Tuesday, October 27, 2020

Birgit Spiesshofer: "Responsible Ownership" or "Benefit Corporation" English Translation of Article published first (in German) in the Frankfurter Allgemeine Magazine Einspruch! (online) 19 October 2020


Dr. Birgit Spiesshofer has been undertaking truly important and path-breaking work in the area of the responsibility of business for harms that may be attached (that, of course, is the issue of the moment, that is the jurisprudence of "attachment") to the economic activities of enterprises and persons.  Her  monograph, Responsible Enterprise: The Emergence of a Global Economic Order (Munich: CH Beck, Oxford, Hart, 2018), is a remarkable analysis of the "state of the legal art" in this field and an excellent basis for thinking about the paths already being carved out for going forward (for my review of this work, see "The Enterprise of Responsibility:" Reviewing Birgit Spiesshofer, "Responsible Enterprise). 

Dr. Spiesshofer also writes frequently for the Frankfurter Allgemeine Magazine Einspruch! (online) on themes of corporate governance, sustainability, and its inevitable relations to systems of trade and political governance across borders. Though these essays are produced for a German audience, she has kindly agreed to translate some of them for re-publication here. Earlier translations include (1) "And Who Asks the Supply Chian"; (2) "Fridays for Future, Siemens or the Australian Government - who decides?"; (3)  "Green monetary policy - "whatever it takes"?"; (4) "What is "sustainable"?" ; (5) "The Hour of the Nation-State" (see also here). 
 Dr. Spiesshofer has now agreed to the translation of a recent essay--"Responsible Ownership" or "Benefit Corporation" English Translation of Article published first (in German) in the Frankfurter Allgemeine Magazine Einspruch! (online) 19 October 2020. In a short and quite condensed form, Dr. Spiesshofer turns her analytical gaze to the legalization of a the idealization of a "responsible" enterprise.  In the process, of course, those who are pushing this effort mange to define the ideal form (the character of responsibility) and then to incarnate it in the form of idealized law. But the creation of an ideal type also exposes a quite specific attack on deviant forms--the traditional enterprise.  And not just the traditional enterprise, but the edifice of corporate law grounded in principles of capital aggregation and the core (now responsible) purpose of the enterprise. The benefit corporation and responsible ownership enterprise, then, may not merely provide an idealized variant.  It may serve as a vanguard for an assault on the complex set of principles on the basis of which economic enterprises have been constituted (and privileged) for the last century or more.  The law of enterprises, the understanding of the core obligations of economic activities, and the protection of capital (in the context of market driven risk and responsibility, ought never to stand still.  Nor, it seems, should the way in which political communities have constructed separate spheres for political and economic government.
One ought to ask, though, whether the way forward (if indeed change has a direction as scientific socialism believes, but other political models reject) ought to follow this path or another.  That, however, is a conversation largely denied. Elite history cannot be denied (though it can be resisted) or diverted. In a sense, the action continues a process which took its current form in the 1970s. It amalgamates a set of outlooks that start with a suspicion of private economic activity, that understand the corporation as merely a privileged nexus point for the development of productive forces to social ends, that is suspicious of markets as an allocation of risk and reward devise in the absence of strong state (ideologically and policy driven) guidance, and that seeks ultimately to treat the enterprise as a form of state administrative organ (but without the irritation of sovereign immunity). Not that any of this is bad.  It is merely unfortunate that few are privy to the discussion of urtext even as they are continuously presented with bits and pieces--like this one-- which seeks to advance an ideological position by "making facts" one step at a time. If, indeed, we are moving toward regimes that understand responsible business conduct and the societal role of the corporation in public terms, then this may represent yet another  step in the governmentalization of economic enterprises, and the privatization of governance.  The resulting construct may well serve as a template for a post global European political-social model its "New Era."
One can see that the essay provides much useful fruit for thought. The essay and Dr. Spiesshofer's brief bio follow. 

Column by Birgit Spiesshofer, published first (in German) in Frankfurter Allgemeine Zeitung Magazine Einspruch! (online) October 19, 2020



"Responsible Ownership" or "Benefit Corporation"?


        A new idea is causing a sensation in Germany: "responsible ownership", or more precisely: a new legal corporate form shall be created, a "GmbH in Verantwortungseigentum" (VE-GmbH) - translated as: Limited Liability Company in Responsible Ownership. The unbiased reader thinks of article 14 of the German Basic Law, the German constitution: "(1) Property and the right of inheritance shall be guaranteed. (2) Property entails obligations. Its use shall also serve the public good." 


         So - does not every ownership include responsibility? What is meant by this somewhat pathetic term "responsible ownership", which seems to claim responsibility for itself alone? And - is this really so groundbreaking? The question arises especially against the background of an international development that increasingly demands Corporate Social Responsibility and ESG (environment, social, governance) from (all) commercial companies; in addition, special modifications of the traditional for-profit forms of enterprise were created, which specifically anchor, allow and protect corporate goals oriented towards the common good, e.g. in North and South America in the form of the (Public) Benefit Corporations ((P)BC) and the Sociedades de Beneficio e Interés Coletivo (BIC) and in Italy in the form of the Società Benefit.


            The VE-GmbH is initiated by a new generation of start-ups that want to imitate the sustainability and consistency of family businesses and foundations and aim at the implementation of a public good and stakeholder orientation by introducing a new legal form. The draft of the VE-GmbH-Act speaks of current and future shareholders as a "family of skills and values" with the goal of maintaining certain values and not pursuing short-term financial interests. These are undoubtedly desirable goals.  The question is only whether they are attainable with the construction planned in the draft VE-GmbH-Act or whether they do not raise more problems than they solve. The further question is whether there are not internationally proven blueprints in the form of the Benefit Corporations (already adopted by Italy), which point in the same direction but which are minimally invasive with regard to the existing corporate and tax law system.


            The central aspect of the draft VE-GmbH-Act is that corporate capital and corporate profits are to be permanently protected against withdrawal by shareholders. The company profits should be used for growth and investments. Remuneration to shareholders for services to the VE-GmbH, for example as managing director, employee or lender, remains permissible. The company shall be maintained and developed for future generations. So far the ideal. However, the retention of profits neither prevents the sale of the company to third parties nor the change of the purpose and object of the company, not to mention clever legal structuring possibilities with minimum capitalization and loan financing, transfer of use and silent partnerships. In the case of foundations, the possibility of less idealistic realities was taken into account by establishing foundation supervisory authorities. In the case of commercial enterprises, the market economy mechanisms of the entrepreneur's wish to control, which is incentivized by profits and liability, are used. Without these incentives, can one reliably assume that property is really managed with the greatest possible responsibility? Or is only the power of the shareholders replaced by that of the managers, whose wealth of power and autonomy has also come under criticism since the financial crisis at the latest. 


            As desirable as the goals pursued by the concept of "responsible ownership" may be - the concrete form of the concept leaves many questions open, including those of fitting into the current system of corporate, tax and inheritance law. 


            Nevertheless, it is worthwhile to take up the goal which is pursued and take a closer look at the models established internationally under the heading "Benefit Corporations". Despite all the differences in the specific design, the Benefit Corporation acts of the 35 U.S. states and the District of Columbia have certain basic requirements in common: the legally prescribed corporate purpose includes social, ecological and stakeholder interests in addition to profit generation; the creation of public benefits and the pursuit of non-financial values simultaneously serves the interests of the company. The management must base its decisions on this corporate interest. Transparency is created through an annual Benefit Report, which meets the usual market standards and proves compliance with the public interest objectives, sometimes combined with certification requirements. In this way, the values of the company founders could be institutionalized and sustainably protected, combined with credibility in the public and on the market.



 Dr. Birgit Spiesshofer MCJ (New York University), Attorney at Law, has been an Of Counsel in the Berlin office since April 1, 2010 and advises primarily on regulation, policy and corporate social responsibility (CSR). Previously Birgit worked at Hengeler Mueller (1993- 2010), after becoming a partner in July 1995. Birgit started her career in 1989 at Feddersen Laule (today White & Case). In 1990 she worked as a foreign associate at Kaye Scholer Fierman Hays & Handler in Washington D.C. Birgit established the “Gaemo Group – Corporate Responsibility International” in June 2009. She was, inter alia, Chair of the CSR Committee of the Council of Bars and Law Societies of Europe (CCBE), Co-Chair of the CSR Committee of the International Bar Association and member of the Constitutional Law and Human Rights Committees of the German Lawyers Association (DAV). She is the founding Chair of the Compliance and CSR Committee of the DAV and a member of the CSR and Anti-Corruption Commission and the Environment and Energy Commission of the International Chamber of Commerce. Since her Habilitation (2018) in International Economic Law and Business Ethics, she is adjunct professor (Privatdozentin) at the University of Bremen. Numerous publications have named Birgit as one of the leading practitioners in the area of public law. Birgit publishes and speaks extensively on regulation, policy and CSR matters. In addition, she lectures on Business and Human Rights, CSR and International Environmental Law at the Free University Berlin and the University of Bremen.


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