerate the shareholder primacy doctrine which encourages corporations to increase profits by externalizing their negative costs onto the market – society and the environment. These investors will increasingly demand that corporations are organized in corporate forms such as the benefit corporations that create value for shareholders while avoiding harm to the social and environmental context in which the market is embedded.

Be forewarned. If you are not already a fan of the benefit corporation, reading Benefit Corporation Law and Governance will take you on journey of transformation. The Introduction traces Mr. Alexander’s own evolution from a corporate partner at a prominent Delaware law firm firmly embedded in the shareholder primacy establishment to thought leader in the benefit corporation movement. Anyone still skeptical about the benefit corporation will find Mr. Alexander’s personal journey and the sources he consulted both inspirational and helpful. Letting go of the shareholder primacy mindset is a major obstacle to widespread adoption of the benefit corporation. Sharing his personal transformation shows skeptics a path to adopt the benefit corporation’s multiple stakeholder mindset.

By the time you finish the book, you will no longer be wondering why a corporation would become one but wondering why all corporations aren’t benefit corporations. The choice is clear. The benefit corporation is the right choice.

 

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