Note – Sustainable Capitalism Through the Benefit Corporation: Enforcing the Procedural Duty of Consideration to Protect Non-Shareholder Interests
Volume 64, Issue 3, 863-904
Corporations are beholden to a deeply flawed system of corporate governance known as shareholder wealth maximization. This norm dictates that corporations optimize profits at all costs to compensate equity investors for their continued exposure to risk. Other stakeholders in the corporate enterprise, like employees and consumers, are owed nothing outside of the contractual relationships they might possess, while the public at large is owed nothing at all. Because courts continue to vigorously enforce this norm, corporations are largely excluded from providing public goods and services, while simultaneously incentivized to push harmful production costs onto communities and the environment. To cope with this outcome, disparate actors like non-profit organizations, the state, and consumers have intervened in the marketplace, with questionable effect. While it may be too late to do away with the shareholder wealth maximization system in traditional corporate entities, there is an alternative corporate structure that entrepreneurs and consumers can and should utilize to make capitalism work for the public good.
This Note analyzes how the structure of the benefit corporation reunites profit seeking and the promotion of the public good in a single, private business entity. The benefit corporation mandates a hybrid purpose: profit and “material positive impact on society and the environment.” In short, benefit corporations aspire to the rallying cry of the “social entrepreneur”—to do well while doing good. Critics, however, question the substantive enforcement mechanism of the benefit corporation, a third-party auditing standard that they self-apply to evaluate whether they are effectively providing for the public good. This Note concurs, but proposes a statutory construction and litigation strategy that courts and plaintiffs can apply to ensure that benefit corporations do not shirk their duty to the public. Through the express private right of action known as the “benefit enforcement proceeding,” this Note contends that shareholders and dissenting directors can and should seek injunctive relief for breaches of the procedural “duty of consideration of non-shareholder interests” by the corporation and its board of directors.