Sustainability Meets Profitability: The Convenient Truth of How the Business Judgment Rule Protects a Board's Decision to Engage in Social Entrepreneurship

Abstract

The world of publicly held companies sits on brink of change. Corporate focus that has traditionally been fully consumed with shareholder profit maximization is rapidly diverging into a new sector that takes a more social view. Whether by choice or force, this change is inevitable. On one hand traditionalists with shareholder tunnel vision resist; on other, community activists and socially concerned corporate leaders are embracing change. Leaders of publicly traded corporations such as eBay's Jeff Skoll and Pierre Omidyar and Google's Larry Page and Sergey Brin done so in ways that seem likely to shape their generation's philanthropic legacy-first poking at firewall between nonprofit and business worlds, then punching through and building a network of investments that cross back and forth. Thus, social entrepreneurship is born. Put simply, social entrepreneurship takes proven business tools and applies them to generate a social good. To clear any misconception, social entrepreneurship is an investment, not a gift, and not charity. Investments in social entrepreneurship are two-fold: pecuniary and social; thus, a double bottom line is developed. Decisions to engage in social entrepreneurship look beyond corporate wall and to outside stakeholders where the social mission and business mission [are] inseparable. Naturally, a question arises: Are these corporate decisions that look beyond shareholder profit maximization allowed and supported by law of corporate governance and business objectives? The short answer is: Yes. While some research and scholarly articles may suggest that corporate law must be revisited and completely or partially revised to support social entrepreneurship decisions, this Article proves that our existing legal system already allows for corporate decisions to look outside immediate shareholder interests. Thus, this Article shows that social entrepreneurship is supported by existing corporate law, within duty of care as protected by business judgment rule. First, a growing number of stakeholder constituency statutes, in addition to judicial corporate holdings, have opened door to allowing consideration of non-shareholders when making investment decisions. Second, investments in social entrepreneurship are just that-investments. Third, there is a growing body of knowledge that allows measurement of social impact and financial success of social entrepreneurship. In sum, this Article asserts that corporate decisions which consider outside stakeholders can increase shareholder value both socially and financially and therefore these decisions directly correlate with shareholder profit maximization and are within scope of corporate governance. Furthermore, availability of knowledge that such social investments exist and can be profitable for company and its shareholders, both socially and financially, invokes board of director's duty to be informed when making investment decisions.