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Yockey: Does Social Enterprise Law Matter?

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Joseph W. Yockey (University of Iowa College of Law) has posted “Does Social Enterprise Law Matter?”, U Iowa Legal Studies Research Paper No. 14-06.

The abstract is as follows:

Social enterprise laws are sweeping through the nation. Entrepreneurs can now organize under one of several new legal forms, including the “benefit corporation” form. In theory, these options will make it easier for socially minded firms to pursue a double bottom line of profit and public benefit — that is, to do well while doing good.

This Article tests that theory. In asking whether social enterprise laws matter, I find that the answer is yes, but not for the reasons most people think. The traditional rationale for social enterprise laws is that they free managers from the “duty” to put profits ahead of social objectives. But that’s wrong; existing corporate law is already flexible enough to permit most social/economic tradeoffs. However, by drawing on insights from new governance theories of regulation, I argue that social enterprise laws add value in other ways. Specifically, they provide a catalyst for entrepreneurs, investors, and stakeholders to develop the normative framework necessary to sustain an important new business model and asset class. They do so through their signaling power, as well as through their ability to create a focal point that will facilitate self-regulation, capital formation, and the design of standards necessary to govern this complex sector.

The Article thus offers a new way of thinking about social enterprise laws. Rather than simply provide new off-the-rack legal forms, these laws encourage a multi-disciplinary process of norm creation and private engagement. I conclude by offering firms and lawmakers several strategies to reinforce this underlying dynamic.

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