Carol Liao

New laws designed to foster and govern social enterprises are propagating throughout the world. Beyond American initiatives, relatively little has been written to date on the global contagion of lawmaking to address the burgeoning field of social enterprise. Increased corporate lobbying to transplant American "benefit" corporation legislation into other countries, with little sensitivity towards existing legal ecosystems in those nations, has generated an urgency to broaden the literature and unearth the wide range of social enterprise law initiatives occurring across the globe. This article identifies over 40 state initiatives across 30 countries to distinguish this international movement. Critical thematic issues are identified from the available data, in hopes of shifting the focus away from private American interests in non-US countries and adding new knowledge to the development of social enterprise law and policies in the years ahead.

This article begins by detailing various ways in which states have defined the purpose of social enterprise and social enterprise-type businesses, including how jurisdictions have experimented between state-run certifications and separate corporate legal structures to meet growing demands from particular sectors and stakeholders. We find that most jurisdictions require social enterprises to have a specific social purpose designed to serve the targeted needs of specific sectors, marginalized groups, and/or vulnerable communities. Next, we examine how new state legislation has sought to ease or restrict capital access for these social enterprises. Finally, we provide a detailed overview of various tax initiatives explored by states to promote and foster social enterprises. We suggest that lawmakers proceed with caution in the development of social enterprise laws, particularly when they are in response to private interest groups, and engage in fulsome discussions on the range of available legal methods to foster social enterprise within their jurisdictions.

The growing body of law that is developing alongside the international proliferation of social enterprises has had its share of successes and failures. Experiences from the American low-profit limited liability company, the British and Canadian community interest company, and attempted cross-border implantation of the American benefit corporation in Canada offer valuable lessons for legislators contemplating new social enterprise laws to address the needs of their constituents. This chapter considers these early lessons and provides a framework for the strategic implementation of social enterprise laws when warranted within a nation’s corporate landscape.

While one may assume that the implementation of social enterprise laws can only help to advance social progress, this would be an incomplete – and, at times, incorrect – answer. With proper strategic implementation, hybrid alternatives could become the new legal tool that ignites the growth of social innovation from the private sector. But social enterprise laws could also thwart mainstream reform efforts. They could circumvent resources traditionally used toward the non-profit sector, and they may simply promote a neoliberal agenda and the shrinking of government responsibility. Without strategic implementation and brand awareness, the odds are likely that hybrid corporate legislation will be left unused – a lost opportunity. Policymakers should take these concerns into account throughout the process of introducing new social enterprise laws within a jurisdiction.

What is Canada’s actual legal model to govern its corporations? Recent landmark judicial decisions indicate Canada is shifting away from an Anglo-American definition of shareholder primacy. Yet the Canadian securities commissions have become increasingly influential in the governance sphere, and by nature are shareholder-focused. Shareholders’ rights have increased well beyond what was ever contemplated by Canadian corporate laws, and the issue of greater shareholder vs. board control has now become the topic of live debate. The future of Canada's overall model seems to rest on what will be more compelling: the constancy of the corporate statutes and trajectory of the common law, or the power and influence held by the regulators.

These conflicting theoretical positions have enriched the dialogue on the current environment of Canadian corporate governance. This qualitative study brings together some of Canada’s leading senior legal practitioners to opine on the fundamental principles that are driving the development of Canadian corporate governance today. Taken within the context of today’s legal and regulatory environment, their insights piece together the framework of a Canadian model of corporate governance to further director knowledge and help inform future research.

There has been much fanfare surrounding the possible implementation of a legal model of social enterprise similar to the American benefit corporation in Canada. This article points out that some of the fundamental legal characteristics of the benefit corporation are already reflected in existing Canadian corporate laws, and in some instances Canadian laws are comparatively more progressive. Directors owe fiduciary duties to the best interests of the corporation, and minority protections such as the oppression remedy oblige directors to consider non-shareholder stakeholders. Landmark judgments from Canada’s highest court have affirmed the board requirement to consider stakeholder interests, and that directors are not confined to short-term profit or share value. The Supreme Court of Canada has highlighted that directors are required “to act in the best interests of the corporation, viewed as a good corporate citizen” and “commensurate with the corporation’s duties as a responsible corporate citizen.” Canada does not need to adopt American solutions to American problems. During these formative years in Canadian corporate legal development, the nation’s legal stance must be properly understood and taken into account when establishing new legal entities for social enterprise, so as not to confuse and/or jeopardize that stance. This article will lay out the arguments against the adoption of the benefit corporation in Canada, in hopes that the debate will be laid to rest and energies will shift toward more effective reforms to producing social change through Canadian corporate laws, be they via new legal forms or not.

There is considerable legal scholarship focused on reforming the shareholder primacy model of governance embodied within the modern day corporation. While these efforts are worthwhile and must continue, there are certain ideological and practical limitations that make true reformation of this model difficult. It is important, therefore, that in the midst of ongoing efforts, one does not lose sight of available alternatives.

This article promotes a novel perspective that does not spring from traditional-style efforts of corporate reform, but rather, on how a growing trend in corporate law may create 'disruptive innovations' in the marketplace and foster an environment where sustainable companies eventually become the norm. This trend is the global emergence of corporate hybrid legal structures that are blending both for-profit and non-profit legal characteristics in their governance design. Corporate social responsibility (CSR) is getting a facelift in the private sector. Large multinational corporations are still catching onto CSR, but the leaders at the forefront of the movement are transforming the concept of CSR into one of 'social innovation' and the integration of business concepts with social activism. The growth of the 'social enterprises', a definition with no legal meaning that commonly refers to either a for-profit corporation trying to do social good, or an enterprising non-profit organization, is beginning to generate statutory responses in several countries. Legislators are beginning to create corporations with legal features that support social enterprises. With correct strategic implementation, corporate hybrids have the potential to challenge the status quo and force mainstream corporations to change how they operate.

This report comes at a unique time in Canadian corporate governance history. It has been five years since the landmark decision of BCE Inc. v 1976 Debentureholders, a plan of arrangement case where the Supreme Court of Canada specifically addressed director duties in relation to stakeholder interests. In the decision, the court affirmed its earlier findings in Peoples Department Store Inc. (Trustee of) v. Wise and seemed to shift away from an Anglo-American definition of shareholder primacy. But of course, the current state of Canadian common law is only one part of a larger story. The Canadian securities commissions have become increasingly influential in the governance sphere, and by design are shareholder-focused. Canada is considered one of the most bidder-friendly jurisdictions in the world, as Canadian boards have a limited number of defensive tactics when faced with an unsolicited takeover bid. Shareholders’ rights have increased well beyond what was ever contemplated by Canadian corporate laws, and the issue of greater shareholder vs. board control has now become the topic of live debate. The release of competing proposals from the Canadian Securities Administrators and the Autorité des Marchés Financiers regarding the use of shareholder rights plans and defensive tactics in general have put these issues under increased scrutiny in Canada.

The conflicting theoretical positions from the courts and the securities commissions have enriched the dialogue on the current environment of Canadian corporate governance. This qualitative study brings together some of the top corporate legal minds in Canada to opine on the fundamental principles that are driving the development of Canadian corporate governance today. Interviews were conducted with 32 leading senior legal practitioners across Canada, who spoke candidly on matters involving shareholder primacy, director duties, stakeholder interests, common law and the courts, regulatory bodies, and the future trajectory of Canadian corporate governance, among other things. The observations from these senior practitioners provide a pulse check on the dynamic field of Canadian corporate governance. Taken within the context of today’s legal and regulatory environment, their insights piece together the framework of a Canadian model of corporate governance to further director knowledge and help inform future research.

Generously funded by the Canadian Foundation for Governance Research. This report was sent to 7,500 members of the Institute of Corporate Directors on November 14, 2013.

There is considerable legal scholarship focused on reforming the shareholder primacy model of governance embodied within the modern day corporation. While these efforts are worthwhile and must continue, there are certain ideological and practical limitations that make true reformation of this model difficult. It is important, therefore, that in the midst of ongoing efforts, one does not lose sight of available alternatives.
This chapter begins by addressing some of the formidable barriers facing the reformation of the shareholder primacy model. It does not delve into long-standing arguments for and against shareholder primacy, which are canvassed adequately in other chapters of the book, but highlights factors that – regardless of the validity of one’s theoretical arguments – perpetuate the continued domination of this mainstream model. These factors include entrenched ideological beliefs that have permeated the psyche of corporate governance practices in global capital markets, and path dependence. The reasoning leads one to conclude that those seeking transformative change should consider innovative new avenues to supplement the pathway to genuine corporate reform.
The chapter then provides a closer look at co-operative ownership as an existing alternative to the mainstream model, and how this structure has played an integral role in the growth and development of local communities throughout the world. The remaining bulk of the chapter is dedicated to exploring a new generation of corporate hybrid alternatives that have appeared within the last decade in the United Kingdom, Canada, and the United States. These hybrids embody governance features that are attempting to support the space between the for-profit and non-profit arenas. The reasons behind particular hybrid features are explored, as well as main challenges these models face, and the potential upside. It concludes by suggesting that more efforts are needed to foster the growth and development of alternative legal models. Increased research and analysis, particularly economic analysis, is needed and may spell the difference between the success and failure of hybrids in the pursuit of long-term sustainable development.

The period when corporate social responsibility (CSR) only referred to corporate philanthropic donations has passed. Present day CSR is intimately intertwined with sustainable development, and its growth in the last several decades has been evident in Canada. The recent appearance of “hybrid” corporate legal structures on the international stage marks a growing trend toward enabling the dual pursuit of economic and social mandates for businesses. It suggests that the next significant stage in the CSR movement will be in the reformation and creation of corporate legal models that not only enable, but require, CSR concepts to be embodied within corporate governance practices.

While the US shareholder primacy model is often presumed to be the model that is dominant in modern Canadian corporations, this presumption is flawed. This article identifies some of the fundamental legal features that set Canada apart from US shareholder primacy, and attempts to demarcate a path for Canada to attain transformational corporate governance through its laws. The term “transformational” is borrowed from the business sector to help identify a tangible goal for corporate governance reform in Canada. Highlights include having a sustainable purpose, long term vision, and multi-stakeholder collaboration. Canada is poised to become a leader in corporate governance reform on two fronts: through the reformation of its existing laws regulating mainstream corporate governance practices, and in the creation of hybrid laws that can meet growing demands to legally house and govern social purpose businesses and enterprises.

There has been much fanfare surrounding the possible implementation of a hybrid similar to the US “benefit corporation” in Canada in order to address growing for-profit sector needs to pursue social value in addition to profit-making. However, some of the fundamental legal characteristics within the benefit corporation actually parallel existing common laws in Canada regarding mainstream corporate governance practices. Canada does not need to adopt American solutions to American problems. During these formative years of Canada’s corporate legal development, it is critical that the nation’s progressive legal stance is properly understood and taken into account when establishing hybrid laws so as not to confuse and/or jeopardize that stance. An ongoing stream of thoughtful and intelligent commentary is needed to address and advance Canadian corporate legal needs for social progress, as well as the establishment of innovative new hybrid laws that can bridge the gap between for-profit and non-profit sectors.

This article questions the efficiency of the shareholder primacy model of corporate governance in light of the financial calamities that have plagued the first decade of the 21st century. Reform efforts following the global financial crisis have focused on failures in securities regulation, but that is only part of the story. Effective reform measures must also address the legal and normative prescriptions found within existing governance structures, and the collateral effect those prescriptions have on political and regulatory inaction.

There was strong ideological support for the shareholder primacy model at the start of the century. Following the corporate and accounting scandals of 2001 and 2002, three scholarly perspectives emerged addressing the effectiveness of the model. This article continues the dialogue on those perspectives and examines two factors that contributed to the collapse of the US subprime mortgage market: the repeal of the Glass-Steagall Act and the originate-to-distribute model of lending. The examination reveals how the shareholder primacy model played a key role in the onslaught of the global financial crisis by incentivizing the obstruction of efficient regulation. Alongside this analysis is an interwoven account of the evolution of law and economics scholarship. The article provides a timely outlook on how the shareholder primacy model encourages corporate behaviour that perpetuates the likelihood of future crises. It concludes by offering potential solutions for reform.

How do for-profit companies govern themselves in the act of social value creation when there are no existing policies in place? This article offers three initiatives as a starting point for Canadian social entrepreneurs who are eager to use the engine of a for-profit business to market their goods and services and consider the contribution of social value essential to their companies’ success. The three initiatives provide the foundations for basic, yet fundamental, architecture for interested companies. In addition to providing practical information for social entrepreneurs, these initiatives highlight a gap in Canadian policy. The emergence of hybrid corporate governance models on the international stage suggests a unique sector of the social economy is beginning to form. It is critical that Canadian federal and provincial governments address growing demands by establishing policies to govern businesses in the dual mission of profit and social value creation.

This paper was produced for “In Berle’s Footsteps,” a symposium marking the launch of the Adolf A. Berle, Jr. Center on Corporations, Law and Society at the University of Seattle School of Law. It considers the light that the “derivatives revolution” sheds on the theoretical perspectives of Roberto Unger and Adolf Berle. While an unlikely pair, both Unger and Berle focused, in different ways, on the same issues: property, the power associated with property, and the impact of “smashing the atom” of traditional property rights. For Unger, breaking down consolidated property holding at the societal level was a pro-democratic move. For Berle, analyzing corporate law, the separation of ownership from control risked promoting exactly the kind of concentration of power that Unger, through destabilization, sought to destroy. Financial derivatives products deconstruct property well beyond what Berle contemplated, and through a fundamentally different mechanism than what Unger envisioned. Both the differences and the similarities between real life and theory are illuminating. We describe the effects of derivatives at three levels: at the level of corporate law; of financial firm practices and the originate-to-distribute model, and of the global over-the-counter derivatives market. In each case, we find that the fluidity produced by disassembling traditional property rights creates a space within which sophisticated parties are able to consolidate and reaffirm their power. Thus while Unger’s claim about the necessity of “destabilization rights” still resonates, Berle’s insight into the human will to power is central to understanding the risks associated with that destabilization.