by Stewart A. Merkin Esq.
Miami, Florida 33137
www.merkinlaw.com
In a previous blog, I wrote about social benefit corporations, how they generally came about and what the movement means to entrepreneurs today. But the ideas that led to the creation of social benefit corporations did not start in the 21st century.
The activist businesses that evolved from the social movements of the 1960’s (although there were some movements as early as the 1820’s and the first half of the 20th century) may have provided an early framework for the social benefit corporations of today, political participation and political development is not the main focus of social benefit corporations.
In the recent book From Head Shops to Whole Foods by Joshua Clark Davis (2017), he wrote that in the 1960’s and 1970’s, there was a general disillusionment with what many saw as the direction of society and the economy. Amid the celebration of free markets, the inequalities of the day struck many as deeply hypocritical. Although many movements emerged from different political traditions and sought to address different concerns, they shared the objective of making American society and the corporate world more equal, democratic and humane; most advanced the goal of political change and social transformation.
Quoting from his book: “Yet not all young people rejected business wholesale. In fact, some began to explore its ethical possibilities. Could entrepreneurs, these individuals asked, operate in a manner that was democratic, authentic, humanizing, and just? Could a business function as a public space that served the good of its local community and not just the good of its owners? And if so, could such a business still make a profit? These were the questions that motivated activist entrepreneurs.” (Sound familiar?)
His book focuses on four deeply unconventional businesses of the day that all shared a critique of the dominant commercial and political order of postwar America - head shops, black nationalist bookstores, feminist businesses and natural food stores, most of which were located in cities and college towns. He calls the owners activist entrepreneurs. Although the word entrepreneur was not a common word of the day, it did describe their particular blend of social movement participation and business ownership.
Could these ideals and questions then raised by entrepreneurs and business owners be the impetus for what started the benefit corporation movement? I think the answer may be yes.
In my working with student entrepreneurs (see one of my previous blogs), who would form businesses, at least on paper, I found that many of them had decided to establish nonprofit corporations because of the social goals that they wanted to accomplish. While their goals were lofty, and establishing nonprofits on paper may seem straightforward, some regulations on tax-exempt non-profits such as limitations on political and lobbying activities and attracting and raising capital made it a less desirable form of business entity for some.
Under the traditional corporate structure, corporate directors had a fiduciary duty to exercise business judgment with the goal of maximizing profits so long as it was lawful. In fact, corporate officers and directors could be held legally liable to shareholders of the corporation if they did not maximize profits to the exclusion of other goals.
Various state laws, which regulate corporate governance, began to catch up with the reality that not every investor or shareholder subscribes to the view that "greed is good". Far from being a nation of Gordon Gekkos, many Americans, and millions of business owners, want to do more than simply turn a profit - although they certainly have nothing against making money. Their goals may also include improving the environment and developing communities. In the classic model, these social purposes had to be pursued in a non-profit corporation. Hence, the emergence of the social benefit corporation. While the social benefit corporation is not a nonprofit, its creation could be one of the answers to how many entrepreneurs see as fulfilling their duties in the world.