The benefit corporation model
The benefit corporation legislation, introduced by stability law 2016, and dedicated to corporations having among their purposes that of creating common benefit, is included in a varied system of entrepreneurial initiatives based in different ways on the care and protection of the common good.
In said scenario, beside strictly non-profit activities, characterized by exclusive social or cultural purposes and by the consequent absence of a profit-making purpose, the world of lucrative enterprises has shown, for some years now, a growing interest in business ethics issues and in the attempt to combine profit purposes with social responsibility commitments, sometimes legitimising and formalising said commitment in dedicated documents (codes of conduct or codes of ethics) disclosed to the public.
The social responsibility commitments of the enterprise
The reason of the assumption of similar commitments lies in the belief that the enterprise may autonomously take responsibility for the possible impact of its activity on the interests of third parties or of the community where it operates and that, therefore, it may proactively put its natural orientation to profit next to the protection of social interests, even beyond the requirements of law, or that it may anyway strengthen, through positive initiatives, the result that the law wants to assure to protect the common good.
The social responsibility obligation so conceived and assumed by numerous profit-making companies, certainly noteworthy from an ethical point of view, has however raised quite a few issues of a specifically legal nature whereas it has posed the problem of checking the actual existence of similar commitments, their enforceability and the legal consequences of their non-fulfilment.
The balancing of interests in the multi-stakeholder perspective
In the first place, the hybridity of the enterprise purpose resulting from the assumption of social responsibility commitments gives rise to the problem of methods and terms for the balancing of heterogeneous and often divergent interests. This operation would require, on the one hand, a measurement criterion having a minimum certainty and verifiability, on the other hand, when the enterprise is established in the form of a company, the check of the admissibility of a voluntary alteration of the lucrative purpose that is distinctive of the types of companies provided for under the law.
In such context, characterised by numerous uncertainties, the benefit corporation model is intended to solve part of these problems, by offering a specifically governed ad hoc model that can be used by those profit-making companies wishing to pursue also common good purposes.
The new provisions on the benefit corporation
The new provisions are contained in paragraphs 376-384 of Article 1 of Law 208/2015 dedicated to those companies that “besides focusing on distribution of profits, pursue one or more common good purposes and operate responsibly, sustainably and transparently towards people, communities, territories and environment, cultural and social heritage and activities, institutions and associations and other stakeholders”. The law requires that the purposes listed above must be specifically indicated in the corporate object of the company and pursued through a management capable of balancing the shareholders’ interest with the interest of “those who may be affected by the business activity”, specifying that the “common good” is integrated both by the pursuit of positive effects and by the reduction of negative effects on one or more of the categories mentioned above.
The law further takes into consideration the problem of controlling the genuineness of such commitments and the actual compliance therewith not so much with regard to the granting of special advantages that, in the case at issue, are totally lacking, but to protect third parties’ reliance on the social commitment undertaken by the company, applying to benefit corporations that do no pursue common good purposes the provisions under legislative decree 145/2007 on misleading advertising and the provisions of the Consumer Code, entrusting the Antitrust Authority with the relevant controls (paragraph 384).
Balance of interests and evaluation of impact
The cornerstones of the legislation would mainly lay in the legitimation of the establishment of a benefit corporation according to one of the types of company under titles V e VI of book V of the Italian Civil Code, with the connected possibility to balance profit with common good purposes according to rules and methods defined in the corporate by-laws (see paragraph 380).
In addition, an evaluation of impact is necessary, which highlights the effect of the actions carried out by the corporation in the pursuit of common benefit (towards people, territories and environment, cultural and social heritage and activities, institutions and associations and other stakeholders), drawn up on the basis of a standard model developed by an independent body, according to transparent and verifiable procedures.
Certification of the company’s social impact
This formula mirrors the solutions adopted by North American laws, where a similar legislation on benefit corporations was introduced in many States in 2010 and where a certification system of the social impact of business activities operated by a specialised non-profit corporation (Blab) has long since been adopted. If, however, the BCorp certification obtained from accredited certification bodies does not imply, per se, to become qualified as benefit corporation, either in Italy or in other countries in which a similar legislation is in force, nonetheless the rules of law passed in Italy acknowledge the role of similar certification bodies at least in the validation of the instruments to assess the social impact of the business activity, most likely on the assumption that such criteria may be properly processed only by those who have acquired a consolidated expertise on the matter. Therefore, Italian legislation, while being the first in Europe to introduce such a model, may take advantage of the prior experience accrued in the world of overseas benefit corporations, at least for those profiles pertaining to the selection of the relevant common good and to the evaluation/reporting of its actual protection in the carrying out of the business activity.
Common rules and special rules for benefits corporations
The introduction of the new model among the types of undertakings under ordinary law shall conform, and be partially adapted, to the rules in force that apply to the parts not governed by the special rules. The issue is not of little relevance. First of all it should be excluded that the law was meant to create a new type of company. Indeed benefit corporations are conceived as a method or “model” to carry on business within the types of profit-making and mutual companies provided for by the Italian Civil Code, of which they can take the form.
However, it is impossible not to notice that the peculiarity of the purpose that characterises the spurious or hybrid model of benefit corporations and that distinguishes it from already known profit-making or mutual types of company, specifically concerns the causal aspect of the social contract, which makes benefit corporations a deeply “different” reality from the types of company contemplated by the Italian Civil Code, with all consequences that may derive therefrom during the process of integration of the special rules with the ordinary rules of the type of company adopted (take for example the rules on conflict of interests of shareholders or directors, controls on proper management, the rules on transformation).
The governance of benefit companies
Moreover, the adoption of the benefit corporation model has important effects on the governance of the company. Indeed paragraph 380 provides that, subject to the legislation governing the corporate form adopted, the benefit corporation identifies the person in charge of carrying out the functions and duties aimed at the pursuit of common benefit (in its possible forms). It provides moreover for a specific annual reporting activity through the drawing up of a report to be attached to the financial statements that contains: 1) the description of the objectives undertaken, of the methods and of actions carried out; 2) the evaluation of the impact according to the external evaluation standard; 3) the description of new objectives that the corporation intends to pursue.
Hence, it is certainly necessary that the arrangement of the organisational, administrative and accounting structures be consistent with the assumption of such specific mission, whose realization remains however the full responsibility of the directors, to whom the liability regime provided for by the Italian Civil Code in the rules for each type of company shall extend.
And it could not be otherwise, since the management of benefit corporations must be carried out, by law, focusing on the aforesaid balance of interests, according to the provisions of the first part of paragraph 380.
However, it is not completely clear whether such criteria should be indicated by the shareholders or whether they may be determined by the directors in the exercise of their discretionary powers through which they act in pursuing the social interest. But this operation is of the essence also to determine the measure of the respective components (profit and common good) present in the social interest, otherwise the evaluation of the operating results and the control of the proper fulfilment of the directors’ duties will be totally uncertain.
The liability of directors in the benefit company
Moreover, the application of the common rules on directors’ liability may give rise to quite a few problems. By way of example, with regard to the locus standi to exercise it, the mix of different profit and non-profit objectives in the corporate purpose and in the directors’ managing obligations may make the relevant codes on liability actions against directors of joint-stock companies inappropriate or insufficient (by way of example, the problem may raise of the right to sue of the owner of those other interests that the corporation has assumed as relevant: may the action pursuant to Article 2395 of the Italian Civil Code be invoked in such respect?). As many problems could arise from the determination of an indemnifiable damage that can be identified not only in the reduction (or non-increase) of the corporate assets, but as well in the detriment of the other interests prejudiced by the lack of or by improper balance between the interest in the common good and the interest in profit.
Companies “other” than benefit corporations, and social responsibility commitments
Further ambiguities may be encountered in Paragraph 379, in which the legislator distinguished benefit corporations from “other” companies that intend to pursue also the common good purpose, on which it imposed the obligation to amend consistently their deed of incorporation and by-laws, in compliance with the rules governing the corporate form adopted.
It is not clear if, on such occasion, the legislator simply wanted to regulate the adoption of the status of benefit corporation by undertakings already existing under ordinary law. If that were the case, the sense of the rule would likely be to impose only the compliance with the rules on amendments to the by-laws, excluding the application of the regulations on transformation.
As an alternative, one should suppose that the legislator instead only wanted to authorise undertakings under ordinary law that do not wish to take the form of a benefit corporation to derogate from the exclusiveness of the profit purpose under Article 2247 of the Italian Civil Code, giving the shareholders the power to decide in such respect by amending the articles of association or the by-laws and imposing the obligation to make the relevant publicity.
If that were the case, such caveat would certainly be meritorious given that many social responsibility commitments undertaken so far by profit-making companies were contained in non-binding documents (codes of conducts or codes of ethics, by way of example) drawn up, moreover, by the administrative body that could never autonomously decide its own objectives derogating from the obligation to pursue the creation of value for the shareholders, which is imposed as exclusive obligation by the legislation governing undertakings under ordinary law.
However, it should be pointed out that, even when the inclusion of, broadly speaking, social commitments is referred to the shareholders and legitimised in the by-laws, the company cannot avoid adopting further rules, aimed at measuring the results of the management so set and the distribution of the respective components on the directors’ performance objectives.
Application and interpretation scenarios of the new provisions in relation to CSR issues
In any case, regardless of the interpretation of the rule that one decides to embrace, the benefit corporation legislation may however open more interpretative scenarios, given the possible existence of companies that want to undertake corporate social responsibility commitments without adopting the benefit corporation model.
So, if important reflections will be dedicated to the model under the specific legislation that is likely to be adopted especially by the so-called low profit companies, that is profit-making (or mutual) companies whose specific and main commitment is as well the pursuit of social, cultural or humanitarian purposes, on the other hand there is the issue of how the special legislation may influence the selection of rules applicable to undertakings under ordinary law that wish to include a social commitment in their by-laws without necessarily assume the form of a benefit corporation.