Committing to Doing Good and Doing Well: Fiduciary Duty in Benefit Corporations

Can someone running a business do good while doing well? Can they benefit society and the environment while still making money? Supporters of social enterprises believe the answer is yes, as these companies aim at making money for shareholders, while also pursuing other social benefits. Since 2010, states have begun to enact statutes creating the “benefit corporation” as a new legal form, one designed to fit social enterprises.

Benefit corporations proclaim to the world that they will pursue both social good and profits, and those who run them have a fiduciary duty to consider a broad range of social interests as they make their decisions, rather than a duty to focus solely on increasing shareholder value. Does this novel fiduciary duty effectively commit these businesses to doing good? How will courts actually apply this duty in practice? Will this new duty accomplish its goals without unduly high costs?

This article is among the first to analyze in detail the fiduciary duty provisions in several versions of these new benefit corporation statutes. It compares duties in benefit corporations to duties in traditional corporations in the leading categories of fiduciary duty cases. It argues that there is likely to be a modest “flattening” in the risk of liability for directors and officers of benefit corporations. That is, as compared to the level of risk in ordinary corporations, the risk of being held personally liable will be greater for decisions where that risk is smaller in ordinary corporations, while the risk of liability will be smaller for decisions where that risk is greatest in ordinary corporations.