Benefit corporations are a promising development in social
enterprise and an exciting way to rethink conventional business models. However, the form is in its early stages and its unique problems need to be
discussed and studied. Below are several miniature hypothetical cases
studies created by the Institute for Business and Professional Ethics that seek
to foster discussion about benefit corporations with respect to both their
advantages and shortcomings.
The Stakeholder Issue
Office Solutions is a Baltimore-based benefit corporation
founded in 2012. The firm sells office supplies and equipment to
businesses and government entities. As a benefit corporation, Office
Solutions needed to state in its charter the benefit it is committed to
pursing. As a benefit corporation, the stakeholders of Office
Solutions' social mission are theoretically as important its shareholders,
allowing the company to prioritize its social impact over profits. Office
Solutions donates a share of its profits towards organizations that address
local youth homelessness, including several shelters and counseling
centers. Office Solutions' literature and catalogs make references to its
social mission, advertising the company's contribution to potential customers.
Jill is the Gift Coordinator for one of these shelters.
She was excited to partner with Office Solutions. Early in their
relationship, they had a series of meetings to determine how Office Solutions' contributions could be best put to use and to set goals for the upcoming years.
In 2012, Office Solutions contributed $6,000 to Jill's
shelter; $9,000 followed in 2013. In 2014, Office Solutions contributed
$3,000, citing a competitive marketplace and the loss of several major
clients. In 2015 the firm's managers informed Jill that they would be
unable to contribute any donations, and were unsure about the partnership going
forward. This cutback has forced Jill to alter and abandon several of the
goals created during their initial discussions.
This week Jill has visited the Office Solutions website
and has looked over its catalog. Both now advertise its social mission
and contributions to youth homelessness programs more frequently and more
prominently than in prior years.
Jill feels that the advertisements are potentially
misleading and looks into the legislation regarding benefit
corporations. She learns that Office Solutions is only required to "pursue" its stated social benefit and cannot be responsible for actually
accomplishing the goals the firm has set for itself.
Business Ethics questions:
- What are the ethical
implications of Office Solutions' conduct?
- Do Jill and her
organization have a right to feel wronged by Office Solutions advertising a
contribution it is not currently making?
- Does Office Solutions
have a duty to meet with their stakeholders more regularly and keep them
informed of possible adjustments in the contributions?
Business Law questions:
- Does Jill's organization
have any legal recourse?
- If Office Solutions
included a more prominent disclaimer on their website about donations being
tied to profits, would this satisfy legal and ethical concerns?
After weighing several opportunities, Janet has decided
to invest in local fresh food grocer Farm to Store, whose owner she was
introduced to through a mutual contact. Farm to Store is a benefit
corporation. As such, it has a stated social mission: achieving
environmental sustainability in the food supply chain and promoting education
surrounding this issue. Significant portions of the store's profits are
to be diverted to waste-reducing workshops, advocacy and consumer
awareness. Janet feels that Farm to Store has a solid business
plan. She enjoys the idea of practicing socially responsible investing
where her contribution has the potential to create both a financial and social
As an investor, Janet receives annual benefit reports
from Farm to Store detailing the social and environmental impact of the store's
benefit. She also receives full financial reports from the company's CEO,
Mark. After receiving the first annual report, Janet is concerned. While sales were steady for much of the year, the profit margins shrank as
other business costs grew. Sheila requested a brief meeting with Mark and
he explained that the increased costs were the result of finding new ways to
commit completely to the store's mission of sustainability. Eco-friendly
parchment paper and utensils, non-landfill waste disposal and
specialty-sourced products are amongst the expenses Farm to Store has been
Janet speaks with several other investors and finds that
they are in agreement; all feel that the long-term viability of the business is
being jeopardized by Mark's commitment to waste reduction, to say nothing of
the sustainability workshops and other programs to which Farm to Store has not
yet been able to contribute financially. Janet shares this concern with
Mark. Mark responds that he appreciates the investors' input, but
that he will not be making any changes to the operations of Farm to Store.
Business Ethics Questions:
- Does Farm to Store have a
responsibility to fulfill its stated benefit beyond their financial
- How should their benefits and
missions be prioritized?
- Are the investors
being unreasonable in asking the firm to cut back on sustainability expenses?
Business Law Questions:
- In light of the
model legislation (see below), has Mark been legally remiss in his "consideration" of the various competing interests and concerns?
- How should these interests and
concerns be prioritized to satisfy the legal requirements of the legislation?
- What, if any, legal
remedies are available to Janet and the other investors if Farm to Store
continues on this path?
- Does it make a
difference if Janet own 51 percent of the shares of Farm to Store?
Benefit Corporation Case: Certification Issue
Trent is the operations manager at Bristle, a
Delaware-based benefit corporation that manufactures all-natural shaving
products. One of his responsibilities is collaborating with the creative
team to generate Bristle’s annual benefit report, a legally required document
assessing the company's social and environmental impact in accordance with the
firm's goals described in its articles of incorporation.
Although almost every state requires benefit reports to
be released to the public and measured against third-party benchmarks, neither
is required by Delaware legislation. For the past several years, Bristle
has as a matter of "best practice" assessed themselves against rigorous
third-party metrics while compiling a variety of social and environmental
certifications. Bristle has also published its benefit reports on its
website and distributed them to the firm's stakeholders.
Trent is called into a meeting with Bristle's new
director, Josh. Josh explains that everyone at Bristle knows it has been
a tumultuous year for the company, with a turnover in upper management,
supply-side issues and the loss of some retail distribution. Josh is
confident that the company will weather the transition and come out stronger than
before, but he doesn't want to suffer a loss of shareholder or stakeholder
confidence in the meantime. Thus, he requests that Trent approach this
year's benefit report differently. Bristle will forego using a
third-party assessment standard, opting instead to develop one
internally. The firm will also not make the current report publicly
available, but will leave older reports on the website. Josh hopes that
changing the format of the benefit data presentation will allow the company to
regroup without causing an unnecessary stir.
Business Ethics questions:
- Is Josh's request
- Do Trent or Josh have an
obligation to transparency that he is violating?
- Is there an ethical
problem with issuing benefit reports that are difficult to compare across
- Is there an ethical
concern with the firm's performance being measured against only internal
- How will Josh's
initiative affect stakeholder trust?
Business Law questions:
- Is Bristle in compliance
with Delaware law?
- Could the benefit
reporting flexibility of Delaware's benefit corporation legislation lead to a "race to the bottom"?
- What issues might arise
out of the laxity of Delaware's benefit corporation legislation?
- Can shareholders sue if
they notice the discrepancy in the issued reports?
- What is the difference
between a shareholder and a stakeholder? What, if any, are the different
legal duties owed to them by Bristle?