Shareholders on Par with Stakeholders in Pa. Benefit Corp. Law

December 12, 2012 – In The News
The Legal Intelligencer

In an age where 90 percent of announced mergers face legal challenges from shareholders, several states, including Pennsylvania, are looking to protect corporations from investors upset with money being spend on things that don’t maximize the bottom line. But there’s a twist for the corporation.

The new business form – a benefit corporation – mandates a corporate purpose to create a positive impact on society and the environment.

Businesses juggling outside interests with those of shareholders might sound like a recipe for litigation. But backers of the new Pennsylvania Benefit Corporation Act, set to go into effect January 22 in Pennsylvania are confident the law provides adequate protections for socially conscious corporations looking to reap more than just maximum profits, as well as protections for the shareholders who would invest in these corporations.

Pennsylvania became the 12 state since Maryland started the trend in 2010 to adopt the new business form, a benefit corporation, when Governor Tom Corbett signed the bill into law October 23, The benefit corporation, when Governor Tom Corbett signed the bill into law October 24. The benefit corporation aims to provide socially conscious corporations with the ability to invest in what advocates call a “triple bottom line,” of what “people, planet and profits, without fear of litigation from shareholder.

Fox Rothschild partner Michael Harrington is a big proponent of benefit corporation laws, which he said gives companies the ability to be recognized for what they should be doing anyway. It also recognizes that corporations can be a big part of social change. Harrington’s client, West Gove, Pa based Dansko was in the first group of certified B corporations in 2007.

Harrington said he would expect large corporations that are already socially aware to look to take the next step to be recognized for that awareness through state law benefit corporation status, as long as the process didn’t cause to much hassle. He said he would also expect a number of younger entrepreneurs who are part of a socially aware generation to take advantage of this corporate form when creating their businesses. Such a designation helps with marketing, recruiting employees and lining up vendors, Harrington said.

When it comes to the issue of fiduciary duties and officer liability, Harrington said the answer is “a great big ‘it depends’” He said the laws do a good job of shielding directors from personal liability and the company form monetary damages. Harrington said there is no cause of action available to the other stakeholders mentioned in the corporation’s mission, but rather only allows for shareholder suits.

Harington said the benefit enforcement proceeding, which he likened to an administrative proceeding, would be the more likely challenge to the way benefit corporations are operating.