What is a Constituency Statute?

We have had a few posts on articles related to history and progress of the U.S. legal infrastructure supporting  social innovation. This includes a look at U.S. case law that articulated the duty of a corporation’s board of directors to maximize shareholder wealth. And the buffer provided by the Business Judgment Rule (BJR) that protects court interference with a board’s decisions so long as certain criteria are met.

constituency statutesBut there’s more. There is the constituency statute.Through attending various talks, discussions, and CA State senate hearings on new legislation that would enable social entrepreneurship,the term “constituency statute” has come up multiple times.

In searching for a good explanation for the concept of constituency statutes I came across an excellent law review article mapping the relationship between corporate law and social innovation principles by Anthony Bisconti titled, “The Double Bottom Line: Can Constituency Statutes Protect Socially Responsible Corporations Stuck in Revlon Land?” (Loyola Law Review, 2009)

So, what is a constituency statute?

A constituency statute, also called a stakeholder statute, allows corporate directors to consider non-shareholder interests when making business decisions.

Have all states passed constituency statutes?

No, but a majority of states have. As of 2009 (when Bisconti published his law review article) 32 states had passed some form of constituency statute.

Which states have enacted constituency statutes?
 
As listed in footnote 13, the following states have constituency statutes:

  1. Arizona
  2. Connecticut
  3. Florida
  4. Georgia
  5. Hawaii
  6. Idaho
  7. Illinois
  8. Indiana
  9. Iowa
  10. Kentucky
  11. Louisiana
  12. Maine
  13. Maryland
  14. Massachusetts
  15. Minnesota
  16. Missouri
  17. Nebraska
  18. Nevada
  19. New Jersey
  20. New Mexico
  21. New York
  22. North Dakota
  23. Ohio
  24. Oregon
  25. Pennsylvania
  26. Rhode Island
  27. South Dakota
  28. Tennessee
  29. Vermont
  30. Virginia
  31. Wisconsin
  32. Wyoming

 

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Trackbacks & Pingbacks

  1. […] The ice-cream maker could have fought the bid under a precursor to benefit corporation law–“constituency statutes” in Vermont that allow directors to consider non-shareholder interests. But, in the end, Ben […]

  2. […] for such state-based corporate doctrines (such as the duty of loyalty).  These statutes, known as constituency statutes, essentially permit directors to consider, to varying degrees, nonshareholder interests when making […]

  3. […] statues produce more high-quality patents than those in 16 states lacking the statues. A constituency statue encourages corporate directors to consider non-shareholder (e.g., employees) interests when making […]

  4. […] In this world of incredible pressures to produce short-term profits, business leaders can become understandably skittish about taking a longer view that encourages both innovation and their company’s long-term health. With anxious stockholders demanding one dazzling quarterly report after another, and with the constant threat of hostile takeovers, it’s hard to devote the time and patience required to develop new products and services. To remedy this, 34 states in the U.S. have enacted little-known “constituency statutes.” […]

  5. […] and Wyoming have an older law on the books that some view as a substitute. It’s known as a non-shareholder constituency statute, and it explicitly permits corporate directors to consider the effects of their decisions on […]

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