Phrases such as “corporate social responsibility,” “sustainable development,” and “green business” are gaining increasing importance in today’s business world. Some companies are even taking these concepts a bit further and incorporating social and environmental responsibility directly into their business models. These types of companies are commonly known as social enterprises and they are growing in size and number as consumer and investor preference for sustainable products and services becomes more prevalent.
Although the social enterprise movement continues to gain speed, corporate law has been moving at a much slower pace. The traditional for profit corporate structure built upon the concept of shareholder wealth maximization is simply not conducive to the growth and success of mission-driven companies. Directors of social enterprises are often hesitant to consider factors other than profitability when making decisions for fear of litigation from shareholders. Another problem many social enterprises face is greenwashing from competitors. Without comprehensive and transparent standards to measure the overall performance of companies (including social and environmental performance), true mission-driven companies cannot differentiate themselves in the marketplace.
In response to these problems, various new corporate forms, such as the Benefit Corporation, have been created in order to cater to the needs of socially responsible businesses. It would be in the best interest of state governments to consider the implementation of Benefit Corporation legislation. This new legal form is most effective for social enterprises because it requires companies to produce a material positive impact on society, provides legal protection to consider all stakeholder interests, and creates transparent third-party standards for company performance.