Other-constituency theories and firm governance: is the benefit corporation sufficient?

Abstract

Stakeholder theory creates a core conflict between managers in publicly held corporations and their boards of directors. Benefit corporation legislation recently adopted in 31 states attempts to address this conflict between shareholder primacy doctrine and stakeholder theory. While benefit corporation statutes offer improvement over traditional corporate structure for firms operating according to instrumental stakeholder theory, they do not fully support the ends of normative stakeholder theory or alternative normative other-constituency approaches, such as recently introduced common good models of the firm. Managers choosing to employ normative other-constituency approaches may choose to put benefit corporation regulations to use in the states where these tools are available, but they will continue to be faced with conflicts between benefit corporation structure/governance and applying normative other-constituency approaches on a day-to-day basis in their operations.

Keywords:

• Benefit corporation
• common good
• corporate governance
• shareholder primacy
• stakeholder prioritization
• stakeholder theory

Acknowledgments

The author would like to thank Stephen Dill for the question that prompted this article, and the JMSR editor and anonymous reviewers whose thoughtful feedback contributed significantly to the development of this final submission. Of course, any errors in fact or interpretation remain those of the author.

Notes

1. Carrascoso (2014) does the same while remaining under the stakeholder theory umbrella, offering a Catholic social teaching-based normative core for stakeholder theory.

2. Westaway and Sampselle (2013) use the California Corporations Code as a representative example of the codes adopted by 12 states. Following their lead, the characterization of B corps in this section is drawn from the California Corporations Code.