Company and corporate law

25-06-2020: Maaike Meeuwsen and Sjoerd van der Velden

Introduction

In the past, legal structures and their objectives were very clearly defined. A foundation, for example, pursued an idealistic goal, while the sole aim of a private limited company was profit. This notion no longer holds true as legal entities and their objectives gradually mix: foundations with commercial activities, and private limited companies with social objectives.

Commercial foundations and private limited companies with a social objective

Many initiatives have been launched to accommodate these blurring boundaries and to provide tools for socially driven entrepreneurs. The B Corp certification that exists both internationally and in the Netherlands is one example, as are proposed new legal structures like the ‘BVm’. This year, 25 corporate law professors banded together and advocated the introduction of responsible corporate citizenship in the statutory administrative duties of directors and supervisory board members. There are many options out there, and one might no longer see the forest for the trees. What are the possibilities, and is there a gold standard for corporate social responsibility? This blog will present and compare some of the different possibilities.

B Corp

B Corps (Benefit Corporations) are for-profit companies that also expressly include the interests of all relevant stakeholders, not only the interests of shareholders. It is not a special legal structure. Dutch B Corps can be a private limited company (‘BV’), public limited company (‘NV’) or cooperative association. The aim of B Corps is to make a positive environmental and social impact. B Corp is originally an American certification.

Comprehensive assessment

For a company to become B Corp, it must first pass a comprehensive assessment, which covers governance, employees, clients, the environment and the communities in which the company operates (local, national and global). This is repeated every three years. B Corps are obligated to amend the articles of association. The company’s social objective must first be defined in the articles of association, and the articles of association must also define the administrative duties of the board to include observance of this social objective at all times in its decision-making.

Legal significance: indicative in decision-making and interpreting open standards

This has legal significance. These statutory provisions are relevant in matters of liability and provide an interpretation of open standards such as those of reasonableness and fairness (Article 2:8 of the Dutch Civil Code). Moreover, the Enterprise Chamber of the Amsterdam Court of Appeal may take these statutory provisions into account in an inquiry procedure.

However, the articles of association of a private limited company may be amended at any time. Even if the articles of association stipulate that they are irrevocable, a unanimous shareholders’ resolution can easily overrule that. There are several ways this can be prevented, however. For example, a foundation can be issued a priority share, which gives it special control over amendments to the articles of association. As a result, only the foundation has the authority to decide whether to amend the articles of association. Optionally, the foundation’s unchangeable articles of association could stipulate that the objective and duties of the company’s board of directors may not be altered.

The company may also voluntarily commit itself to explicit accountability in the annual accounts regarding the impact on human, social and natural capital.

Listed companies included

B Corp is not limited to BVs; listed companies (NVs) can also qualify for certification. The Wessanen food group, for example, was recently certified in the Netherlands.

BVm

Prompted by active lobbying by Social Enterprise NL, the Dutch Christian Union political party submitted an initiative policy document in September 2018, in which it proposed to introduce the new legal structure ‘BVm’ (where the ‘m’ stands for ‘maatschappelijk’, the Dutch word for ‘social’). The idea behind tailoring existing legal structures – private limited companies or BVs, in particular, but also public limited companies and cooperatives – is to offer socially driven enterprises a separate legal structure. Impact first is the creed here: solving a social issue comes first. This seems to imply that the consequences of this option are more far-reaching than those of a B Corp, considering that impact also seems to be more relevant in the case of a B Corp. Nonetheless, some nuance is in order. The BVm or ‘social BV’ was primarily created to increase the visibility of the social aspect of an enterprise. If this were the only purpose, it might be rather meagre.

Proposal to enshrine in law

The proposal aims to legally enshrine the BVm in Book 2 of the Dutch Civil Code. It remains to be seen whether this legal bind is stronger than the statutory provisions that B Lab requires from B Corps. Social Enterprise NL, however, advocates two types of BVm: one without dividend limitation and one with. The latter alternative – also referred to as the ‘.mb’ – includes the option of ‘blocked assets’. This means that only 35% of the proceeds from the sale of the company will go to the shareholders. The remainder is to be invested in the social objective. This sounds promising, but the ‘blocked assets’ option is voluntary. Social Enterprise NL has stated that the feasibility and desirability of the ‘.mb’ requires a closer look.

Blocked assets on a voluntary basis

Despite ifs and buts, implementing the BVm could be useful.

Responsible corporate citizenship by law

The fact that amending legislation may be a better solution than solely amending articles of association has been highlighted this year by 25 corporate law professors. They advocate a change in the statutory administrative duty of directors and supervisory board members.

Mandatory corporate social responsibility enshrined in law

According to them, directors should ensure that the company operates in a socially responsible manner, and supervisory board members should monitor this. This necessitates an addition to the administrative instruction of the directors (Article 2:129/2:239 subsection 5 of the Dutch Civil Code) and the administrative duty of supervisory board members (Article 2:140/2:250 subsection 2 of the Dutch Civil Code).

Statutory raison d’être on a voluntary basis

These professors also propose to legally stipulate that companies may formulate a statutory raison d’être. In doing so, they voluntarily state their ultimate purpose. This can be helpful in determining the strategy geared towards that ultimate purpose and can contribute to the intrinsic motivation of those involved within the enterprise. A raison d’être can already be defined within or outside the articles of association, but the professors nevertheless consider it desirable for this to be enshrined in law by means of a new subsection (in Article 2:66/2:177 of the Dutch Civil Code). The legislator can use this to convey the importance of enterprises reflecting on their position in society. However, the mandatory nature is again lacking. Defining an objective in the articles of association – as already highlighted by B Corp – nevertheless has consequences for the decision-making and orientation of the company and the interpretation of open standards that are assessed, in liability issues and the right of inquiry.

Explicit accountability can also be prescribed in the annual accounts regarding the impact of the company on human, social and natural capital. This requires an amendment of the legislation (Article 2:391 subsection 1 of the Dutch Civil Code). In practice, this article is only relevant for the largest 5% of companies, but the other 95% should also be expected to participate as a socially responsible enterprise.

Different ideas, but mainly overlapping

Conclusion

Enterprises are paying closer attention to corporate social responsibility. This manifests itself in the expansion of ways to enshrine this in the articles of association and/or the law. Despite the fact that the various possibilities differ in certain respects, they mainly overlap. All of the options discussed require a certain amount of initiative on the part of the companies.

There is no need to wait; much is already possible.

If you have any questions, please feel free to contact us.

25-06-2020: Maaike Meeuwsen en Sjoerd van der Velden