25 - 06 - 2020 • Sjoerd van der Velden
Social impact with the use of entrepreneurship
Increasing social impact with the use of entrepreneurship is more relevant than ever. Consider, for example, B Corp and the initiative to introduce a new legal form, the BVm (the social BV, possibly linked to a legally required code). In addition, a group of 25 professors of corporate law advocates the possibility of a “social contract between company and society”. The intention is that the company behaves in a socially responsible manner. An interesting European development is that the European Union will determine which requirements an investment must meet in order to be able to call itself ‘sustainable’. Financial experts expect this to trigger a green revolution in the financial world and to put an end to certain forms of greenwashing.
However, a lot of the goals of the newly proposed legal form is already possible today. With existing legal instruments, combined with, for example, B Corp certification, much can already be achieved. There is no need to wait for new laws and regulations or the introduction of new types of legal entities.
Protect your mission
The mission or goal is important for a company. Naturally, this also applies to a company with a (more) social purpose. This can be anchored in the company’s articles of association, giving it legal significance. After all, statutory anchoring gives direction to decision-making and fills in various open standards.
Embedding mission in the articles of association
However, the articles of association of a company can be amended. This also applies to the mission and management task included therein. This is possible even if the articles of association themselves stipulate that they cannot be amended. A unanimous shareholder resolution overrules such clauses.
With Steward Ownership, the company belongs to no one. The shares in the ‘BV’ are held by a foundation, of which the articles of association cannot be amended. The foundation does not belong to anyone. The foundation has only one board with its own statutory mission to monitor the statutory mission of the ‘BV’. There are also other legal options, such as issuing a priority share (“golden share”) to, for example, a foundation, which therefore has special control with regard to any amendment to the ‘BV’s’ articles of association.
This makes the mission dominant. The sole owner of the company is the foundation, which is the sole shareholder. The foundation is not owned by anyone and only has a board (and possibly supervisors). The board of the foundation is bound by the articles of association of the foundation. In their board decisions, fulfilling the mission is paramount, not the maximization of short-term profit (as may be the case otherwise). These directors are also referred to as stewards. These stewards have formal control of the company, but no economic interest in profit maximization.
The foundation can issue certificates of shares to investors, employees, etc. The certificate holders then have economic rights, but no control. Agreements can be made about profit distribution and any limitation thereof (so that another part of the profit can be used for the mission).
Steward Ownership can ensure that the company is unsaleable. Sometimes this is deliberately chosen, in connection with which, for the sake of certainty, a priority share (“golden share” with veto) can be issued to another foundation. However, it is important to consider whether this is desirable. If the company is unsaleable, it could reduce growth and survivability. The question is also whether it is fair if capital providers have no say at all. But if it has been determined that other parties than the board also have a say, or if the board consists of various stakeholders, the question is whether this is not at the expense of decisiveness.
It ultimately comes down to customization. In addition, there are even more options than described here. There is no one-size-fits-all model.
If you have any questions, please feel free to contact us.