B Corporations have voluntarily adopted a higher standard of legal accountability than their traditional corporate counterparts. B Corps are required to take into ‘due consideration’ the impact of their decisions not only on their shareholders, but also on non-shareholder interests, such as their employees, suppliers, community, and environment. B Corp Legal Framework
‘Due consideration’. What does that mean?
Like other legal standards, like ‘due process’, ‘equal protection’, ‘deliberate speed’, ‘community standards’, and ‘clear and present danger’, what ‘due consideration’ means will be fleshed out through many individual court decisions in many states over a long period of time, decades in fact. Each of these state court decisions will test the edges of what this new legal standard means in the particular facts and circumstances of each case. Like other legal standards, ‘due consideration’ will eventually find its way to the Supreme Court. ‘Can I accept this offer to buy our company over that one?’ ‘What if the ROI on achieving our goal of zero waste or positive carbon footprint does not maximize shareholder value?’ ‘What if the only source of organic is on the other side of the world?’ ‘What is the impact of this proposed tax-haven corporate structure on the community in which we operate?’ Without the space or talent to frame this in a more nuanced way, over the next decade ‘stakeholder rights’ will take its place alongside other seminal social and legal movements in American history like civil rights and women’s rights. A recent New York Times Magazine article prompted by the Sotomayor nomination talked about a still-forming middle path in constitutional law between conservative ‘strict constructionism’ and liberal ‘activism’. This middle path is called ‘democratic constitutionalism’. The basic gist is that the Courts, along with the legislative and executive branches and government and the public, ought to be in a continuous conversation about in which direction the Constitution evolves. In this view, the Court helps codify and institutionalize broadening public consensus without getting so far ahead of the public as to lead. This seems consistent with the view of B Corporations regarding institutionalizing a broadening consensus on the roles and legal responsibilities of the corporation in society. Similar to the world view of the ‘democratic constitutionalists’, the objective of B Corporations is simply to engage the corporation itself in a conversation, in this instance about how to balance often competing interests. B Corporations don’t believe the ‘original intent’ of corporate law was to ensure that Directors’ duties were to maximize shareholder value without consideration of the impact of doing so on the society in which the corporation exists. Nor do B Corporations believe that they or anyone should prescribe what decisions should be made in determining what is in the best interests of the corporation or even how to make those decisions. B Corporations simply recognize a conversation must be had at a Board level which takes into due consideration the impact of corporate decisions on multiple stakeholders, including shareholders. And B Corps are willing to hold themselves accountable that this happens in their own companies. As in other great rights movements in our history, a ‘stakeholder rights’ case will eventually be taken up by the Supreme Court. When it does, I hope the Justices adopt this emerging middle path and affirm rights of shareholders to adopt voluntarily a higher standard of accountability which requires a healthy conversation and ‘due consideration’ of the interests of all stakeholders. That doesn’t sound so scary.
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