We all know that tension exists between the concept of good corporate citizenship and the fundamental duty of corporate directors. Directors of corporations (be they C- or S-corporations) are supposed to maximize shareholder value. One can attempt to justify good corporate citizenship in terms of shareholder value by saying that good corporate citizenship enhances the value of the corporation (and thus returns to shareholders) because employees and customers want corporations to be good citizens. This logic is sound, but also a bit strained.

There is, however, a relatively new corporate form that aligns the goals of corporate citizenship and board duties: the benefit corporation. This corporate form, available in 24 of the 50 states, explicitly allows boards to consider more than just financial metrics when making decisions.

Delaware—arguably the most influential state in the nation when it comes to corporate law—joined the bandwagon last September when it passed legislation to create what it calls “public benefit corporations.” This new corporate form mandates that this type of corporation “be managed in a manner that balances the stockholders' pecuniary interests, the best interests of those materially affected by the corporation's conduct, and the public benefit or benefits” the corporation identified in its certificate of incorporation.

The idea of pursing both profit and social good is intriguing, but what's the risk? Put differently—why isn't everyone doing it? The answer: a lack of predictability.

While it's unfortunate that there is so much corporate litigation in the United States, one of the upsides of all this litigation is that we have a lot of data when it comes to predicting whether a suit will be brought against corporate directors for taking a particular set of actions. The data also provide significant visibility into how a suit alleging a breach of a director's fiduciary duty would be decided by a court, not to mention what a reasonable settlement of such a suit might be. This information provides a high level of guidance—and certainty of outcome—when directors are confronted with tricky situations.

Unlike the situation for traditional corporations, there is a dearth of data when it comes to litigation on benefit corporations. For example, consider that benefit corporations are required to produce reports, usually annually or biennially, that show their performance as it relates to their stated goals for societal benefit (i.e. artistic, charitable, economic, environmental or other social benefit). Objective criteria are to be used, and many will opt-in (or be required) to use a third-party standard for assessment. But no one really knows what counts as a good “third-party standard.”

Although the requirements that drive accountability may be unclear, the law is not toothless. Delaware, for example, is specific about a public benefit corporation's shareholder's ability to sue directors to enforce their duties—including the duty to balance shareholder pecuniary interests with the other interests that benefit corporations contemplate.

In light of these risks, are benefit corporations a good idea?

They are certainly an exciting one. And, as always, directors can take steps to mitigate risk for themselves. These steps include obtaining good indemnification agreements from the corporations they serve, as well as appropriate and robust D&O insurance. Right now, some insurance carriers may be less comfortable than others with insuring benefit corporations. This is likely to change as this corporate form becomes more well-known.

In the end, some businesses may find that becoming a benefit corporation suits their mission to pursue both profit and social good, regardless of the possible risks associated with this new corporate form. As long as they take appropriate steps, these corporations will surely find directors who share their sense of mission.