For the Public and Private Good – Samuel W. Seymour

Samuel W. Seymour

 President’s Column, May 2011

Most of us are accustomed to a binary way of thinking in our professional lives. Either we’re focused on business objectives, e.g., maximizing profits or increasing market share, or we’re carving out time to benefit the public good, as with pro bono work. But there is interest in legislation pending in New York (as of this writing) that would create a new type of corporation specifically designed to tie the two objectives together.

Bill S.79-A/A.4692-A would allow for the incorporation of “benefit corporations,” which would, as the name implies, provide that corporations may elect to pursue one or more public purposes, such as improving neighborhoods, preserving the environment, or promoting the arts, in addition to achieving business objectives. The two goals are not necessarily at cross-purposes, as the bill’s justification language suggests: “Tens of thousands of companies are using sustainability and social innovation as a competitive advantage in the marketplace. Corporate leaders need to be able to shape business models that enable them to satisfy the demands of investors, employees and customers who increasingly demand that corporations serve both shareholders and society, considering the impact of their decisions on multiple stakeholders rather than maintaining a singular focus on short term maximization of financial profits.”

The New York City Bar’s Corporation Law Committee was asked to analyze the legislation and has submitted extensive comments. The first point we made is that we believe that Section 717(b) of the New York Business Corporation Law already authorizes directors to consider various factors that contribute to the communities where the corporation does business, and thus, with minor modifications, could be used to accomplish the goals of S.79-A/A.4692-A.

However, if this approach is not chosen, we support this legislation, with modifications. Among other areas, the Committee is concerned that the Bill’s requirement that a benefit corporation’s performance must be “assessed against” a “recognized” “third-party standard” is too restrictive. We therefore endorse the broadest possible approach, which would be to allow a benefit corporation to establish, in its certificate of incorporation as approved by shareholders, which public benefits should be pursued by the benefit corporation, even if they don’t fit within what is then considered to be a recognized third-party standard.

The Committee also flagged a number of drafting concerns that seemed contradictory or unclear with regard to certain voting provisions, giving priority to certain public interests and other matters.

Our Corporation Law Committee, one of two dozen City Bar committees devoted to business and finance issues, has been busy. In addition to focusing on the above legislation, it has produced two model confidentiality agreements for use in transactions, one where only one party will provide confidential information; and another where both parties will provide confidential information. The Committee attempted to reflect what both parties would look for in such an agreement and hopes it will be of great use to the legal community. These may also be found on the Reports page of the City Bar website, in an editable Word format.