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From Shareholders Only, to All Stakeholders

The more dramatic movement noted above, led by privately held small and medium-sized companies, is aimed at something much more substantial: a new way of doing business. It is based on an expanded sense of mission that includes positive social impacts, environmental sustainability, and, in its most visionary form, not just sustained financial profits but also contributions to a more broadly and fairly shared prosperity. These companies represent a growing community of sustainability-minded entrepreneurs who champion high new standards for corporate governance and operations. They insist that for-profit businesses, as centers of enterprise and resources in a needy, crowded world, can and should be as committed to “doing good” as to “doing well” financially.

Especially in the United States, these companies are taking their vision to legislative bodies, promoting changes in corporate law to allow businesses that are so inclined to choose a new corporate form that specifies that their managers and directors must pay attention to company impacts on people and the planet, as well as to the generation of profits. The recent rapid adoption of statutes creating a new business status known as “benefit corporation” in the United States, in state after state, underlines the pivotal role that governments can play in laying the groundwork for such a shift in corporate focus.

A benefit corporation is a legal form, established under corporate law, that requires a company to state clearly in its original or amended articles of incorporation that it has a general purpose of having a positive impact on society and the environment and that its board of directors, in making decisions, is required to take into account the interests of multiple stakeholders in addition to the financial interests of its shareholders. The stakeholders that it must consider, by law, include the company's own workforce and that of its suppliers, its customers, the local community and general society, and the local and global environment.

Benefit corporations also are required to report annually and publicly on their overall social and environmental impact as assessed against a transparent, credible, and independent third-party standard. Proponents of this new corporate form say that it essentially bakes a triple bottom line into a company's DNA. That frees companies from the fear of shareholder lawsuits if their decisions fail to maximize shareholder value because of some competing interest of other stakeholders, such as workers. Under current corporate case law in the United States, for example, corporate directors often are assumed to be liable in such suits, although legal scholars vigorously debate that point. Corporate attorneys, however, are likely to counsel directors to handle this question conservatively.

Incorporation as a benefit corporation is intended to provide directors and managers with the legal cover they need to establish that they actually have a fiduciary responsibility to consider the interests of all stakeholders— not just shareholders. Formalizing a company's social and ethical purposes under this legal framework also makes it more likely that its good intentions will survive the departure of its founders or major spurts of growth, and that its directors will have the legal backbone to fend off buyout offers from conventional corporations without the same commitment.

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