Best Interest Clauses
Best interest clauses modify a company’s charter documents to include constituents like “the environment,” but can be overturned
Some social entrepreneurs have worked with attorneys to incorporate the concept of “constituency expansion” into directors’ duties by including specific provisions in the company’s charter. Such a feature was often employed to obtain B Corporation certification in states that did not have constituency statutes.
Company charter as social contract
Those using this method see a company’s corporate charter as a type of social contract between the state of incorporation, the company, its investors and shareholders, and the directors. Under this thinking, social entrepreneurs can include elements of a constituency statute as clauses in the corporate charter, to which all constituents would be bound. Such an approach overcomes many of the defects of the the traditional constituency statute by permitting the inclusion of the environment and by legally requiring directors to consider the various constituents, rather than making such considerations elective.
Untested in court, therefore uncertain legal consequences
Like constituency statutes, however, the lack of interpretation by courts results in an uncertainty that leaves investors concerned about the unknown consequences that might result if such a provision were put to test in court.
Majority vote can overturn “best interests” clause
Similarly, “best interests” clauses only embed the mission in the legal DNA of your company to the extent they are not changed. But they can be changed. A majority of the Board can typically amend the charter to delete the “best interests” clause, absent some special voting requirement set forth in the charter.
For these reasons, it is not the strongest option for upholding your social mission over time, unless coupled with other anchoring features.