Green is good: sustainability, profitability, and a new paradigm for corporate governance.

ABSTRACT: This Article relates the concept of sustainability--that society must meet its present needs without infringing on future generations' ability to do the same--to corporate governance and seeks to reconcile any conflicts between the two. The largest of these conflicts is the commonly held view that companies must strive to maximize shareholder wealth and thus affirmatively neglect all other constituencies and considerations. The Article debunks this myth, both as a matter of law and as a function of social norms, market influences, and corporate-law theory. The Article then presents a new paradigm for corporate governance wherein companies voluntarily commit themselves to sustainable business practices. One of these new sustainable business models is the "B Corporation" certification that has garnered recent attention in the national business press. A second model hails from Oregon, where a newly enacted corporate-law provision encourages businesses to pledge to act sustainably.

 
INTRODUCTION 
 
  I. A SUSTAINABILITY PRIMER 
     A. THE TRIPLE BOTTOM LINE 
     B. GEARING UP 
 
 II. SHAREHOLDER-WEALTH MAXIMIZATION 
     A. LAW 
        1. Charters and Bylaws 
        2. Statutory Law 
        3. Decisional Law 
     B. MARKETS 
     C. NORMS 
     D. THEORY 
 
III. A NEW PARADIGM 
     A. B CORPORATIONS 
     B. AN OREGON EXPERIMENT 
     C. VOLUNTARY CHARTER PROVISIONS 
     D. IMPLICATIONS 
 
CONCLUSION 

The point is, ladies and gentlemen, that green, for lack of a better word, is good. Green is right. Green works. Green clarifies, cuts through, and captures the essence of the evolutionary spirit. Green in all of its forms--green for life, for money, for love, knowledge--has marked the upward surge of mankind. And green, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.

--As adapted from Wall Street (1)

INTRODUCTION

Gordon Gekko's virtuoso performance in the 1987 film Wall Street needs some updating. While greed still reigns supreme in many circles, green businesses and green business practices are becoming increasingly prevalent, promising, and profitable. Indeed, as both the current climate-change and energy crises deepen and demand immediate action, (2) green--in all its forms: green energy, green business practices, green products and services--may be just the thing to revitalize American business and save "that other malfunctioning corporation" Gekko mentioned.

The problem is that "green" or "sustainable" business practices can sometimes entail profit sacrifices, particularly in the short term. (3) A conflict thus arises with the commonly held view that corporate directors and officers must strive to maximize shareholder wealth and affirmatively neglect other corporate constituencies like labor, creditors, suppliers, customers, the public, and the environment. This perceived duty to maximize shareholder profits lies at the heart of the conventional law-and-economics-laced view of corporate governance, thus imposing a formidable obstacle to corporations wishing to become more sustainable. (4)