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Can a Law Firm Be a B-Corporation?

by Carolyn Elefant on March 5, 2012 · 1 comment

in Entity Choice, Mistakes/What NOT To Do, New Marketing Ideas

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For new lawyers in search of a practice area, social entrepreneurship is all the rage. For those unfamiliar with the term, social entrepreneurship is the business of using business to focus on and solve social problems rather than simply generating shareholder profits. Social entrepreneurship is an evolving body of the law, requiring knowledge of both corporate and nonprofit law, not to mention, a penchant for matters of first impression where neither precedent nor templates offer much guidance.

In particular, lawyers who represent, or aspire to target social entrepreneurs must familiarize themselves with the B-Corporation, which is a new type of corporation committed to using the power of business to solve social and environmental structure. To ensure that socially responsible values are baked into a company’s DNA, a B-corporation’s (or LLC or partnership) organizational documents must commit to consider interests of employees, consumers, the community and environment when making business decisions. Seven states have adopted legislation that allows companies to incorporate as a “public benefits corporation.” In states that do not authorize formation of a “public benefits corporation” (or where a public benefits structure is not an appropriate business choice), a socially conscious company may opt “Certified B-Corporation” status through a third-party certification process. Third-party certified B-corporation status is available to corporations, as well as LLCs, partnerships and even sole proprietors.

Lawyers representing social entrepreneurs can offer guidance on issues such as appropriate corporate structure, legal ramifications of third-party certification and compliance. There’s a wealth of information for attorneys on the public benefits and B-corporation structures here. Meanwhile, in jurisdictions that have not adopted “public benefits” statutes, enterprising lawyers can spearhead the movement within their respective state to adopt Model Public Benefits Legislation which would provide an opportunity to organize and work closely with social entrepreneurs within the state.

Yet even as lawyers are needed to advise companies on benefits corporations and B-corporation certification, should lawyers or firms consider becoming Certified B-Corporations themselves? After all, obtaining certified B-corporation could serve as a unique selling point, and demonstrate a lawyer’s commitment to social causes to potential clients. Other benefits of B-corporation status include added media exposure and being part of a growing movement. Indeed, more than a dozen law firms — including a few which like me, practice in the clean energy and renewable space — have already obtained B-corporation certification.

Even so, I’m not at all comfortable with B-corporation status for law firms because the certification process requires lawyers to place the interests of society, the community and the environment on par with the interests of their clients. That’s not ethical in my book.

I took a look at the B-corporation certification requirements for LLCs since that’s the entity that most solo and small firms adopt as a business structure. To certify, an LLC must amend its governing corporate documents to state:

In discharging his or her duties, and in determining what is in the best interests of the limited liability company (the “Company”) and its members, a managing member shall not be required to regard any interest, or the interests of any particular group affected by such action, as a dominant or controlling interest or factor.

In discharging his or her duties, and in determining what is in the best interests of the limited liability company (the “Company”) and its members, a managing member shall not be required to regard any interest, or the interests of any particular group affected by such action, as a dominant or controlling interest or factor.

He or she shall give due consideration to the following factors, including, but not limited to, the long-term prospects and interests of the Company and its members, and the social, economic, legal, or other effects of any action on the current and retired employees, the suppliers and customers of the Company or its subsidiaries, and the communities and society in which the Company or its subsidiaries operate together with the short-term, as well as long-term, interests of its members and the effect of the Company’s operations (and its subsidiaries’ operations) on the environment and the economy of the state, the region and the nation.

For a business, granting equal consideration to profits, employees, the community or society when making a corporate decision isn’t problematic; indeed, it’s even admirable. But this kind of equal consideration commitment doesn’t translate for lawyers for one single, simple reason: the client. For lawyers, our clients’ interests are the dominant and controlling factor in making our decisions; indeed, with limited exceptions for illegality, our clients’ interests are the only factor that count. So when lawyers treat our clients’ interests as equal rather than superior to other groups, we violate one of the prime directives of professional responsibility.

For example, consider a situation where a client receives a generous settlement offer in a contingency matter against the Sierra Club or some other environmentally conscious company popular in the community, but the client, reasonably, does not want to accept the offer because of certain conditions attached to the offer. However, pursuing the case to trial will be upsetting to the community and further, force the lawyer to lay off several employees to conserve cash flow for remaining discovery and trial and could potentially limit the Sierra Club’s conservation efforts due to lack of funding. Ethically, so long as the client’s rejection of the offer is reasonable (which it is here), the lawyer must abide by the client’s decision. But under the b-certification framework, equal consideration of the interests of firm employees, the community and the client would militate in favor of the lawyer either strong-arming the client to accept the settlement or withdrawing from the case. As for clients with unpopular causes – those who have committed heinous crimes or whose position offends the community – heck, why should a lawyer take the case when he can be socially conscious and let mob rule prevail instead.

By obtaining b-certification, lawyers can demonstrate with a fancy label just how socially conscious they are – and that may appeal to clients. But as a lawyer, I’d rather demonstrate my social responsibility through actions rather than label; by zealously representing my clients, and ensuring their interests control and dominate my decision-making process, every single time.

Update: There’s another side to this story. Though my post quotes the required LLC language, a few lawyers who have B-corp status noted that the necessary B Corporation language doesn’t require lawyers to subordinate client interests and simply requires consideration of various matters before making a decision.

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