The Double Bottom Line: Can Constituency Statutes Protect Socially Responsible Corporations Stuck in Revlon Land

Abstract

Should corporate directors be allowed to sacrifice shareholder returns in an acquisition in order to engage the corporation in socially responsible activity?The traditional model of corporate law, enunciated most influentially by the Delaware courts, emphasizes shareholder benefit.Where a corporation is being sold, this traditional approach limits directors' fiduciary duties to one simple goal: obtaining the highest value possible for shareholders.The constituency statute, a fairly modern advent, operates against this strong tradition and may serve as a mechanism to promote corporate social responsibility in the acquisition context.The current constituency statute framework, however, inadequately protects social responsibility concerns during acquisitions.To help guide courts on this issue, legislatures must adopt a model that explicitly identifies preferred corporate social responsibility policies.Otherwise, corporate social responsibility will remain diluted by the traditional approach.the continuation of the company's environmental and supplierfriendly mission.Alternatively, you could vote to sell to Bidder 2 for a lower value and thereby ensure the continuation of Healthy Drink's corporate philosophy.'While the story of Healthy Drink is hypothetical, it illustrates a genuine and increasingly frequent dilemma faced by many corporate directors.This is because many corporations, in response to the multitude of environmental and social issues facing our nation and world, have resolved to pursue socially responsible initiatives in addition to profits.Such initiatives include reinvesting profits to develop supplier and producer communities, prohibiting exploitative labor practices, and exceeding minimum environmental requirements.'This pursuit of the "double bottom line" 6 is best exemplified by so-called B Corporations.B Corporations are purpose-driven businesses that require adherence to certain social and environmental standards in order to receive B Corporation certification.7 The B Corporation movement is just one specific example of a growing trend of socially and environmentally aware companies driven by more than the mere desire for profits.8 This Note explores the extent to which a fairly modem legislative advent-the constituency statute-can provide guidance to a board facing the dilemma presented by the Healthy Drink hypothetical.As this Note describes in greater detail below, the early common law and its subsequent codification in many states requires directors to act solely for the shareholders' benefit.9 Constituency statutes permit board members to consider nonshareholder interests when exercising their corporate decisionmaking authority.In terms of general business decisions, 4. Of course, the third option is for the board to choose not to sell to either bidder.For the purposes of this hypothetical, however, it is assumed that the sale of the company is inevitable.5. See infra notes 262-266 and accompanying text.6.The "double bottom line" is a way to describe a social enterprise's balance of financial viability and social impact.Jerr Boschee, Doing Good While Doing Well, PITT.

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