Under US law, corporate directors have a fiduciary duty to make decisions in the “best interests” of the company, which is often interpreted as maximizing shareholder return. Directors are often advised that pursuing mission at the expense of shareholder return risks litigation and perhaps even personal liability. Companies may be able to minimize the risk of director litigation and better protect their mission and values by specifying in the Company’s charter what they want directors to consider in their decision-making. This could mean specifying, for example, that one or more of the following must be considered as part of a “best interests” analysis: the Company’s mission; stakeholders other than owners; and ethical or environmental considerations. The parties may also want to explicitly permit the Company to accept lower acquisition offers if the lower offer would better advance the Company’s mission.
If the parties know that they want the directors to consider more than financial return in their decision making, then they will also want to consider alternative corporate forms such as the Benefit Corporation and the Social Purpose Corporation.
Sample language: The Company’s [identify charter document] shall state that, in determining what is in the best interests of the Company, a [director] AND OR [manager] shall take into account the [purpose] OR [impact goals] described in [Article X] AND OR [the corporate citizenship standards described in Exhibit X], and the best interests of those materially affected by the corporation’s conduct. Even in the context of a liquidation event, as a result of weighing the factors described in the preceding sentence, a [director] AND OR [manager] may decide to accept an offer, between two competing offers, with a lower price per share.
- Including Mission in the Statement of Corporate Purpose:
By formally stating mission as part of the corporate purpose in the company’s charter, the company sets a clear standard for all stakeholders and communicates its impact commitment to existing and future stakeholders. The agreed upon language may constrain directors’ and management’s decision making authority, influence how directors’ and management’s fiduciary duties are interpreted and also potentially limit the permissible activities and operations of the company. Accordingly, any charter language needs to be drafted with extreme care after consultation with knowledgeable legal counsel.
If the parties know that they want to incorporate mission into the company’s charter, they will also want to consider alternative corporate forms such as the Benefit Corporation and the Social Purpose Corporation.Sample language: The Company’s [identify charter document] shall set forth [the Company’s purpose of [goal definition] OR [the Company’s standards of corporate citizenship as described in Exhibit X].