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Should Benefit Corps ignore law in North Carolina?

'Business!' cried the Ghost, wringing its hands again. 'Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence, were, all, my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!'

- Charles Dickens

In 1999, it was a conversation online about the Ignorance and Want allegory from 'A Christmas Carol' which marked the beginning of my educttion in social innovation.

Two years ago, legislation to introduce the Benefit Corporation to North Carolina was rejected. Yet,  back in 1996 in Chapel Hill, it had been argued that business could serve the greater good, with consent of directors and stockholders if this was declared in the corporate charter.

A recent argument from Delaware Chief Justice Strine appears to support the argument made for business which serves community ahead of stockholders. Such business could be intepreted as self transcendence in Maslow terms, in that it aims to benefit others.

Can the law stop you doing good through collective consent? 

A recent paper from chief justice Strine argues for "The Need for a Clear-Eyed Understanding of the Power and Accountability Structure Established by the Delaware General Corporation Law"

The following passage drew my attention:

"It may well be the case that a certificate of incorporation that said that a for-profit corporation would put other constituencies’ interests on par with stockholders would, in view of § 101(b), be respected and supersede the corporate common law. But, in the case of silence, the idea that directors can subordinate stockholder interests to other interests of  the directors’ choosing is strained and at odds with the structure of our overall statute.

"As to the corporations whose behavior is most important to society in this debate – for-profit corporations – the bare citation to § 102(a) exposes the market reality, which is that large corporations have not used this as a method to put specific non-stockholder related purposes in their corporate certificates. That is, one does not find many, if any, public companies that say that they exist to pursue any lawful business for the purpose of protecting the environment, curing disease, or alleviating hunger.

"And historically, states, including Delaware, adopted statutes permitting corporate charters to simply state that the corporation was authorized to pursue “any lawful business or purposes” for a reason entirely unrelated to permitting for-profit corporations to put the interests of nonstockholder constituencies first."

Interestingly the following argument may found in It begins:

"At first glance, it might seem redundant to emphasize people as the central focus of economics. After all, isn't the purpose of economics, as well as business, people? Aren't people automatically the central focus of business and economic activities? Yes and no.

People certainly gain and benefit, but the rub is: which people? More than a billion children, women, and men on this planet suffer from hunger. It is a travesty that this is the case, a blight upon us all as a global social group. Perhaps an even greater travesty is that it does not have to be this way; the problems of human suffering on such a massive scale are not unsolvable. If a few businesses were conducted only slightly differently, much of the misery and suffering as we now know it could be eliminated. This is where the concept of a "people-centered" economics system comes in."

It made this proposition: 

"The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a charitable, non-profit organization whose proceeds go to local, national, and international charities. Non-profits, however, are typically very restricted in the type of business they can conduct. In the United States, all non-profits must constantly pay heed that they are not violating those restrictions, lest they suffer the wrath of the Internal Revenue Service. For-profits, on the other hand, have a relatively free hand when it comes to doing business. The only restrictions are the normal terms and conditions of free-enterprise. If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of corporate employees and community leaders."

The paper was delivered to US President Bill Clinton at the White House by our founder as a member pf the steering group of his re-election committee, on 16th September 1996. .

In 2004 P-CED became a UK Company Limited by Guarantee and in an inteview with the leader of the Crimean Tatar disapora, Terry Hallman described his work in Russia and Crimea. He was asked about the model:

"P-CED is People-Centered Economic Development. It began informally following a paper I wrote for the Committee to Reelect the President (US) in 1996. P-CED is now officially instituted in Britain as a company limited by guarantee for the purpose of socially beneficial enterprise."

"The P-CED model is not a charity sort of operation. It is business. What we choose to do with profits is entirely up to us, and we choose before anything else happens to set most of our profits aside to assist poor people. In fact, our corporate charter requires us by law - UK law, where rule of law is very well established - to use our profits only for social benefit. We cannot do anything else with it."

In the development proposal for Crimea, it had been described as a "Community Funding Enterprise" In this case describing its application to prevent violent conflict.

Denial came first from social enterprise support agencies who saw our work being beyond their focus. Yet soon, laws woud follow action.  

The following year  the Community interest Company became a new legal entity and today this is how it is recognised

"Any company can act in the community interest if the directors decide it should..but the only way a limited liability venture can gain recognition as a truly not-for-profit operation is to register as a Community Interest Company, a Company Limited by Guarantee or a Charity Limited by Guarantee. The CIC format (Community interest Company) is the most recent to be made available and has quickly gained popularity for small and medium sized not-for-profit ventures.

Charities must be established exclusively for charitable purposes, but a Community Interest Company can be established for any lawful purpose as long as its activities are carried on for the benefit of the Community."

The P-CED model has been published online since 1997 "free to use" for social benefit in the spirit of the open source movement.  

The Danger of Denial for us came with our work to leverage a 'Marshall Plan' for Ukraine. and its hijack by those who now stand to profit greatly. It has cost many lives, including that of our founder.

“This is a long-term permanently sustainable program, the basis for “people-centered” economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine’s poorest and most desperate citizens, rather than a “top-down” approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first — not secondarily, along the way or by the way.”

There would of course be risks in cutting a road through the law to get at injustice::