Exam 3: Chapter 6

True or false? unethical and illegal actions at corporations such as Enron and WorldCom motivated by greed and a desire for short-term gains, and the ever-widening gap between the compensation of executives and average wage earners, have caused some to deride the capitalist system as the propagator of the country's economic woes, worker exploitation, and a range of other abuses

true

true or false? Unlike constituency statutes, benefit corporations are distinctly different

true

Describe mackey's wholefoods.

-Although Mackey's vision for his corporation has evolved over time, one constant has been his desire to serve the interest of all the stakeholders of the corporation. For Whole Foods this means engaging in activities that promote the company's core values, which are: (1) selling the highest-quality natural products available; (2) supporting employee (team member) happiness; (3) satisfying customers; (4) creating profits and growth; and (5) caring about communities and the environment -By focusing on their core values and the interest of various stakeholders, Whole Foods has created a successful business model in which interactions with one stakeholder creates positive impacts for other stakeholders.

Describe the b lab certification

-B Lab is a nonprofit organization that serves a global movement of people using business as a force for goodTM. B Lab drives systemic change by: -´Building a global community of Certified B CorporationsTM who meet the highest standards of verified, overall social and environmental performance, public transparency, and legal accountability -´Promoting Mission Alignment using innovative corporate structures like the benefit corporation to align the interests of business with those of society and to help high impact businesses be built to last -´Helping tens of thousands of businesses, investors, and institutions Measure What Matters, by using the B Impact Assessment and B Analytics to manage their impact—and the impact of the businesses with whom they work—with as much rigor as their profits -´Inspiring millions to join the movement through story-telling on bthechange.com" -https://www.bcorporation.net/what-are-b-corps/about-b-lab -This a a rigourous audit performed by the staff at b lab --Then the follow u -They make sure that the companies websites is what they are doing --B lab corp will operform audits of the benefit corpoations and thn they get certified --Whatever the comany reports to be doing is actiually being accomplished by them

What is the idea of Constituency Statutes?

-Give leeway for the corporate officers to think about constituttents --This looks at the stakeholder theory --These are OPTIONAL statutes --They work parallel with nirmal corporate law -If a state has these, then the board of directors have more flexibility in participating in social corporate responsibility --Ex. corporate helping a food bank --The statutes allow the board to make these decisions without action --By action, meaning shareholder action --Have been around for a few decades and haven't caught on

Is it right to lay off people?

-If you focus on just maximizing shareholder wealth, yes -Not if you aren't -Peoples minds will change

How is a corporation diff?

-It is a taxpayer, so there is chance for double taxation -Seen as a legal person -They have bill of rights -Took root in the late 19th century

Describe the nature of a corporation.

-Legal entity that has an identity distinct from that of its owners. -Considered a legal person. -By the 1900s, the notion that a corporation existed for the purpose of making money for its shareholders was taking hold.

Describe the evolution of the hybrid entity (benefit corp)

-State Constituency Statutes allow directors to craft a strategy that includes the well-being of stakeholders. -´B-Lab (formed in 2006) certifies corporations as B Corporations if they provide a general public benefit and meet other benchmarks. This is essentially a "seal of approval," not an actual new form of business. -´Benefit Corporations: -´In 2010 Maryland became the first state to enact Benefit Corporation legislation. -´The Benefit Corporation is a new form of business. It has a profit motive but also must have a positive impact on society.

dodge v ford

-The Ford Motor Company founded by Henry Ford and a handful of other investors in 1903 achieved significant financial success by selling mass-produced cars at prices that an increasing number of consumers could afford. -Henry Ford, as majority shareholder, decided that the company would no longer pay a special dividend but would instead use part of that money to double the salaries of the employees and lower the price of the cars. Mr. Ford gave the following reason for his actions: "My ambition is to employ still more men; to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. -Two of the Ford Corporation shareholders, the Dodge Brothers, who collectively owned 10 percent of the company, objected to this plan and filed a lawsuit against the company seeking, in part, to compel the corporation to pay a special dividend to the shareholders -trial court concluded that while generally the decision whether to declare a dividend was within the discretion of the directors, such a decision could be subject to judicial review if it appears that the directors unreasonably withheld corporate surplus from the shareholders. The trial court required the corporation to pay a dividend to the shareholders. This decision was affirmed by the Michigan Court of Appeals. -Appellate court was also clear that there should be no confusion as to the distinction between the duties a corporation owes to the public and the duties owed to the shareholders: The business corporation is organized primarily for the profit of the stockholders.

Describe the social enterprise movement.

-The idea was based in part on the belief that the government could not solve social problems without help from private enterprise -organizations formed to encourage investment in companies working for social change/improvement. -Ben and Jerry's, the ice cream manufacturer, due to the popularity of its products, its incredible success, and its commitment to improving society, is often seen as the face of the social enterprise movement. Other notable social enterprises include Newman's Own, Seventh Generation, and Tom's of Maine.

Describe a benefit corporation.

-form a corporation that offers individuals or entities the option to invest in a business -´that has a corporate purpose broader than maximizing shareholder value, and -´that has consciously assumed a responsibility to maximize the benefits of its operations for all stakeholders, not just shareholders -Enforcement of that broader purpose and responsibility comes not from governmental oversight (e.g., prescriptive regulations), but rather from legislation that focuses on greater transparency and accountability by the Benefit Corporation itself -http://benefitcorp.net/sites/default/files/Model%20Benefit%20Corp%20Legislation_4_16.pdf (model language) --Typically developed by consortiums (academics, judges, businesses) --When they address the public health, they allow flexibility with what the people do --Ex,. providing underserved communities with beneficial products -How many states have enacted Benefit Corporation statutes? -http://benefitcorp.net/policymakers/state-by-state-status -The idea is to encourage investors, organizers of a new business, to think about the triple bottom line -Think more in terms of benefit corp. -Most that are benefit corporations are typically privately held -There are a few publicly traded companies that are benefit corps --Patagonia and sportsgear -36 of the sates have passed benefit corp legislation, where the northeast has mostly adopted it -5 states are working on it

What is the purpose of a benefit corporation?

-the purpose of a Benefit Corporation is to have a "material, positive impact on society and the environment." -may also opt to fulfill stated, additional, more specific purposes such as improving health, protecting the environment, etc. -Language is included in the Benefit Corporation's organizing document which requires the directors to consider the interests of a variety of stakeholders

Describe the nature of a corporation.

-´Legal entity that has an identity distinct from that of its owners. -´Considered a legal person. -´By the 1900s, the notion that a corporation existed for the purpose of making money for its shareholders was taking hold.

Describe the public benefits of a benefit corp.

-´Providing low-income or underserved individuals or communities with beneficial products or services -´Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business -´Protecting or restoring the environment -´Improving human health -´Promoting the arts, sciences, or advancement of knowledge -´Increasing the flow of capital to entities with a purpose to benefit society or the environment -´Conferring any other particular benefit on society or the environment

Describe the traditional corporate model

-´Single purpose: -´Maximizing stockholder welfare -´Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919) -´eBay Domestic Holdings, Inc. v. Newmark, 16 A. 3d 1 (Del Ch. 2010) -´Externally encouraged (tax incentives) or required (penalties/fines) to embrace sustainability and environmental protection

Describe the traditional corporate model

-´Single purpose: ´-Maximizing stockholder welfare ´Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919) -´eBay Domestic Holdings, Inc. v. Newmark, 16 A. 3d 1 (Del Ch. 2010) -´Externally encouraged (tax incentives) or required (penalties/fines) to embrace sustainability and environmental protection

Describe the corporate stakeholder theory:

-´Stakeholder Theory" was a term made popular by R. Edward Freeman in 1984. -´Stakeholder = any individual or group that "can affect or is affected by the achievement of an organization's objectives." -´Consider customers, employees, vendors, suppliers, the community, and the environment.

Describe the evolution of a hybrid entity:

-´State Constituency Statutes allow directors to craft a strategy that includes the well-being of stakeholders. -´B-Lab (formed in 2006) certifies corporations as B Corporations if they provide a general public benefit and meet other benchmarks. This is essentially a "seal of approval," not an actual new form of business. -´Benefit Corporations: In 2010 Maryland became the first state to enact Benefit Corporation legislation. --´The Benefit Corporation is a new form of business. It has a profit motive but also must have a positive impact on society. --´See Model Legislation described in Exhibit 6.3 on page 180.

Is benefit corp legislation really necessary

Be able ao answer this q

Describe the two corporate models.

Benefit Corporation -´Multiple purposes: -´Triple bottom line: planet, people, and profit --You can emphasize one over the others --Required of you want a benefit corp -´Public Benefit -´Accountability -´Transparency --Have more disclosure requirements -´Internally focused on sustainability and environmental protection --Board of directors must engage in planning, resource alloation, and strategy that deals with the three ps --They need to have full disclosure Traditional Corporate Model -´Single purpose: -´Maximizing stockholder welfare -´Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919) -´eBay Domestic Holdings, Inc. v. Newmark, 16 A. 3d 1 (Del Ch. 2010) -´Externally encouraged (tax incentives) or required (penalties/fines) to embrace sustainability and environmental protection -Usually a traditional corporation addresses the two other ps, people and planet, through the external forces --Focus on planet with tax benefits that could be ways to package more environmentally safe --There could also be fines that deter corporations. If you break the rules, the fines are heavy and can really affect the corporation -Control type legistaion where corporates are forced to do something are there are they are encouraged to do certain things

Do benefit corps matter?

Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy.

Describe model legislation for the benefit corporation

Corporate purposes -Create a general public benefit as measured by a third-party standard -Right to name a specific benefit -Creation of public benefit in best interest of the corporation Accountability -Director's duty: Make decisions in the best interest of the corporation -Director's duty: Consider effects on stakeholders -Independent benefit director to attest board acted in accordance with duties Transparency -Annual benefit report published in accordance with third-party standards -Annual Report delivered to shareholders and Secretary of State and published on the company's website Right of action -Only shareholders and directors have a right of action -Right of action for violation of duty (purpose or standard of conduct)

Provide an example of benefit corporation statute

South carolina -including (1) the shareholders, (2) employees of the benefit corporation and the employees of its subsidiaries and suppliers, (3) customers, (4) community and societal factors, (5) local and global government, and (6) the short- and long-term interests of the benefit corporation.

Describe the maximization of shareholder profit

The Competing Voices -Henry Ford (1916): Used extra funds to increase salaries and lower car prices rather than pay a special dividend. (See Dodge v. Ford at page 167.) -Law Professor Adolf Berle (1931): "Corporate Powers as Powers in Trust" argues corporate powers are exercisable for the benefit of shareholders. -Law Professor E. Merrick Dodd (1932): "For Whom are the Corporate Managers Trustees?" argues business has a responsibility to the community. -The Court in A.P. Smith Manufacturing v. Barlow (1953): Upholds corporation's donation to Princeton University. (See Case Illustration at page 168.) More Competing Voices -American Bar Association (by 1950): Adds a philanthropic giving provision to the Model Business -Corporation Act. -Economist Milton Friedman (1970): "There is one and only one social responsibility of business...to increase profits." -State Constituency Statutes (beginning in 1983): -Corporate managers are given the option of considering more than just shareholders when making business decisions. -eBay Domestic Holdings, Inc. v. Newmark, 16 A. 3d 1 (Del Ch. 2010) - Sole purpose is to maximize shareholder wealth.

Describe the maximization of shareholder profit

The Competing Voices -Henry Ford (1916): Used extra funds to increase salaries and lower car prices rather than pay a special dividend. (See Dodge v. Ford at page 167.) -Law Professor Adolf Berle (1931): "Corporate Powers as Powers in Trust" argues corporate powers are exercisable for the benefit of shareholders. -Law Professor E. Merrick Dodd (1932): "For Whom are the Corporate Managers Trustees?" argues business has a responsibility to the community. -The Court in A.P. Smith Manufacturing v. Barlow (1953): Upholds corporation's donation to Princeton University. (See Case Illustration at page 168.) More Competing Voices -American Bar Association (by 1950): Adds a philanthropic giving provision to the Model Business Corporation Act. -Economist Milton Friedman (1970): "There is one and only one social responsibility of business...to increase profits." -State Constituency Statutes (beginning in 1983): Corporate managers are given the option of considering more than just shareholders when making business decisions. -eBay Domestic Holdings, Inc. v. Newmark, 16 A. 3d 1 (Del Ch. 2010) - Sole purpose is to maximize shareholder wealth.

True or false? Delaware claimed that the purpose of a corporation in the us is to maximize shareholder profit

True -In terms of dividends, value of stock, etc

true or false? You can be an organized benefit corporation and not be certified

True -This is voluntary but the idea of the certification is that the b certification gives you more confidence in what the company is doing

corporation

a legal entity with an identity distinct from that of its owners. -it can own assets, enter into contracts, and sue or be sued.

corporate constituency statutes

gives corporate managers the option of considering more than just the interests of the shareholders when making business decisions. -more than half the states have such statutes, and while some statutes apply to only a limited number of corporate decisions (e.g., when a company seeks to buy out or take control of another corporation), other statutes extend to the whole range of corporate decisions. -include employees and customers as constituents that can be considered, but some states' statutes also include other parties, such as suppliers, creditors, local communities, and both the state and the national economies as constituents -not specifically promoting socially responsible behavior but rather simply providing corporate decision-makers with the greatest possible latitude

B-Lab

idea of certifying corporations as B Corporations if the corporation creates a general public benefit as measured by an independent third-party standard and also meets other performance benchmarks set by B-Lab to ensure that the company meets specific social and environmental performance standards -Companies must submit periodic audits -use business to address both social and environmental concerns. -One of the goals has been to encourage states to adopt a new form of corporation that would have as a stated goal "stakeholder over shareholder." -B-Lab was actively involved in the adoption of Benefit Corporation legislation in the states.

benefit corporation

is called a hybrid entity because it not only has a profit motive but must also have the dual consideration of making a positive impact on society. -creation of a new form of doing business which would require the corporate directors to take a broad range of stakeholders into account in corporate decision-making, including, but not limited to, the community, employees, and consumers. -provides social-minded entrepreneurs with the unquestioned latitude to put social mission and consideration of stakeholders ahead of the financial bottom line for shareholders.

Conscious capitalism

movement acknowledges that corporations have a greater interconnectedness to society than ever before; therefore, they have a corresponding obligation to be more conscious in their decision-making. -Talked about in a book by john mackey -Movement happened after the enron and worldcom scandals

Stakeholder relationship management business model

one in which the management continually strives to develop good relationships not just with the stockholders, but with all stakeholders, including, employees, suppliers, and communities, in the belief that this will then translate into positive relationships with customers.

What are the three ps?

profit, people, planet

Stakeholder Theory

requires that the corporation consider the effect of its action not only on its shareholders, but on its customers, employees, vendors, suppliers, the community, and the environment. -Developed by freeman

What is the purpose of publicly traded corp?

the only purpose of a publicly traded corp is to maximize shareholder wealth

stakeholder

those groups without whose support the organization would cease to exist -refers to any individual or group that "can affect or is affected by the achievement of an organization's objectives.

True or false? Engaging in socially responsible behavior does not necessarily negatively impact corporate profits. In fact, some evidence indicates that socially conscious behavior may actually enhance shareholder value.

true

True or false? The conscious capitalist believes that the corporation should not put profit motivation first, but rather should focus on fulfilling the corporate mission or purpose, and that in turn, profits will follow. This favorable financial performance results from overall lower marketing costs, lower than industry-average employee turnover (due to employee satisfaction), and lower administrative costs (e.g., keeping healthcare costs lower by investing in employee wellness programs).

true

The Firms of Endearment

used for those companies that were identified as adopting a "stakeholder relationship management" business model

Describe the benefit corp

´-Multiple purposes: ´-Triple bottom line: planet, people, and profit ´-Public Benefit ´-Accountability ´-Transparency ´-Internally focused on sustainability and environmental protection

What are the two corporate models?

-Benefit corporation -Traditional corporate model

Describe the benefit corp

-Multiple purposes: -´Triple bottom line: planet, people, and profit -´Public Benefit -´Accountability -´Transparency -´Internally focused on sustainability and environmental protection

Describe the evolution of the hybrid entity (benefit corp)

-´State Constituency Statutes allow directors to craft a strategy that includes the well-being of stakeholders. -´B-Lab (formed in 2006) certifies corporations as B Corporations if they provide a general public benefit and meet other benchmarks. This is essentially a "seal of approval," not an actual new form of business. -´Benefit Corporations: -´In 2010 Maryland became the first state to enact Benefit Corporation legislation. -´The Benefit Corporation is a new form of business. It has a profit motive but also must have a positive impact on society. -´See Model Legislation described in Exhibit 6.3 on page 180.

True or false? Delaware claimed that the purpose of a corporation in the us is to maximize shareholder profit

true