Scholars, activists, and other observers have expressed concern about the social effects of corporate activity in the United States since as early as the nineteenth century. A recurring theme in this debate has been whether corporations’ focus on shareholder interests causes them to neglect and harm the interests of other constituencies affected by corporate activity. A recent and prominent effort to address this concern is the social enterprise movement, which is unique because it has resulted in the creation of entirely new business entities designed specifically for for-profit businesses devoted to pursuing social missions. One of the most widely adopted products of this social enterprise movement is the benefit corporation.
Benefit corporations aim to liberate businesses to do more social good by freeing management from a narrow focus on shareholder value. Scholars have written with restrained hope about benefit corporations, pointing out weaknesses that may inhibit benefit corporations’ ability to produce meaningful social returns and highlighting the fact that shareholder primacy is not required under traditional corporate law. Nonetheless, the social enterprise movement exists because modern corporations are generally governed with a narrow focus on share price, even if there is no clear legal mandate to do so.
This Article evaluates the potential success of benefit corporations in light of the absence of a legal mandate to prioritize shareholder interests. First, it analyzes the forces that have led traditional corporations to become narrowly focused on share price maximization. It then systematically evaluates (1) whether benefit corporations will be vulnerable to these forces; and (2) whether benefit corporations will succeed in producing social benefits. By repurposing the traditional agency cost analysis of corporate governance, it concludes that substantial impediments to meaningful social return remain because the beneficiaries of benefit corporations’ social missions have no rights to influence corporate decision making—the “separation of benefit and control.” Finally, it proposes an ex ante Public Benefit Plan, drafted by the benefit corporation and its intended beneficiaries, as a solution to the separation of benefit and control.
Emily Winston, Benefit Corporations and the Separation of Benefit and Control, 39 CARDOZO L. REV. 1783 (2018).