June 26, 2019

Archives for March 26, 2014

Complexity of Mission and the Power of Form

joe_yockeyBy Joseph Yockey
Associate Professor of Law, University of Iowa

Consider two different social enterprises: Blue River Technology and Greyston Bakery.

Blue River applies expertise in robotics to develop new agricultural technologies. Recognizing that $25 billion is spent annually on herbicides that pose environmental risks, the company offers farmers the option to reduce their chemical usage by switching to robots pulled behind tractors that can quickly identify and kill weeds with a rotating blade.

Greyston sells brownies (including some found in Ben & Jerry’s ice cream), but it also adheres to a strict workforce development program. The company staffs its operations with hard-to-employ individuals and teaches them skills that they can use when looking for jobs across the wider foodservices industry. As Greyston’s slogan says, “We don’t hire people to bake brownies, we bake brownies to hire people.”

Greyston is organized as a benefit corporation; Blue River is not. That probably makes sense.

Blue River approaches what some call “the hybrid ideal” – a situation where everything a company does generates social value and revenue. The company’s social objectives are market driven. There is little tension between profits and impact. Mission drift is relatively easy to monitor. I wouldn’t think Blue River has much to gain by becoming a benefit corporation. Indeed, it seems to be doing just fine.

Greyston is different. It can’t align profits with public good quite as neatly. Its social mission is broader and open to greater interpretation. What does it mean for someone to be “hard-to-employ?” How should we measure something as fuzzy as workforce development? Even if we say that Greyston is near the hybrid ideal, can we be sure it won’t move toward greater pursuit of profits at the expense of public benefit? This might follow from something as simple as a change in ownership or leadership, and it could be hard to detect. Blue River’s products strike me as easily observable, but if Greyston makes discrete changes to its hiring policies, those decisions seem easier to keep under wraps.

The provisions found in benefit corporation statutes do not fully resolve these issues. However, I’m not ready to say that benefit corporation statutes are a mistake, or that becoming a benefit corporation is only about greenwashing. Instead, I argue that the benefit corporation’s best opportunity for influence is to be seen as a new institutional structure—one that can motivate the development of self-regulatory standards and provide a normative framework for social entrepreneurs and pro-social investors. This framework, in turn, can be particularly helpful to companies like Greyston that pursue more complex social missions.

First, the benefit corporation form offers a rallying or focal point that ought to make it easier for like-minded private actors to come together and collaborate on issues ranging from corporate governance practices to the development of social impact metrics. Seeing benefit corporation laws as focal in this way does not mean they will dictate particular standards. Rather, they simply incentivize firms and stakeholders to participate in a self-regulatory process by providing an archetype and hub that can facilitate communication and standards development. The form’s mandate to consider multiple interests should make such cooperation more palatable. Firms that prioritize profits above other objectives often lack the incentive to share information with their competitors. In that case, first-movers will see their profits slip if information sharing allows others to easily replicate their strategies. However, by definition, the benefit corporation form means that profits are not the overriding focus. It thus creates more room for cooperation and coordination—and as Haskell Murray reports, this already appears to be happening.

Additionally, a key step in addressing issues like mission drift is to recognize that, just as they send broader signals about values to the market, legal forms also influence corporate behavior. The people within an organization are the most significant determinants of its commitment to mission. With respect to the benefit corporation, forms that reflect a specific ideological commitment can influence internal culture by signaling the values that should inform employee decision-making.Patagonia cited this belief as a motivating factor in its decision to become a benefit corporation.

Finally, establishing a culture that leads to the internalization of values is easier when organizational goals match employees’ personal beliefs. The benefit corporation’s emphasis on dual objectives should attract socially minded employees by signaling that they will find a supportive structure in place. When employees then enter organizations that reflect their own values, they often exhibit greater motivation to act consistently with those values.

There is obviously much more to say about these points, and for anyone looking to wade deeper into them, I offer a fuller explanation here.

Unless the rapid spread of benefit corporation laws is evidence of an enthusiastic or cynical mistake (which I think is possible but unlikely), then there must be some underlying logic to unpack. My aim is to keep working to explain the social enterprise phenomenon, to put it into a clear theoretical framework, and to distill the best justifications for offering special organizational options for social entrepreneurs.

Joseph W. Yockey joined the faculty of the University of Iowa as an Associate Professor of Law in 2010 and was voted Professor of the Year by the law school student body for 2011-12.  He is also a two-time nominee for the University of Iowa’s campus-wide President and Provost Award for Teaching Excellence.  He teaches Business Associations, Securities Regulation, and a seminar on Securities Litigation.  His writing interests are in the areas of corporate governance, securities regulation, and corporate crime.

Before coming to Iowa, Professor Yockey taught as a Visiting Assistant Professor at the University of Illinois College of Law.  He is also a summa cum laude graduate of the University of Illinois College of Law, where he served as articles editor for the University of Illinois Law Review and was elected to the Order of the Coif.  After graduating from law school, he clerked for Judge John D. Tinder (presently of the U.S. Court of Appeals for the Seventh Circuit) in Indianapolis and practiced corporate and securities litigation at Sidley Austin LLP in Chicago.  He is a member of the Illinois Bar.

Professor Yockey is also a guest blogger for The Conglomerate, where this post originally appeared on March 20, 2014.

The opinions and views expressed by Featured Bloggers on CBA-CLE Legal Connection do not necessarily represent the opinions and views of the Colorado Bar Association, the Denver Bar Association, or CBA-CLE, and should not be construed as such.

 

CLE Homestudy: Public Benefit Corporation Act, Effective April 1, 2014

This CLE presentation took place on February 12, 2014. Click here to order the Video On Demand and watch the entire presentation online, click here for the MP3 Audio Download homestudy, click here for the CD homestudy, or call (303) 860-0608 to order by phone.

 

Tenth Circuit: Unpublished Opinions, 3/24/2014

On Monday, March 24, 2014, the Tenth Circuit Court of Appeals issued no published opinions and seven unpublished opinions.

Sanders v. Farris

Marshall v. Lombardi

Stine v. Berkebile

State of Kansas v. Price

Holt v. Newton-Embry

United States v. Mitchell

United States v. Newkirk

Case summaries are not provided for unpublished opinions. However, published opinions are summarized and provided by Legal Connection.

HB 14-1231: Requiring Colorado Office of Economic Development to Purchase Talent Analytics Tool

On January 30, 2014, Rep. John Buckner introduced HB 14-1231 – Concerning the Acquisition of a Talent Analytics Tool by the Colorado Office of Economic Development to Assess the Strength of the State’s Market IntelligenceThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires the Colorado office of economic development (office) to enter into a contract to obtain access to a talent analytics tool.

The office is required to use the talent analytics tool to conduct a study of the state’s talent base, including several specified factors. For the 2014–15 fiscal year, the bill requires the general assembly to appropriate specified amounts to the office to acquire access to the talent analytics tool and to conduct the study of the state’s talent base.

The office is required to include the results of the study in its annual report to the general assembly.

On February 18, the Business, Labor, Economic, & Workforce Development Committee approved the bill and sent it to the Appropriations Committee.

HB 14-1253: Implementing Recommendations of Civil Commitment Statute Review Task Force

On March 30, 2014, Rep. Beth McCann and Sen. Linda Newell introduced HB 14-1253 –  Concerning Implementing the Recommendations of the 2013 Civil Commitment Statute Review Task ForceThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill consolidates administrative provisions related to substance misuse or substance use disorders evaluation and treatment through emergency holds and extended-care certifications into a single statutory article. Currently, provisions for five-day emergency holds and short-term and long-term certification for alcohol treatment are found in one statutory article, while similar provisions for five-day emergency holds and short-term and long-term certification for drugs and other substances are found in another statutory article. The bill combines the two articles and creates a single process for emergency holds and short-term and long-term treatment for substance misuse and substance use disorders.

The bill adds revised definitions for “danger to self or others” and “gravely disabled” as approved by the 2013 civil commitment statute review task force.

The option for a jury trial for a certification for either a mental health or substance misuse hold is removed.

The term “imminent” is removed from “imminent danger” from the section concerning an emergency hold related to a mental illness.

Language is added to encourage treatment facilities to inquire about whether an individual has an advance directive for persons with a behavioral health illness at the time of admission and, if so, to refer to such advance directive and take it into account if medically appropriate. The bill makes conforming amendments.

On February 25, the Health, Insurance, & Environment Committee amended the bill and sent it the the full House for consideration on 2nd Reading.

Since this summary, the bill was laid over for 2nd Reading.

HB 14-1254: Requiring Unit Associations To Disclose Fees Charged by Association Manager

On February 3, 2014, Rep. Jeanne Labuda and Sen. David Balmer introduced HB 14-1254 – Concerning a Requirement to Disclose Fees Charged to a Unit Owners’ Association by a Community Association ManagerThis summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires a licensed community association manager who performs services for a homeowners’ association (HOA) through employees or subcontractors to fully disclose to the HOA, during contract negotiations and annually thereafter, all fees and charges that the manager will bill to the HOA for services performed by those employees or subcontractors.

The bill passed out of the House on February 26. On March 21, the Senate adopted the bill on 2nd Reading with amendments.

Since this summary, the bill passed 3rd Reading in the Senate.