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ESELA Members Event – Luxembourg – 24 October 2017
The Misallocation of Capital:
Using Benefit Corporation Governance to Align
Our Investments With Our Needs
Frederick H. Alexander
October 2017
Financial capital is the fuel that allows the
private economy to provide the goods and
services we rely upon.
3
Capitalism
The corporation is a marvelous piece of
financial technology that allows disparate
investors to pool their financial capital and
diversify their risk.
4
Corporations Pool Capital
• Royal charters: trading companies
• Legislative charters; infrastructure:
bridges, canals, railroads
• Limited purpose, free incorporation:
manufacturers
• General incorporation: all business
Note the move from public purposes to “business is good.”
5
History of the Corporation
$350T - VOE
$100T - Debt
$70T - Public Equity
$10T - PE & VC
Where is the Capital?
6
Business & Consumer
Government
Spending*
Who Allocates Capital?
80%
* Excluding transfer payments
20%
7
Investment Channel
DUTY INVESTMENT
Pensioners Endowment Beneficiaries Insureds Foundation Causes
Pension Funds Insurance Cos Mutuals Funds Endowments Foundations
Advisors Investment Banks Management Institutions
Public Cos Privates Cos Direct Investments
Savers
Asset
Owners
Asset
Managers
Assets
8
• Protect and grow savings and allow transfers to future
self and later generations
• Direct savings to capital projects
• Steward that capital
9
Purpose of Financial Industry
Concern: agent management will usurp shareholder capital.
Agency Problem in the Industrial Corporate
Economy: Beyond the Pin Factory
10
Corporation
Disaggregated
Shareholders
Management
w/control
1. Management must act for benefit of
shareholders
2. Shareholders are only interested in financial
return on investment
3. Therefore, director duty is to increase return on
stock
Shareholder Primacy Solution Syllogism
11
Financial capital is indifferent to strategy, as long as return
on investment is maximized
Investment Capital Deployed to Yield Return
12
Value creation & sharing: positive sum
(reduction in energy use)
“Phishing”: zero sum strategy
(high pressure sales tactics)
Exploiting externalities: negative sum strategy
(carbon emission
w/o factoring in cost)
Sources of
capital return
Primacy Trap
13
Negative sum strategy satisfies up-the-channel duty,
creating incentive for capital to be allocated to create net
negative effects.
Modern Portfolio Theory amplifies the effect by emphasizing
importance of alpha and tracking error
• Managers seek to “beat the market”
• Managers treat market performance as exogenous
Beta
Alpha
BUT . . .
Source of Returns is the Market
80%
20%
14
15
Ms. Jones
Defined
Contribution Property, casualty 10 year old son Mr. Jones’ defined
Plan life insurance will attend college benefit plan
Endowment Union Fund
Mutual Fund Managers Manager Manager
ₒ ₒ ₒ ₒ ₒ ₒ ₒ ₒ ₒ ₒ ₒ ₒ ₒ ₒ
Investment Web
16
• Investor activity, both capital allocation and
investment stewardship, determines market
performance.
• Investor focus on individual company
performance alone inevitably leads to systemic
damage.
Modern Portfolio Theory Is Wrong
17
In order to benefit from their investments over the
long term, citizen shareholders need responsible
corporate citizens, pursuing sustainable, long-term
strategies.
What Investors Really Need
18
The primary failure of capital markets in relation to sustainable development is one of misallocation of capital. This, in turn, is a result of global governments’ failure to embed environmental and social costs into companies’ profit and loss statements. As a consequence, capital markets do not incorporate companies’ full social and environmental costs. The consequences of this are that unsustainable companies have a lower cost of capital than they should and so are more likely to be financed than sustainable companies. Aviva Insurance
Market Failure
19
Benefit corporation governance allows corporations
to adhere to authentic sustainability principles.
Benefit Corporation Governance Can
Change the Paradigm
20
Three Key Elements
of Benefit Corporation
Benefit corporation governance is a
legal tool that helps for-profit
companies create positive impact on
society and the environment. It aligns
investors, boards, shareholders and
stakeholders around a shared
objective: creating durable and
shared long-term value.
Expanded Purpose Beyond maximizing share value to explicitly
include general public benefit
Accountability Directors are accountable to balance stockholder and
stakeholder interests when making decisions
Transparency The legislation requires transparency to your
shareholders with respect to the expanded purposes.
21
Current Law and Markets
Erode Purpose and
Sustainability in For-Profit
Companies
Under Current Practice:
● The ultimate goal of directors is to
create and maximize share value.
● Value maximization is focus in exit
transactions.
● Business strategies that require
authentic commitment to
stakeholders may be
compromised.
22
Benefit Corporation
Law Provides Tools to
Protect A Sustainable
Vision
Benefit Corporation Status
Expands:
● Corporate Purpose
● Business Judgment Rule
● Liability Protection for Directors
● Flexibility in Change in Control
Situations
23
Benefit Corporation
Governance Allows
Corporations to Fully
Integrate Sustainability
Into Operation
● Many companies thrive by integrating
sustainability into operations
● Under conventional corporate
governance, sustainable performance is
always contingent on narrow conception
of fiduciary duty
● Benefit corporation governance allows
full integration by committing to future
sustainable performance
● This full integration permits the creation
of durable wealth within stable systems
● Creates benefits across portfolio and
systems for universal owners
24
Benefit corporation
status can be used to
preserve long-term
perspective in the
public markets
● Public companies are subject to short-term
pressures not experienced by private
companies (Etsy, Whole Foods and
Unilever).
● Many advisers will recommend classified
boards and dual class stock as ways to
address these pressures. These
structures are controversial, and can draw
activist attention.
● Benefit corporation governance is a way to
address this issue directly, without
affecting shareholder rights. May attract
shareholders with a longer term
perspective, and provide management
with credibility to make long term choices.
25
Now Is The Time: Institutions’ New
Power
Boards declassified
Majority voting
Proxy access
Proxy contests
Say on pay
26
How Is Power Being Used?
Board diversity, independence
Shareholder rights
Pay for performance
Environmental/Social?
Long-termism?
27
Opportunity
Long term, universal investors have more power than ever
before. Their return is based 80%+ on the return of the
market, and their beneficiaries are just plain folks who need
a thriving economy and healthy planet. Contemporary
corporate governance developments represent our best
chance to deliver the message that the interests of the
citizen shareholders who own the market is best served by
corporations that maximize value across human, natural and
social capital, as well as financial capital. Benefit
corporation governance is the best way to implement this
critical change.
28
Evolving Investment Standards Point
in This Direction
ICGN encourages companies, boards and
investors to think and act systemically with
regard to preserving the integrity and
stability of financial markets as a whole. --
ICGN
. . . the Fund’s large size and broad
holdings mean that direct and indirect
exposure to market-level risks is
inevitable. The fund is also mindful that
when market level efforts create a rising
tide that lifts all boats, the Fund is among
those who will benefit most.
-- NY Common Fund
As one of the largest asset managers in the world, we have an important responsibility to the millions of individuals who entrust their financial futures to us through retirement plans, endowments and foundations, financial intermediaries, and sovereign institutions. Our mission is to invest responsibly on their behalf to enable economic prosperity and social progress over the long term.
-- Ron O’Hanley, Chairman of State
Street
Investment practices that foster
intergenerational transfers of risk and
wealth raise duty of impartiality
concerns for long-term investors.
Changes in understanding of systemic risk, and related investment
management practices among global
peers, demonstrate an ongoing
evolution in the prudence standards against which the conduct of fiduciaries
is judged.
-- BlackRock/Ceres 21st Century
Engagement
29
Shareholder Protections
Protection Type Conventional Corporation Benefit Corporation
Elect Directors Governance ✓ ✓
Transaction Votes Governance ✓ ✓
Mission Alteration High Vote Governance ✓
Duty of Care Fiduciary Duty ✓ ✓
Duty of Loyalty Fiduciary Duty ✓ ✓
Duty of Disclosure Fiduciary Duty ✓ ✓
Derivative Suits Enforcement Mechanism ✓ ✓
Director/Class Action Enforcement Mechanism ✓ ✓
Books & Records Action Enforcement Mechanism ✓ ✓
Election Review Enforcement Mechanism ✓ ✓
Heightened Scrutiny Standard of Review ✓ ✓
Entire Fairness Standard of Review ✓ ✓
Benefit Report Disclosure Right ✓
30
Director Protections
Protection Conventional Corporation Benefit Corporation
Business Judgment Rule ✓ Expanded to include decisions made to benefit stakeholders
Indemnification ✓ ✓
Insurance ✓ ✓
Exculpation ✓ Expanded to include any balancing decision among
stakeholders, including shareholders
Legal permission to consider
stakeholder interests in sale
process
✓
Legal permission to consider
stakeholder interests in
defensive situations (hostile
takeovers)
✓
31
Venture Capital Case Studies
Total raised = $32.7 Million Total raised = $173 Million
32
Natura Public Conversion Case Study
33
Public Company Subsidiaries
Plum Organics (Campbell’s)
DanoneWave (Danone)
Happy Family (Procter & Gamble)
Lung Biotech (United Therapeutics)
34
Case Study: Laureate Education IPO
Sponsor
Private equity backed
Bankers
Credit Suisse; Morgan Stanley;
Barclays; J.P. Morgan; Macquarie,
BMO Capital Markets; Citigroup;
Goldman Sachs & Co.
Lawyers
DLA Piper / Simpson Thacher
Profile
$4.2 billion 2016 revenue
70 campuses/online schools
Operations in 25 countries
Funding
Pre-IPO round: $400 million
IPO: Raised $490M; priced on
February 1, 2017
ESELA Members Event – Luxembourg – 24 October 2017
Buying Social Within and Across the EU
David Hunter
The Aims for Today
Develop an appreciation of the potential significance for social
enterprises of procurement practices (primarily, but not exclusively)
public procurement practice
Highlight current practice in different jurisdictions across the EU
Identify some examples of good practice which could be applied more
widely
Generate interest in the new ESELA working group on public
procurement
Structure of this session
Brief introduction to EU approach to social procurement
Discussion – levels of awareness in different jurisdictions
Highlighting some UK initiatives
Discussion – initiatives in other jurisdictions; good practice
Where next?
EU initiatives
Europe 2020 Strategy (2010)
Buying Social Guide (2011)
Social Business Initiative (2011)
Procurement Directives (2014)
GECES Call for Action (2016)
Strategic Public Procurement Conference, Paris (2017)
Europe 2020 Strategy
“to enable procurers to make better use of public procurement in
support of common societal goals”
“Enabling procurers to use their purchasing power to procure goods and
services that foster innovation, respect the environment and combat
climate change while improving employment, public health and social
conditions”
Buying Social Guide
“A guide on taking account of social considerations in public
procurement”
A practical tool to help public authorities to buy goods and services in a
socially responsible way in line with EU rules.
It highlights the contribution public procurement can make to stimulate
greater social inclusion.
Social Business Initiative
Formally recognised the valuable contribution social enterprises make,
both economically and socially
Identified steps to be taken to support the development of social
enterprises.
A significant part of this was taking social enterprises into account in the
updating of procurement and state aid rules
Procurement Directive 2014
Strategic use of public procurement in response to new challenges
Better access for social enterprises and SMEs
Specifically:
Market consultation
Innovation Partnerships
Light Touch Regime
Reserved Contracts
Basis for Award (MEAT and lifecycle costing) Passporting and
simplification of the process
Limitations on restrictions for participation in the process (financial
thresholds; division into lots)
Labels; social and employment conditions
GECES
The Expert Group on Social Entrepreneurship (Groupe d'experts de la
Commission sur l'entrepreneuriat social - GECES)
Representatives from EU member states
Has reported on variety of topics relating to social enterprises
Most recently, a review of the current circumstances and
recommendations for progress, including …
… Buying Social version 2
Discussion
What is the level of attention given, or importance attached, to working
with social businesses in your country?
What is the prospect of this changing in the near future?
How would you compare the purchasing from social businesses that
takes place currently by:
(i) state bodies
(ii) private companies
(iii) other social businesses?
UK Initiatives: England (and Wales in part): Public
Services (Social Value) Act 2012
Statutory duty to “have regard to how what is proposed to be procured
may improve the economic, social and environmental wellbeing of the
relevant area and how that improvement may be secured”
Good in that it draws attention to the need to take social value into
account
Since coming into force, it has raised the profile of the issue and lots of
commissioners have developed social value policies and toolkits
But …
Social Value Act challenges
It is only a duty to consider at the outset of the procurement, so fairly weak
It applies to public services only (not works or goods) to which the
regulations otherwise apply
It is still restricted to relating to matters that relate to the subject matter of
the contract and must be proportionate
Some commissioners have defaulted to compliance mentality – what do we
need to do not to be in breach, rather than what opportunities do this create
for us?
It is about social value, not social enterprises
It can encourage the sense social value is distinct from quality, or value
more generally and not integrated into the wider offering
Still, overall, a step in the right direction
Scotland: The Procurement Reform (Scotland) Act 2014
and The Public Contracts (Scotland) Regulations 2015
The Act has social responsibility at its core and an intent to drive greater community
benefit through public procurement.
Provisions only began to come into force last year so limited opportunities to assess
in practice yet
Introduces the “sustainable procurement duty” – to consider how the process can
be used to improve the economic, social and environmental wellbeing of the area; to
facilitate the involvement of SMEs, third sector bodies and supported businesses; to
promote innovation relevant and proportionate to what is being procured
Requirement to have regard to guidance on Fair Working Practices, including the
living wage in the supply chain
Applies the regulations to ‘sub-threshold procurements (£2m for works, £50,000
otherwise
The Regulations very similar to England, but evaluation only on MEAT
Wales: Well-being of Future Generations (Wales) Act
2015
Does not mention procurement explicitly, but …
requires public bodies to do things in pursuit of the economic, social,
environmental and cultural well-being of Wales in a way that accords with
the sustainable development principle*;
requires public bodies to report on such action;
establishes a Commissioner for Future Generations to advise and assist
public bodies in doing things in accordance with the Act
“in a manner which seeks to ensure the needs of the present are met
without compromising the ability of future generations to meet their own
needs”
Specifically encourage working in ways which are demonstrably long term;
preventative; integrative; collaborative; inclusive
Northern Ireland
Development of a National Policy on Social Enterprise underway
Partnership between Department for Rural and Community
Development and Social Finance Foundation to produce research to
inform the policy
A policy commitment to a stronger Social Value Act than the English
one, which is in abeyance because the Assembly is suspended
Few commercial SEs as opposed to voluntary sector
Discussion 2
What initiatives exist in your jurisdiction (whether regulation, policy or in
practice) to encourage and enable greater purchasing from social
businesses?
What is the best example you are aware of of a procurement process
which has enabled social businesses to succeed?
What do you think would make a real difference in your country to
increase purchasing from social businesses?
Discussion 3 - What next?
ESELA Working Group on Public Procurement
Follow up information sharing
Topics for future focus
Others?
Contact Details
David Hunter
Consultant Solicitor
d.hunter@bwbllp.com
020 7551 7684
The EU General Treaty Principles
Non discrimination
Equal treatment
Proportionality
Transparency
Market Consultation
Expressly permitted by Article 40
Not just with providers but clients too
Important to do it well
Should be standard commissioning practice
Innovation Partnership
Where a commissioner is looking for something different
NOT restricted to very large, high tech procurements
Involves developing potential solutions with bidders and contracting with
one to implement the preferred option
Potentially useful where providers develop own ideas around what
might make a difference
Light touch regime
Applies to ‘health and social services’
Higher threshold (EU750,000)
Only restrictions above the threshold apply to how the market is informed of
the opportunity and the outcome of the process
Whether above or below the threshold, wide discretion around the process
itself – provided it complies with the Treaty Principles
Flexibility may make use of innovation partnerships more palatable
BUT remember Part B experience
Reserved contracts
Apply to a subset of those services to which the light touch regime
applies
Opportunity may be limited to qualifying organisations, namely:
have a public service mission
reinvest profits to further that mission
management or ownership of the organisation is participatory
has not been awarded a contract for these services in previous
three years
Can only apply to a contract for three years
Basis for Award
MEAT, but can be price only
Must use a cost-effectiveness approach such as life-cycle costing
May use price-quality ratio, using criteria such as qualitative,
environmental or social aspects
May set price and ask bidders to compete purely on quality
Criteria must relate to subject matter of the contract “in any respect and
at any stage of their life cycle”
Price Fixed – Assess Quality
Borne by Commissioner/
Service User Externalities
Usage Costs
Maintenance
End of Life
Costs Mitigation
Costs
Qualitative Criteria
Price – Quality Ratio
Life Cycle Costs
M.E.A.T.
Technical
Aesthetic
Accessibility
Design
Innovation
Staff experience and quals
After sales support
Social
Environmental
Carbon
Emissions
Other
Pollutants
Price
199999/0769/4077492.01
ESELA Members Event – Luxembourg – 24 October 2017
Section x: Structuring Social Enterprises in the EU
Alissa Pelatan (AMP Avocat)
Malcolm Lynch (Wrigleys Solicitors LLP)
Aurélien Chris Hollard (Arendt & Medernach)
Summary
- European Social Enterprise Definition
- UK Social Enterprise Legal Structures & Tax Efficient Investment
- Three recent SE legal statuses (SB, ESUS, SIS)
Social Enterprise in Europe
Definition of Social Enterprise
Social Enterprise in Europe
Operational Definition:
1. Enterprise must engage in economic activity: this means it must
generate income from market sources
2. Enterprise must pursue an explicit and primary social aim: a
social aim is one that benefits society or the environment
3. Enterprise must have limits on distribution of profits and assets:
the purpose of such limits is to prioritise the social aim over profit
4. Enterprise must be participatory: participation means it allows
stakeholder views to be appropriately represented
5. Enterprise must be independent: Independence means
independence from the state.
Social Enterprise in Europe
UK Social Enterprise Legal Structures &
Tax Efficient Investment
UK Social Enterprise Legal Structures
Long established companies New social enterprise
companies Long established societies Charitable legal forms
Legal entity
Private company limited by shares Public company limited by shares Private company limited by guarantee and having no share capital
Need to add safeguards e.g. voting rights
Community interest company limited by shares Public community interest company limited by shares Community interest company limited by guarantee
Co-operative society Community benefit society
Long established Charitable Trust (1) Charitable Company Limited by Shares or by guarantee (2) Community Benefit Society (3)
Newly established Charitable Incorporated Organisation(1)
Registrar
Registrar of Companies
Registrar of Companies
Mutuals Societies Registrar at the Financial Conduct Authority
(1) Charity Commission only
(2) Registrar of Companies, Charity Commission and HMRC
(3) Mutuals Societies Registrar and HMRC (England)
UK Social Enterprise Legal Structures and Tax Efficient Investment
Enterprise Investment Scheme (EIS)
Seed Enterprise Investment Scheme SEIS
Social Investment Tax Relief (SITR) Individual Savings Allowance (ISA)
Legal entity
Private company limited by shares Community interest company limited by shares Public company limited by shares Co-operative Society Community benefit society Unlisted
Private company limited by shares Community interest company limited by shares Public company limited by shares Co-operative Society Community benefit society
Charitable Trust Charitable Incorporated Organisation Charitable Company Limited by Shares or by guarantee Community interest company limited by shares or guarantee Community Benefit Society
Listed Public Limited Company e.g Retail Charity Bonds plc
Mandatory investment
period
Three years.
Three years.
Three years.
None
Maximum investment
Annual: £5 million per group. Lifetime: £12 million (£20 million if satisfy knowledge intensive test) per group
£150,000 per group in any three-year period.
Soon to be £1.5million per social enterprise in any three-year period.
None
Rate of income tax
relief on investment
30% up to maximum capital investment per investor of £1 million per year. Taxed on dividends
50% up to maximum capital investment per investor per year of £100,000. Taxed on dividends
30% up to maximum capital investment per investor per year of £1 million. Taxed on dividends and interest
None 100% relief on dividends and interest
UK Social Enterprise Legal Structures and Tax Efficient Investment
Enterprise Investment Scheme (EIS)
Seed Enterprise Investment Scheme SEIS
Social Investment Tax Relief (SITR) Individual Savings Allowance (ISA)
Capital gains tax
relief
1. Hold-over relief.
2. Exemption for gains on EIS investment if income tax claimed.
1. Exemption for gains on SEIS investment if income tax relief claimed.
1. Hold-over relief.
2. Exemption for gains on SITR investment if income tax claimed.
100% relief on capital gains
Type of investment
Shares.
Shares.
Shares and debt.
Shares and debt
Investment vehicle: key
criteria
Must: Be unquoted when the investment is made.
Must: Be unquoted when the investment is made.
Must: Be a charity, community interest company (CIC), community benefit society or accredited social impact contractor.
Security listed on recognised investment exchange (Securities of PLC) for example, London, Luxembourg
Investment: key criteria
Full risk ordinary shares, no preference or redeemable shares
Full risk ordinary shares, no preference or redeemable shares
1. Full risk ordinary shares.
2. Unsecured debentures.
3. Shares and debt may not offer more than a reasonable commercial rate of return.
Securities not repayable within 5 years
Permitted activities
Must carry on a trade on a commercial basis with a view to profit. Some activities are not permitted:
Must carry on a trade on a commercial basis with a view to profit. The same activities as EIS are not permitted for SEIS.
Must be a charity or carry on a trade on a commercial basis with a view to profit. Some activities are not permitted:
Any activities
Società Benefit in Italy
Società Benefit in Italy
Società Benefit (SB) Law of 28 December 2015
Key features
Commercial Companies
•Commercial companies including cooperatives, partnerships, and mutual company…
SB Company
• Pursue general social purpose + specific purpose(s)
• Directors must take into consideration stakeholder interests
• No limitation on profit and asset distribution or governance requirement,
• Publish an annual “benefit” report
• Independent 3rd party certification to verify achievement of specific purposes
• No limitation of liability clause
Società Benefit in Italy
Società Benefit (SB) Law of 28 December 2015
Main advantages
Commercial Companies
SB Company
No tax or legal advantages…
ESUS Company in France “Entreprise Solidaire d’Uitilité Sociale”
ESUS Company in France
Entreprise Solidaire d’Utilité Sociale (ESUS) Law n. 2014-856 of 31 July 2014
Key features
SSE Companies
• “Traditional” SSE Companies: associations, foundations, mutual companies, cooperatives); &
• Commercial companies with the following statutory provisions: • Primary social aim (social utility),
• Democratic governance, and
• Limits on distribution of profits
Social Utility and Solidarity Enterprise
• Primary social aim (social utility),
• Limitation on compensation,
• Activity has a significant impact on financial returns or expenses,
• Shares cannot be traded on regulated market,
• Renewable every 2 or 5 years
ESUS Company in France
Entreprise Solidaire d’Utilité Sociale (ESUS) Law n. 2014-856 of 31 July 2014
Main advantages
SSE Companies
• Image / Communication
• Visibility / Funding
• Subsidized employment contracts (in some regions)
Social Utility and Solidarity Enterprise
• 90/10 Funds
• Tax advantages on investment (tax reduction on investment)
• Subsidized employment contracts (in some cases)
• Civil service volunteers
SIS Company in Luxembourg
SIS Company in Luxembourg
Société d’Impact Sociétal (SIS) Law n. 255 of 12 December 2016
Key features
Commercial Companies
• Commercial and Cooperative Companies (SA, SARL, SC only)
SIS Company
• Primary social aim (social utility),
• Autonomous management,
• Limitation on profit and asset distribution,
• Annual impact report + KPIs to measure performance of social impact,
• Annual audit
SIS Company in Luxembourg
Société d’Impact Sociétal (SIS) Law n. 255 of 12 December 2016
Main advantages
Commercial Companies
SIS Company
SIS companies with 100% of impact shares:
• Exempt from corporate tax,
• Income tax deduction for donations (cash) granted to SIS (same as FRUP and ASBL),
• Public funding.
Any SIS company: - Visibility, - Grants, - Public tenders (marché publique)
SIS companies with min. 50% of impact shares: Subject to corporate tax, Allows commercial activities, Enable hybrid financing
(impact/standard shares).
Share Capital: 100% impact shares
Donor
Social Impact
Company
Tax Administration
Total net
income
Donations
DEDUCTION
CIT MBT
NWT
EXEMPTION
SIS Company in Luxembourg
Comparison Chart – Examples of Social Enterprise Legal Statuses
Main criteria
European SE
ESS-ESUS Enterprise
(Fr)
SIS (Lux)
Societa Benefit (It)
CIC (Uk)
Economic Activity
✔ ✔ ✔ ✔ ✔
Primary Social Aim
✔ ✔ ✔ ✔ ✔
Asset and Profit
Limitation
✔ ✔ ✔ ✔
Inclusive governance
✔ ✔
Organizational Autonomy
✔ ✔ ✔ ✔
Compensation Limit
✔ ✔ ✔ (reasonable)
Impact Reporting and Measurement
✔ ✔ ✔
ESELA Members Event – Luxembourg – 24 October 2017
EU recommendations on Social Enterprise development in EU countries
Julie Wynne, Board member, ESELA
Agenda
1. What is the EU definition of a social enterprise?
2. Reports and initiatives
1. Social Business Initiative
2. Mapping study
3. GECES report
4. Study of Prof. Fici
3. Recommendations
1. What is the EU definition of a Social Enterprise?
1. EU Definition of Social Enterprise
1. EU Definition of Social Enterprise
■ Three key dimensions of a Social Enterprise:
an entrepreneurial dimension: engagement in continuous economic activity;
a social dimension: a primary and explicit social purpose; and,
a governance dimension: the existence of governance mechanisms to ensure
prioritisation of the social purpose and which demonstrate sensitivity to different
stakeholder interests
■ Core criteria = minimum conditions that an organisation must meet in order to be
categorised as a Social Enterprise under the EU definition.
the organisation must engage in economic activity;
it must pursue an explicit and primary social aim that benefits society;
it must have limits on distribution of profits or assets to prioritise the social aim;
it must be independent from the State or other for-profit organisations; and
it must have inclusive governance i.e. characterised by
participatory and/or democratic decision-making processes.
2. Reports and initiatives
■ The Social Business Initiative (SBI), launched in 2011, aims to:
introduce a short-term action plan to support the development of social
enterprises, key stakeholders in the social economy and social innovation
prompt a debate on the avenues to be explored in the medium/long term.
■ The initiative is implemented in close partnership with stakeholders in the sector
and EU countries.
■ The plan contains 11 priority measures, organised around three themes:
Theme 1: Making it easier for social enterprises to obtain funding
Theme 2: Increasing the visibility of social entrepreneurship
Theme 3: Making the legal environment friendlier for social enterprises
2. Reports and initiatives – Social Business Initiative
■ Mapping study commissioned in April
2013 and published in November 2014
■ Outlines national policy and legal
frameworks for social enterprises,
including best practices to accelerate the
growth of the social enterprise ecosystem
in 29 European countries (EU 28 + CH).
■ Not an assessment of social enterprise
eco-systems or policies but a description
of current characteristics and trends to
support future research and policy
making.
■ Report published by ESELA in October
2015 with recommendations on how the
law can be used to recognise and support
the development of Social Enterprise
2. Reports and initiatives – Mapping study
• 16 European countries have some form of legislation that recognises and regulates
social enterprise activity. There are 3 approaches to social enterprise legislation
Adaptation of existing legal forms to take account of the specific features of social
enterprises.
Creation of a social legal status
Recognition of specific types of non-profit organisations
• Lack of legal recognition of Social enterprise in many countries makes it difficult for
governments to design and target specialist support or fiscal incentives for Social
Enterprises, inhibiting the development of Social Enterprise.
• Barriers faced by social enterprises:
poor visibility and recognition of the sector,
the constraints of current legal and regulatory frameworks,
limited financial resources,
difficult access to markets,
and the lack of business support and development
structures, training, and workforce development.
2. Reports and initiatives – Mapping study
• Report on “Social enterprises and the
social economy going forward: A call
for action from the Commission Expert
Group on Social Entrepreneurship
(GECES)”
• Published in October 2016
• Recommendations to further develop
European policies in favour of social
enterprises
• Addressed to the European
Commission, EU Member States (incl.
their local and regional authorities) and
third party countries, as well as the
social enterprise community.
2. Reports and initiatives – GECES report
• Four thematic areas
Increase the visibility and recognition of social enterprises
Development of a European economic environment that enables the social economy and social enterprises to access finance
Legal and regulatory frameworks to encourage the creation and development of the social economy and social enterprises
Measures to help to social economy and social enterprises reach their potential as key drivers of equitable and socially-inclusive economic growth
• Improving the legal environment
The EU Commission should propose a soft legal measure which could help Member States design an adequate framework to support the flourishing and expansion of social enterprises.
The EU Commission and the Member States should stimulate cross-border operations for mutuals and cooperatives to enable them to use the full potential of the Internal Market in order to expand their activities.
Public buyers should make the best use of the new public procurement rules and insert social considerations in their tendering procedures.
The EU Commission and the Member States should increase awareness of state aid rules and their impact on social enterprises providing a service of general economic interest (SGEI).
2. Reports and initiatives – GECES report
• Study for the Juri Committee by Prof. Antonio Fici (IT)
• Published in February 2017
• Requested by the European Parliament’s Committee on Legal Affairs and published by the Policy Department for Citizens’ Rights and Constitutional Affairs.
• It explains why tailor-made legislation on SE is essential for the development of this unconventional form of business organization.
• It describes and compares existing models of SE regulation and discusses the core elements of an SE’s legal identity, with the aim of providing recommendations on the potential forms and contents of an EU legal statute on this subject.
2. Reports and initiatives – Fici Study
• Recommendations of Prof. Fici
Introduce an EU legal qualification (or status): “European Social Enterprise” (ESE)
Legal requirements for acquiring (and maintaining) the ESE status should be
identified by EU legislators in accordance with the common core of EU SE law,
and in particular:
– Entity established under private law (in any of the available legal forms) and independent of the state and other public administrations
– Exclusive or at least a prevalent purpose of community or general interest
– Be subject to a total or at least partial constraint on profit distribution and more generally to specific rules on the allocation of profits and assets during its entire life, including at dissolution
– Conduct a socially useful activity, as determined by law either ex ante or through a general clause
– Obligated to issue a social report, to involve its various stakeholders in the management of the enterprise, and to provide fair and equitable treatment to its workers, notably the disadvantaged ones
– If established as a company, subject to specific governance requirements, in order to resolve the potential contradictions between the company form and the ESE status.
– Subject to an effective system of public control, which is necessary to protect the legal label of ESE and preserve its intrinsic value.
2. Reports and initiatives – Fici Study
3. Recommendations on Social enterprise
development for EU Member States
• Ad hoc legislation on Social Enterprise offers several advantages to social entrepreneurs and fosters the growth and development of this particular type of business organization:
It permits the reservation of the use of the legal denomination of Social Enteprise for real Social Enterprises,
It allows social entrepreneurs to signal the terms and conditions that their organizations offer to stakeholders and to make credible their commitment not to change such terms and conditions.
• A distinct legal identity of Social Enterprises is beneficial as it allows:
Social Enterprises to be specifically considered for additional purposes, such as tax, public procurement, or competition law;
the design of specific public policies in support of Social Enterprises, and, more particularly, the justification of these policies under EU competition and state aid law;
the establishment of clearer boundaries between Social Enterprise and different or more general concepts (such as those of “entities or enterprises of the social economy” and of “corporate social responsibility”);
the protection of the stakeholders of the Social Enterprises;
the prevention of the establishment and operation of “false” SEs;
and the collection of more reliable official statistics on SEs, also in order to improve their visibility.
3. Recommendations
Thank you for your attention.
Julie Wynne, jwynne@froriep.ch
A new era for Social Entrepreneurship in Italy?
Emiliano Giovine – R&P Legal
The Third Sector in Italy
ITALY
Click to add text 1942: The Civil Code encompasses the law of “social entities” (articles from 14 to 42).
• The regime regarded the third sector as a nuisance, not as a valuable asset.
• It provides a minimal set of rules even if the situation of the third sector was more elaborated and multi-faceted.
1948: Italy became a Republic
• Ratification of the Constitution, which expressly nominates nonprofit entities in par. 2 and 18.
The Third Sector
Despite the Constitution’s provisions, the Civil Code was not modified by it.
Starting from the 80s: Flourishing of special laws introducing new entities, expressing all the possible ways people are willing to associate for the realization of the common good.
Social needs/General interest driven
Non distribution constraint
Purpose must not be contrary to criminal law
Their common features are:
The Civil Code
Associations (recognized and not-recognized)
Foundations
Committes
“Enti senza scopo di lucro” are:
The non distribution constraint is the main common aspect for all of them!
Special Laws
The Civil Law does not contain all the answers to the current needs.
NEW NEEDS NEW ANSWERS SPECIAL LAWS
Stay on the same level of ordinary laws
Regulate a subject that was not regulated by the ordinary law
Derogate ordinary law following the criterium: lex specialis derogat
generali
Index
Voluntary Organizations - Law 266/1991
Social Cooperatives - Law 381/1991
Non Governmental Organizations - Law 125/14
Onlus - D.Lgs. 460/1997
Social Enterprise - D.Lgs.115/2006
Social Enterprise – D.Lgs. 155/06
Under D.Lgs.155/06 a social enterprise is as any
kind of private organization that “permanently
and principally carries out an economic activity
aimed at the production and distribution of
social benefit goods and services and pursues
general-interest goals”.
Social Enterprise – D.Lgs. 155/06
It is not a new legal entity but a label attached to existing entities >
organizations who wants to obtain the status of SE must first be constituted
in one of the allowed types:
• Association
• Foundations
• Committees
Non-enterprise types:
• companies, etc.
Enterprise types:
Social Enterprise – D.Lgs. 155/06
Democratic governance: workers’ participation in the management
Users and costumers contribute to the SE’s results evaluations
The balance sheet is public
For profits and public administrations can not control it or direct it
70% of its profits must come from its main activity
MAIN CHARACTERISTICS:
Social Enterprise – D.Lgs. 155/06
MAIN
CHARACTERISTICS:
Profits and surplus must be reinvest only in the SE’s activity or in increasing its assets.
Non distribution constraint
Capped salaries for board members and employees
Capped returns for loans or bonds (around 6%)
The object of its main activity must be the supply of goods and services having social and ethic value for the society, such as welfare and health assistance, education, environmental care, culture, …
Social Enterprise – Italian Overview
Reform of the Third Sector
1
2
3
Code of the Third Sector d.lgs. 117/2017
Social Enterprise d.lgs. 112/2017
5 x 1000 d.lgs. 111/2017
Code of the Third Sector
Among the others..
1.Introduction of a new category: «Entities of the third sector» («Enti del terzo settore»)
2.Creation of a «Unique National Register» («Registro unico nazionale»)
3.Facilitation of recognition for associations
4.Extension of sectors of activies under which the «entities of the third sector» can operate
5.Tax treatment reform
6.Introduction of social bonus
7.Introduction of «Solidarity titles» («Titoli di solidarietà»)
8.etc.
d.lgs. 117/2017
Is it a NEW Social Enterprise?
Among the others..
1. Extension of fields of activities
2. Possibility of (limited) distibution of profits
3. Tax advanteges for investors
4. Gaining capital through equity based crowdfunding platform
5. Remuneration limits
d.lgs. 112/2017
Thank you!
Emiliano Giovine
emiliano.giovine@replegal.it
Georgian Bill on Social Entrepreneurship
Julie Wynne, Board member, ESELA
1. Process
■ Project implemented by Arbeiter-Samariter-Bund Georgia, Centre for Strategic
Research and Development of Georgia and Education Development and
Employment Centre.
■ Study tour in Poland and in the UK with members of Georgian Delegation to learn
more on social entrepreneurship in these countries and hear about the success,
challenges and experience achieved in terms of social enterprise development.
■ Development of a Bill on social entrepreneurship and meetings with the Parliament,
as well as with the governmental bodies of Georgia.
1. Process
■ International conference on state to social enterprise support mechanisms in Tbilisi,
Georgian, on September 22nd, 2017:
Presentation on International and Georgian best practices as well as the findings
of the international study tour.
Organized in the framework of the EU funded project “Social Enterprise-
Innovative Approach for Economic and Social Changes”.
Representatives of organizations working on SE development in Georgia,
Government of Georgia, EU delegation in Georgia, UK Embassy in Georgia and
concerned international NGOs.
International experts on social entrepreneurship.
Outcome: policy recommendations for SE state support mechanisms in Georgia
that will be further finalized, published and handed over to the governmental
bodies.
• Purpose: create legal basis for the institutionalization and support for the
development of social entrepreneurship.
• Social entrepreneurship: organized entrepreneurial activity that aims to achieve
social goals in the field of social care, social adaptation, poverty reduction and
alleviation, support to and/or employment of vulnerable groups in the community,
education, healthcare, culture, sports and environmental protection.
• Social enterprise: a legal entity established in accordance with the Georgian
legislation, which:
– Is established to achieve social goals in the areas of - social care, social
adaptation, poverty reduction and alleviation, promotion of employment of
vulnerable groups in the community, education, healthcare, culture, sports and
environmental protection;
– Engages in entrepreneurial activity and the major part of its revenues is
generated from the entrepreneurial activity;
– Reinvests not less than 70% of its profits in the activities targeted at achieving
social objectives envisaged by the Charter;
– Is governed by democratic principles and the change of charter and statutory
goals shall be allowed by at least 80% of vote;
– Is not directly or indirectly connected or subordinated to the state or local self-
government body.
2. The Bill
• Limited Liability Company, Joint Stock Company and Cooperative are
eligible to acquire the status of social enterprise if:
a) The Charter of an enterprise declares the priority of social objectives
over the purpose of generating and distributing income and provides
an exhaustive list of social entrepreneurship activities;
b) Not less than 30% of profit of an enterprise can be subject to
distribution;
c) Decision-making process in the enterprise does not depend on the
amount of shares or stocks.
• What happens in case of non-compliance with the social enterprise
requirements?
• Nonprofit organisation can also apply to the social enterprise status.
2. The Bill
• Articles of association shall include the following provisions:
a) Priority of social goals over the purpose of generating and distributing profit;
b) Areas and concrete list of activities related to the sphere of social entrepreneurship;
c) The rule of distribution of profit and its amount that shall not exceed 30%
d) Decisions on the issues referred to in subparagraphs "a" - "c" of this paragraph, as well as procedures of making decision on liquidation, bankruptcy, reorganization, division or accession of an enterprise by not less than 80% of the vote of partners, shareholders or stockholders.
• Supportive measures by the State:
a) Development of social entrepreneurship support projects and programs and participation in them;
b) Ensuring social enterprises with the opportunity of receiving preferential credit resources and grants;
c) Granting priority to social enterprises, products or services produced by them in equal conditions.
2. The Bill
Thank you for your attention.
Julie Wynne, jwynne@froriep.ch
ESELA Members Event – Luxembourg – 24 October 2017
Panel 'Developing Social Enterprise Ecosystems'
Panel
■ Marc Elvinger, partner, Elvinger Hoss (Luxembourg)
■ Emiliano Giovine, senior associate, R&P Legal (Italy)
■ Julie Wynne, partner, Froriep (Switzerland)
Agenda
■ Introduction
■ Discussion among panelists
New legal developments in the field of social entrepreneurship in their jurisdiction
How the priorities have been set in the development of a supporting SE
ecosystem
Key recommendations for an efficient collaboration with the State
■ Q&A
ESELA Members Event – Luxembourg – 24 October 2017
The Spread of B Corps and New Models
Co-chaired by David Davies and Niamh Callaghan
The Spread of B Corps and New Models
Agenda
- Introduction to the Session - Niamh Callaghan, Partner, Mason Hayes & Curran, Ireland [8 minutes]
- Overview – David Davies, Partner, Bates Wells Braithwaite, UK [15 minutes]
- Reminder of what a B Corp is and what are the legal requirements to establish a B Corp
- B Lab Europe - Nathan Gilbert, Co-Executive Director, B Lab Europe [5-7 minutes]
- Presentation about B Lab Europe; it's relationship with B Lab as a global network; and observations and activities that are taking place around the world that are related to B Lab’s work with B Lawyers
The Spread of B Corps and New Models
Agenda (contd.)
- Panel Discussion [27 minutes]
Discussion among panellists moderated by David Davies – Panellists: - Anka Hakert, Winheller (Germany) - Marleen Denef, Curia (Belgium) - Remedios Garcia Gomez de Zamora, Gómez-Acebo & Pombo (Spain) - Luke Fletcher, Bates Wells Braithwaite (UK)
Questions the panellists will address: - Do B Corps currently exist within your jurisdiction? - If so, was it necessary to amend your national legislation to permit the implementation of the B Corp legal requirements? - If not, does your existing legislation permit the establishment of a B Corp? - If your existing legislation does not permit the establishment of a B Corp, why not and what changes are required to your legislation?
The Spread of B Corps and New Models
Agenda (contd.)
- Question Time [11mins]
- Summary by David Davies [2 minutes] The objectives of this Session were to: - Ensure every attendee knows what a B Corp is. - Ensure every attendee knows what the legal requirement of a B Corp is. - Give examples of jurisdictions of where the B Corp legal requirement fits, or integrates, within an existing company legislation and those where it does not fit and how to address this. - Suggest how the ESELA B Lawyers Group might assist in an EU-wide approach to B Corp recognition.
Request: We seek additional law firms to join the ESELA B Lawyers Group and non- lawyers who would be interested in assisting in the spread of B Corps.
Overview – David Davies, Partner, Bates Wells Braithwaite, UK [15 minutes]
Reminder of what a B Corp is and what are the legal requirements to
establish a B Corp
WHAT?
Business used as a force for good, having a purpose that solves social
and environmental problems in addition to creating financial return.
WHY?
To address deficiencies in the current, mainstream capitalist business
model by redefining success in business.
WHO?
For-profit businesses.
- Overview (cont.) – David Davies, Partner, Bates Wells Braithwaite, UK
WHERE?
Currently:
over 2,100 B Corps;
from more than 50 countries;
in over 130 industries.
HOW?
Must meet performance requirement: B Impact Assessment
(≥80/200 points)
- Overview (cont.) – David Davies, Partner, Bates Wells Braithwaite, UK
HOW (cont.)?
Constitutional documents must meet legal requirement:
Contain commitment to a “triple bottom line”: business for
benefit of shareholders but also to have a material positive
impact on society and the environment
Require decision-makers to consider the interests of all
stakeholders on an equal footing, not primarily the creation of
value for shareholders
- Overview (cont.) – David Davies, Partner, Bates Wells Braithwaite, UK
Key legal considerations for each jurisdiction:
Does the law currently allow/require/prevent businesses from
complying with both limbs of the legal requirement?
Who has a right to hold decision-makers to account? If their
liability is increased, can those rights be restricted?
ESELA Members Event – Luxembourg – 24 October 2017
An Historic Global
Culture Shift is underway to harness the power
of business to help address society’s
greatest challenges and to build a more
inclusive economy.
B Lab’s integrated approach to systems change
makes an alternative viable and scalable.
Start
Develop market
infrastructure
Step 2
Create tools
to make it easy
for millions of other
businesses to follow
Step 3
Inspire billions of consumers,
workers, investors and others
to support businesses
who are a force for good
Step 1
Build a community
of thousands of credible
leaders -- B Corps
End
Shared & Durable
Prosperity
Building a movement of leaders
Creating paths for others to follow
A Shared & Durable Prosperity
Certified B Corporations
Building Collective Voice
Mission-Aligned Governance
Measure What Matters
BUILDING A GLOBAL COMMUNITY OF
LEADERS
Certified B Corporations are a new type of
corporation which use the power of business to
create a better world by solving social and
environmental problems.
B Corps are unlike traditional businesses
because they:
a) Meet verified transparent social and
environmental performance standards;
b) Build a business constituency for good
business by making a legal commitment
to all stakeholders.
2300+ CERTIFIED B CORPS
50 COUNTRIES
130 INDUSTRIES
1 UNIFYING GOAL
144,858 EMPLOYEES
30$ Bn REVENUE
20th Century Shareholder
Value
Stakeholder
Value
21st Century
IMPACT GOVERNANCE A key barrier to high-road business practices around the globe is an entrenched view that the legal duty of corporations is to maximize short-term financial returns at the expense of long-term, durable prosperity for all. This expectation, while often a cultural challenge, is also in many countries an actual problem of corporate law. Countries with corporate laws that require shareholder primacy (with liability for consideration of other stakeholders) create an operating impediment for companies who are seeking to make money and make a difference. These laws also make it difficult for policymakers to create policy incentives that encourage companies to focus on creating value for society. B Lab promotes new legal structures like the Benefit corporation that align the interests of business with those of society and help high impact businesses be built to last. B Lab collaborates with the capital markets and policy makers to drive adoption. When companies and investors adopt legal structures that expand fiduciary duty, like the benefit corporation, system change is possible.
• Knits the values of the company
into its legal DNA
• Gives protection and permission
to consider non-financial
stakeholders
• Ensures that mission can survive
over time
Benefits of the Legal Requirement
• Depends on country and type of
incorporation
• Amendment to governing
documents or adoption of new
corporate form
• Expanded purpose statement and
duties of directors
What does this look like?
Benefit Corporation Passage
“GREAT BUSINESSES ARE PLACES WHERE PROBLEMS ARE SOLVED AND LIVES ARE IMPROVED ”
Sir Richard Branson
“WE JOIN FORCES WITH THE B CORP MOVEMENT”
“ “Benefit Corporation Legislation creates the
framework to enable mission-driven
companies like Patagonia to stay mission-
driven through succession, capital raises,
and even changes in ownership, by
institutionalizing the values, culture,
processes and high standards put in place by
founding entrepreneurs.”
- Patagonia,
Yvonne Chouinard
"In 10 years time, people will say it’s
inconceivable that business was done any other
way. The notion that a company can only care
about profit will be seen as old-fashioned and
irresponsible.”
- Lorna Davis, CEO DanoneWave
Reporting Tool A network of leaders
• Analysis on how B Corp legal requirement
interacts with existing corporate law
• Guides to understand implications and
process
• Legislation/Lobby
• Case Studies
• Network of experts and practitioners
B Lawyers
ESELA Members Event – Luxembourg – 24 October 2017
The Companies Act - s172(1)
(1)A director of a company must act in the way he considers, in good faith, would
be most likely to promote the success of the company for the benefit of its
members as a whole, and in doing so have regard (amongst other matters) to—
(a)the likely consequences of any decision in the long term,
(b)the interests of the company's employees,
(c)the need to foster the company's business relationships with suppliers,
customers and others,
(d)the impact of the company's operations on the community and the
environment,
(e)the desirability of the company maintaining a reputation for high standards of
business conduct, and
(f)the need to act fairly as between members of the company.
Companies with Other Purposes – s172(2)
Where or to the extent that the purposes of the company consist of or include
purposes other than the benefit of its members, subsection (1) has effect as if the
reference to promoting the success of the company for the benefit of its members
were to achieving those purposes.
Expressing Purpose – B Corps
(1) The objects of the Company are to promote the success of the Company for
the benefit of its members as a whole and, through its business and operations,
to have a material positive impact on society and the environment, taken as a
whole.
(2) A Director must act in the way he or she considers, in good faith, most likely
to promote the success of the Company in achieving the objects set out in
paragraph (1) above, and in doing so shall have regard (amongst other matters)
to [the Stakeholder Interests set out in s172(1)].
(3) For the purposes of a Director’s duty to act in the way he or she considers, in
good faith, most likely to promote the success of the Company, a Director shall
not be required to regard the benefit of any particular Stakeholder Interest or
group of Stakeholder Interests as more important than any other.
ESELA Members Event – Luxembourg – 24 October 2017
Remedios García Gómez de Zamora
Gómez-Acebo & Pombo
Spain
B Corp - Spain
Do B Corps currently exist within Spain?
Although not expressly allowed, neither the Spanish Commerce Code nor the Capital Companies
Act prevent capital companies from having the triple bottom line purpose of being financially
profitable while also seeking to have a positive impact on society and the environment.
The Spanish corporation laws and regulations are moving towards the triple bottom purpose with
various initiatives implemented in these last years. Some examples:
The Solid Waste Act foresees the existence of
capital companies with a corporate purpose
consisting of the recycling of the products
manufactured by their shareholders for the
benefit of the environment but without the aim
of obtaining any gains for the shareholders.
Listed companies who, following the
recommendations of the Corporate
Governance Code, must have a
corporate social responsibility policy on
matters related to social,
environmental and diversity matters
which must be disclosed in a yearly
report.
Big-sized companies can also follow
and apply the Corporate Governance
Code and the recommendations of the
Corporate Social Responsibility Public
Counsel and have a corporate social
responsibility policy on matters related
to social, environmental and diversity
matters.
B Corp - Spain
In Spain, there is not a specific regulation for B Corp, but the current
legislation does not prevent capital companies from implementing it.
For such purposes, an amendment of the company’s object and Directors’
duties should be included in the company’s By-law in order to foresee the
positive social and environmental impact as relevant aspects.
B Corp - Spain
Spanish current legislation and possible amendments to permit the whole
implementation of the B Corps legal requirement:
Triple bottom line as an enforceable
obligation
Directors are subject to first satisfying the best interest of
the company.
Incorporation of a clear definition of “best interest of the company” including the social responsabilty.
Directors duties are owed to shareholders
The directors are allowed but not required neither prevented from taking into consideration
stakeholders’ interests.
Put in a more relevant position the interests of other stakeholders to make them as important as the
shareholders´ interest.
Actions against directors´duties
Shareholders, creditors or third parties can file individual claims for damages against
the directors if directly damaged by their acts or
omissions.
The liability of the directors vis-à-vis stakeholders will not necessarily be increased by
the adoption of the legal requirement so an amendment in relation to a higher responsibility
could be taken into account.
Current law Possible amendments
ESELA Members Event – Luxembourg – 24 October 2017
B Corps in Belgium: a slow spread ?
Marleen Denef Founding partner Curia
Prof KU Leuven – campus Brussels
Presentatie Curia
Why are Belgian Bcorps so rare ?
1. Legal context
• Current Company Code
– Art. 1, para 1 : purpose of the company =
o “providing shareholders with a direct or indirect pecuniary
advantage/asset return”
No explicit shareholder’s wealth maximalisation
But an implicit duty for BoD to aim for return for shareholders
– Art. 1, para 3 : exception =
o Company with Social Purpose (artt. 661)
• Future Company Code ?
– Purpose of the company = similar ?
– Company with Social Purpose = to become “social enterprise”
157 Presentatie Curia
Presentatie Curia
Why are Belgian Bcorps so rare ?
2. Impact of “welfare state” ?
– Not for profit = state funding
– For profit = market funding
– Hybrid = between state & market, only just emerging
3. CSR is still considered a valid alternative
4. Perception of BCorp as an “anglo-saxon invention”
5. Perception of BLab as a “private initiative”
158 Presentatie Curia
ESELA Members Event – Luxembourg – 24 October 2017
The Spread of B Corps and New Models
Legal Situation in Germany
WINHELLER Attorneys of Law, Germany
Atty. Anka Hakert, LL.M. (Tax), Certified tax lawyer
24. October 2017
24.10.2017
ESELA B Corps in Germany
160
Legal Situation in Germany
1. B Corps within the jurisdiction in Germany
Existence of certified B Corps in Germany
Company form usually “GmbH”
2. Longstanding legal situation in Germany
German Law on Limited Liability Companies (GmbHG)
Section 29 GmbHG:
• Shareholders’ right to claim annual net profit, but:
• Company Articles of Association: Limitations possible
• Different regulation on profit appropriation permitted
Section 1 GmbHG:
• Permitted: Any legally permissible purpose
• Even nonprofit/charitable purpose permitted
24.10.2017
ESELA B Corps in Germany
161
Legal Situation in Germany
3. Nonprofit Corporations
gGmbH
• Tax-privileged (nonprofit/charitable NPO)
• No distributions of annual net profit among shareholders at all
• Restrictions regarding e.g. remuneration of managing director (no “hidden
distributions”)
• No special legal form; company form: GmbH
4. Social Business Corporation
B Corps
• Purpose and distributions depend on the regulations of the Articles of
Association of the Company
• No special legal form; (usual) company form: GmbH
• Name must involve the company form “GmbH”
24.10.2017
ESELA B Corps in Germany
162
ESELA Members Event – Luxembourg – 24 October 2017
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