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US trade: The rise of benefit corporations and stakeholder - capitalism businesses

What's inside

Companies focused on broader public benefits and ESG principles face unique issues in international trade disputes

Introduction

By Walter Spak and Jessica Lynd

*Gregory Spak, Jay Campbell and Allison Kepkay contributed to the creation of this report.

Increasingly, companies worldwide are expanding the focus of their business models beyond maximizing shareholder profits to include other stakeholder values, such as: 

  • Operating in a more sustainable and responsible way to minimize harmful business effects on the natural environment, individuals and communities 
  • Incorporating objectives that benefit society and deliver value to a broader set of stakeholders (workers, community members and others) 
  • Providing environmental, social and governance (ESG) and other public benefits beyond their primary products and services

This movement has implications for companies, shareholders, workers and the public at large.

The impact of this movement on the international trading system and the ability of existing trade laws and agreements to account for it has not received much attention yet. But it should.

The agreements and laws that regulate international trade largely presume that companies operate only to make a profit. For example, US trade remedy laws focus on practices such as "dumping": selling at prices below production cost and a reasonable profit. Imports can be considered to 'injure" a domestic industry if that industry’s profit margins are sagging. Companies that receive inducements to achieve economic or social goals could be penalized for receiving "subsidies." Key terms like "dumping," "injury," and "subsidy" all presume a free market orientation in which companies act with the primary focus of achieving and maintaining profits.

Our current notions of fair/unfair competition and fair/unfair trade derive from the power of the free market. According to free market theory, every company should have its chance to compete in a marketplace governed by rules, including the need to sell above the cost of production and to avoid "dumping" into foreign markets, unfair government subsidization and other activities that thwart competition.

But what happens when "benefit corporations" commit themselves to taking on additional costs in order to comply with enhanced environmental or labor standards? Should they be disadvantaged or conversely required to compete with imports that do not assume these additional costs?  Should governments push companies to achieve broader societal goals? If so, then we may need to re-think the current agreements, laws and regulations that define fair and unfair trade.

Under current trade rules, US importers could be at risk of paying higher duties and other trade remedies, due to differences in how foreign benefit corporations produce goods and conduct their businesses—or could potentially leverage an ESG business model to eliminate or reduce trade remedies against them. Similarly, US benefit corporations could be forced to compete against foreign corporations exporting to the US that do not abide by stakeholder-capitalism values.  

Until trade laws in the US or at the World Trade Organization (WTO) adapt to account for the unique role that benefit corporations play in international competition, those businesses should be mindful of how their socially conscious business model could be bolstered or hampered by existing trade laws.

This report examines challenges and opportunities that may arise as companies pursuing societal benefit motives engage in international trade. We provide an overview of what board members, general counsel and other leaders of benefit corporations should consider when addressing allegations or pursuing their own petitions in US trade disputes in order to maintain competitiveness while pursuing ESG objectives, as well as suggestions for how the trade laws could change to accommodate the rise in stakeholder capitalism.

“Benefit corporations should be mindful of how their socially conscious business model could be bolstered or hampered by trade laws”

The rise of stakeholder capitalism

Amid a growing movement towards corporations that "do good while doing well," many countries and US states are creating legal structures that allow businesses to establish themselves as different types of benefit corporations and stakeholder-capitalism companies.

upward tree view

Opportunities and risks for benefit corporations in US trade proceedings

Stakeholder-capitalism businesses and benefit corporations need to pay special attention to certain key considerations in US international trade remedy cases, to ensure that their unique missions are not overlooked or considered "unfair" trading practices. 

cargo containers

Q&A: The case for a market-wide approach to sustainable business

The CEO and founder of the Shareholder Commons—a nonprofit focused on structures for a sustainable, just economy— discusses with us how systemic changes can help companies create value, while prioritizing the long-term health of capital markets and shareholder profits.

lettuce farm

Q&A: A global movement to use business as a "force for good"

The Director of Stakeholder Governance and Policy for B Lab—a nonprofit that certifies companies as B Corporations—discusses with us the benefits added when a company’s operations and business model include its entire social and environmental performance.

pedestrians walking in the street of New York

Conclusion

As businesses increasingly adapt to a new stakeholder-capitalism approach and seek to add value through benefit corporation registration and similar certifications, they should craft trade law arguments that support their approach and protect their vulnerabilities.

buildings and garden
buildings and garden

US trade: Conclusion

Insight
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1 min read

Most of the potential complications and outcomes outlined above were not considered by the US Congress and other WTO members, which previously considered only conventional businesses competing among themselves when drafting AD and CVD laws. 

Yet they are exactly the types of issues that can arise as more businesses make commercial decisions based on the interests of multiple stakeholders, instead of only shareholders. To promote legal consistency and maintain fairness in the international trading system, WTO member countries should act jointly by adapting agreements to consider the growing stakeholder-capitalism model. 

Until then, parties will need carefully to construct their arguments when a benefit corporation or stakeholder-capitalism business is involved in either side of an international trade case in the US.

As businesses increasingly adapt their models to a new stakeholder-capitalism approach and seek to add value through benefit corporation registration and similar certifications, they should be careful to craft trade law arguments that support their approach and protect their vulnerabilities. Preventative actions can help these companies continue to compete successfully amid cross-border trade and "do good while doing well."

 

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP

 

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