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HomeMy WebLinkAbout2023.02.06 Council Meeting Public Comments - Stakehold Adv Board Suggestion a��� �z3 �c�.�l�c. Co�...�.Q,�,-{-s ��'..c w. !„��- or� �;c,5 �t— �.� o-� w�e�,�;- � Stakeholder Advisory Board City of Pasco—Tri-Cities Animal Shelter (TCAS) B. Moreno, MBA— 1.17.2023 Abstract This paper recommends that the Pasco City Council establish an advisory board for the Tri-Cities Animal Shelter (TCAS), in an effort to include constructive minority voices to improve the delivery of government services, enhance the well-being of both its animal and non-animal stakeholders, and make progress toward the shelter's mission to "... provide and promote public safety and the humane ' treatment of animals through humane education, animal protection, and community service." � I. Introduction Independent contractors have historically operated the Tri-Cities Animal Shelter through a public competitive bid process. In 2022, the City of Pasco opted to transition from contracted operations to itself managing the facility, its programming, and its staff. In the interim, city leadership has communicated a strategy around rebuilding processes, implementing a managerial and operational structure, and putting in place a hiring strategy to support operations. The regional burden of animal welfare, rehoming of animals left without care for various reasons, and other related issues are shared by both public entities and community-based organizations.These local non-profits partner with public agencies to work toward the collective goal of managing this regional burden. As TCAS restructures itself, it will need to strengthen its processes, feedback loops, and community relationships to accelerate progress toward meeting its mission. A note of attribution in that this paper heavily relied on the work of 1. Haskell Murray in his extensive literature review provided in the American Business Law Journal titled "Adopting Stakeholder Advisory Boards," published in 2017. In fact, his detailing of stakeholder boards cannot be adequately summarized and has been included as Appendix A. II. Primacy — Director, Shareholder, Stakeholder Primacy refers to the authority of an organization's decisions. In most cases, and the literature agrees, director authority, that is, the authority given to an elected board of directors is the most commonly recognized model. All expansion on board governance, including shareholder and stakeholder primacy, concede that final decision-making authority rests with the directorship. In this case,the elected officials of Pasco's City Council are the directors, while residents and taxpayers make up the shareholders; stakeholders are defined as "any group or individual who can affect or is affected by the achievement of an organization's purpose" (Freeman, 1955). In governance theory, the directorship represents its shareholders and by extension, their peripheral stakeholders. Like all governance models, power dynamics and personal motivations or knowledge/skills/abilities influence the efficacy of such bodies. One example is the model of authority vs. accountability; as one increases, the other decreases (Arrow, 1978). Advisory boards are one such mechanism to establish balance and effectively manage the inherent tensions within decision-making bodies. This is known as codetermination, wherein the directorship works with unaffiliated or affiliated persons serving in a supervisory role. This could mean the design and development of practices, auditing of proposed practices, participation in strategic planning, or any such activity that ultimately approves what becomes executed by the entity. 111. Stakeholder Theory According to Freeman's paradigm of stakeholder theory, most firms engage in what he describes as "transactional activities" that define interactions with stakeholders by the resources exchanged. In these models, when a transaction does not "fit" the other parties, the firm does not expect to change or amend practices to accommodate stakeholders. An example is when customer service apologizes and states that their policy does not allow them to perform a task or make accommodations. This forces organizations and affected parties to play an iteration of the "prisoner's dilemma game" known as the "stakeholder's dilemma." In this game, both parties walk the line between negotiating for concessions or adopting a "hardball" strategy and dominating their opponent. Freeman contends that game-playing results in win/lose outcomes and fails to leverage more collaborative processes. In his words, participants must be empowered to be "free to cooperate" rather than be forced into the dilemma. There are two relevant precedents to learn from in Washington's recent history. Career Connect Washington and the Washington Student Achievement Council both award ongoing funding to community-based organizations and regional partnerships to affect positive change in the state's k-12, registered apprenticeship, and higher education systems. Not unlike the aforementioned shared � burdens in animal welfare,the state shares the burden of promoting upward mobility, personal economy, and workforce development with public, private, and community-based stakeholders. The � state arguably invests in these partnerships by an obligation of sharing those burdens through thoughtful and deliberate partnership. These partnerships allow for advisory capacity, co-authored programmatic design and implementation, and localized ownership of solutions to the state's challenges. This is a testament to leveraging cooperative controversy to engage in productive conflict processes to affect positive change. IV. Advisory Boards When reviewing the literature, several concepts stood out that promote the effectiveness of constructive collaboration. From Lind et al.,they argue that effective stakeholder engagement leverages the human response to "... react more favorably to procedures that give them considerable freedom in communicating their views and arguments". In their book "Wiser: Getting Beyond Groupthink to Make Groups Smarter", Sunstein and Hastie found that"when minority voices are heard, well-functioning groups are likely to be jolted out of their routines, and fresh solutions, even a high degree of innovation, can follow". Two examples from Pasco's own institutions, the school district, and police department, leverage these key success factors. • The Pasco Police Department maintains a Chief's Advisory Board of inembers representing each of its policed districts and several at-large members making up essential voices such as business and education. Meetings are convened monthly, during which the advisory reviews proposed changes in practices, current challenges, or successes and has an opportunity to share community perspectives and insights. • The Pasco School District created three unelected positions for their school board meetings consisting of students representing each secondary school in the district; New Horizons High School, Chiawana High School, and Pasco High School. This is another example of leadership promoting opportunities for stakeholders to influence policy d i rectly. V. Precedence There are hundreds of animal welfare-specific advisory boards throughout the state and country,three of which have been included in this paper. It is worth noting that the State of Texas by law requires all shelters to maintain local advisory boards. Another model example is the City of Denver's and their aspirational vision to be "... the most pet-friendly city in the nation" Clark County, WA— • To advise the county council on issues and needs relating to animal protection and control services in Clark County, and through comprehensive planning and other measures, promote the most efficient service possible. • To promote measures that encourage greater awareness of animal protection and control services and responsibilities of pet ownership. • To promote measures that prevent injury to property and minimize annoyances and hazards that may result from uncontrolled animals. • To promote measures that prevent injury to and the inhumane treatment of animals. State of Texas- https://statutes.capito(.texas.�ov/Docs/HS/htm/HS.823.htm Sec. 823.005. ADVISORY COMMITTEE. (a) The governing body of a county or municipality in which an animal shelter is located shall appoint an advisory committee to assist in complying with the requirements of this chapter. (b) The advisory committee must be composed of at least one licensed veterinarian, one county or municipal official, one person whose duties include the daily operation of an animal shelter, and one representative from an animal welfare organization. (c) The advisory committee shall meet at least three times a year. _ City of Denver: htt s: denver ov.or Government A encies-De artments-Offices A encies- Deqartments-Offices-Directory1Animal-Shelter/Get-Involved/Animal-Protection-Advisory-Committee The Denver Animal Protection (DAP)Advisory Committee works closely with DAP and the community to promote a sustainable approach to animal welfare policies and services in the City and County of Denver.The DAP Advisory Committee provides expertise and advice to further its mission, representing community interests, promoting community awareness, and helping to make Denver the most pet-friendly city in the nation.The committee represents the voice of the community, helping DAP understand community needs and how to better serve its residents and animal population. DAP provides anima) care and protection services for all of Denver County. We foster the human-animal bond by protecting the safety and welfare of Denver's animals and citizens. DAP is committed to providing humane care to companion animals; reuniting lost pets with their owners; adopting pets to loving homes; enforcing Denver County animal ordinances; and proactively educating the public about animals,their needs, and DAP's critical role as a community resource. DAP operates Denver Animal Shelter (DAS), an open-admission shelter that's home to more than 7,500 lost and abandoned pets each year. Membership of the DAP Advisory Committee consists of at least five members of the community that represent a diverse experience not limited to animal welfare. Each committee member may serve up to two consecutive two-year terms. The DAP Advisory Committee meets bi-monthly. VI. Conclusion In this rebuilding process, TCAS has an opportunity to implement stakeholder engagement strategies that flow in both directions ta shape the foundation of its future success. Bringing constructive voices throughout the institution's journey will promote solutions that meet the community's actual rather than perceived needs. An advisory board made up of diverse stakeholders, including but not limited to law enforcement, animal subject matter experts, community-based organizations such as rescues or other shelters, and geographic representation would serve the city well in meeting its stated mission. Appendix A = 94 Uol. �4 /Aanerican Bicsiazess Lazu Joir.��nal _ III. STAKEHOLDER ADVISORY BOARDS AS A ROUTE TO = PERIYHERAL STAKEHOLDER INCLUSION = U.S. corporate Iaw mostly ignores peripheral stakeholders, and the - many past proposals to increase consideracion of these stakeholders, _ including those pi�oposals discussed in Part II, are not satisfacto�-y. This = article proposes use of a stakeholder advisory board to inci-ease stake- � � holcler� considei�ation and improve social 1-esponsibility of firms. The rationale behind this proposal and the details of this pi-oposal follo�v in - the sections below. _ A. Stakelzolder Voice, Az�oiding Grou�tlainlz, ccnd Negotiation Theor�r � � 13efore delving into the parciculars of the stakeholder advisory boai-d, it _ may be helpful to explain the rationale for the use of such a board. As _ the naine suggests, the stakeholder advisory board includes i-epresenta- � tives fi-om all the major corporate stakeholder groups.''0 It wields cer- _ tain powers, described below, and communicates regula�-ly with the = board of directors.i�i For starters, giving stakeholders' representatives - direct access to the board and a voice in the boardi�ooin may benefit � firms significantly through the goodwill built by listening and attending - to stakeholder needs.i`'2 Corporate decisions could benefit Irom more = acknowledging the ai��ument that benefits to society i�nay justify the costs); Emil�� Peck, = He��e's IJae Joke o�a, Sustai�za.bility ReJ�ort Th�a.t VW P�ul O�ail Last Yerr.��, H��rrPosr I����s. (Sept. 24, - 201.�), http://www.huffingtonpost.com/entry/volkswagen-sustainability-report-fi�om-]as[- _ year-is-a joke_56040f1ae4bOfde8bOd17996 (noting the disconnect betti��een VW's sustain- ` abilit}� report, which claims the firm "has a long tradition of resoluce commiunent to envi- _ r�onmental protection," and the massive emission scandal that was unc<>vered a� the - comp�u�y); GLo��� Reroa�rivc I�rn���nve, Cos�� ��i� Btiiz�rv or 12Li�o�zr��c (drft.), I��tps:// � wti�w.globalreporting.org/�-esotu-celibrary/Cost-and-burden-of=reporting.pdf (last ��isi[ed �� May 30, 20]6) (discussing the varying costs of sustainability reporting). = �°07-he stakel�olders listed in the Modcl Benefit Cor�poration Legislation shareholders, " employees, customers, con��munity, environn�ent—is a good startii�� place ro lincl major = stakeholcler groups. See B I.a.b, sul�ra note 99, at § 301. Oddh> l�o���e��er, creclitors �vere = vmitted ti�om the list. Stakeholder adviso�y boards pro}�e��ly coiild include a credi�or y represei�tative. _ �"�See a�>t�r¢ Part 1ll.C-l�. - �'�'Se��, e.g., l3enjamin Meails,A I-�nzce-13used F7cca�te�oork �or E��a�l�i�crt�i��t, Cluiu�s o��119i���orit�� Slarrre- _ hol�ler O/�Jn�essio�a i�n tlze Close [;o�f�o�-utio��, 9% G�o. L.�. 120i, l 9_31-32 (200J) (noting tl�c va]- _ ue in being heard, even if the opinion expressed is nonbinding, such �is the nonbincling = � 201% / Stc�kelaol,de�� Ad�isory Boa��-cls 9� = extensive stakeholder input �nd learn Fi-o�n "one of the most reliable = findings in research on procedu���l justice: that people react more favor- ; ably to pi�ocedLires that give them conside��able fi�eedom in communicat- - ing their views and arguments."'"� Furthern�oi�e, stakeholdei� advisoi�y _ boards can bring diffei-ent perspectives and disrupt the gi-oupthink that = may arise in the inany 11i-gely homogenous boaY-ds of directors.i�4 = Diversity and freedom to dissent can act as drivers in creative solu- _ - tions and innovations.�'� In tl�eir recent book, Wiser: Getting Beyond = Groupthink to Make Grou�s Sr��,c���t�er, Cass Sunstein and Reid Hastie state, � "[w]hen minority voices ai-e hearcl, well-fLinctioning groups are likely to � � :� say on pay votes). The shareholders in that case, �leans has claimed, "believe that compen- � sation committees i��ill act wit11 greatcr deliberation if their �voi-k is subject to enhanced � sc�-t�tiny and meaningful, if nonbinding, feedback f�rom shareholders." I3enjamin Means, _ Wlay Ca�-e Abo�zct (Pozuerless) l�oice?, Co��ci.�>nii�:r.:�ri: (Jan. 7, 2009), http://wti�w.theconglomer- = ate.org/2009/O1/why-care-about.htn�l. See ulso 13odie, s�r��ra. note 79, at 9l4 (citing RieH�R� � B. Fxr:r:a�i�N & Jo�t 12oci�Rs, Wt�,�r \�V<�iz�;r:izs ��1'.���r (]��9) For the cl�im that "woi-kers have _ one primar}� concern at the ��vorkplace: a desire for more voice"). _ � �'�E. Ai.i_a� L»� & Tom R. TvLer., Ti3e Sc>ci�i. Psvci-�o�.oc�� or PRocr•.n�;Ra�Jusrice 9 (1988). _ 154Cass R. Sws'r�i�� & 12L�u H:�s�nl�, Wis�lz: Gr.rrruc Br.��on�v Ghc����i��rHivi: To M�xr: Guoui�s �' SM:�K�rLK 5-1% (2015) (cidng Aristotle and �ohn Rawls foi- the proposition that. groups = make better decisions than indi��iduals. 7�he authors also cite l���ing Janis's concept of = groupthink, and laler explain how homogenous groups, �vithout dissenters can sometimes = lead to �voi-se decisions than eve�l indivicluals); S�ephen M. Bai��bridge, Wlay a]3ourcl? Gry�ou�� _ Decisa.on Ma,ki�n.� i�a Co�/�o�-ale Goverraa.azce, 55 V:��t�. 1.. Rt_v. I, 18-41 (2002) (explaining why = we l�ave boards of directors and tl�e advan[ages of group decision rnaking, but no�ing that - groupthink may be a serious problem for boards and cut against optimal decision mak- _ ing); Gi-eenfield, st.e���a note 5%, at 956-55, 981-82 (first, discussing research �h�t shows - groups generally outperform individuals in decision making and tl�en discussing resea�-ch - tl�a� shows excessive homogeneity arnong group members decreases the benefits of group = decision niaking); see �e�izeru�l,ly� C.-�ss R. Su��i�e��, �G'4'in� S��cieries NLrn D�ssL��r (2003); Brown,Jr., s2��ra, note %1, �t. 1 G3-69 (noting the lack of cliversity on boards of directors). _ ���See Su�srL�v & I3;�s�ne, ste�ru note 1:��, a[ 10�; C)aire Zulky, Tlae Softrna�rn, Tla«t Aia�bnb a�zd �� Ki.c]tsta��le�r Ha�ve Usecl to Get Hone��t Lm���lo��er 1-ierll�nrlr, I�:�Sr Co�ii>-��v�� (May 1%, 2016), http:// _ �������v.fastco�npan��.com/30�9911/the-sof�ttivare-that-airbnb-kickstarter-and-others-use-to-�et- _ t�onest-e�nployee-feedback (cliscussin� �i pollin� soCt��eare called l�no�n� Yotn, Company that - a number of con���anies are usin� to �et lecdback f�rom employees). "I�}ie polling software = mi�ht be usefiil to the stakeholder representari�-es, proposed by this arcicle, in aggregating � the opinioils �ancl concerns ot their srakeholder groti�� members; Aspen Inst., Does 11�7c�x��an.az- = ��ng Slzrcrelznlder Va.12r�e End¢rz.�rer A�rtericn�'s Greal Cnna���r�iins, 7�r�n. ASi�t�:�� l��s�i:, Yo�Tut�� at , 1:00:20-1:Ot:0� (Feb 18, 2014), https://���1,°��°.��outtibe.com/��catch%��=qf��aGSH1Pv1�1 (Leading � CEO of Starbucks, Ho�,�ard Schultz, commenting on the benefits of Sta�-bueks' toti�n l�all = meetings on a yuar�erly basis and interna] social media cl�annel, ���ith the promise tk�at = there ���ill be no re�ribution for criticism). _ 96 I�ol. �4 /A���ae�rica.n B�z�siness Lazu Joz�r�ial = be jolted out of their routines, ancl fi-esh solutions, even � high = degree of innovation, can follow. When dissent and divel-siry are ; present and levels of p�rticipation ai-e high, groups are likely to do = a lot better."'�� This tl-ansparency and pi�oviding of voice is not f free.'" There are obviously some temporal and financial costs asso- = ciated with orgai�izing meetings and consideration of comments.�5s � There is also sensitivity of confidential infoi-mation that needs to be _ ` balanced with transpai-ei�cy, which the authors of the ModeI Benefit = Corporation Legislation similarly addressed and ultimately kept some = confidential inFoz-naation fi�oin the broader public.l�� Furthei-, in the � c�ual-board context, so�ne scholars claim r.hat the pi�esence of = employce representatives on the supervisory boarc� leads co less F information sharing by management.'�0 Despite all of this, a number - of scholars hzve recognized the myriad benefits of giving stakehold- = ers voice, including reduced employee turnover, improved products = and services, and increased employee effectiveness.16i Stakeholdei-s _ `� �'�See S��s'r��v & Hnsni_, si�f�ra. note ]54, at 104. - ��`See, e.�., Stephen M. Baii�bridge, P7�i�ately Ordered Yariici�iatory Manager�tent.� An Orga-n.iza,- ` tinna.l l�ail�t<.res Ancrl_>>sis, 23 DLL. �. Corzr. L. 979, lOG2 (1998) (discussing the increased costs - of decision making by allowing codetermination in coi-porate governance); cf. = Dau-Schmidt, suj�ra note 112, at 814 (noting th�t codeterminadon and Works Cotancils in = Ger�n�any `7ower rhe rate of rett.irn on capital, but lower risk of return sufficiently to make = up for this dra���back"). ''�Dieter S�ido���ski et al., Tlae Gerr�zc�.7t Moclel of Cor�orate an.d Lahor Governrcnr,e, 22 Con-�e - L.��s. L. & P�>�'v�. 33, 9 1 (2000) ("[D]irect costs, stach as releasing employees fi-om produc- � tion, providing of'fices and electio�� ancl meeting expenses, as well as indirect costs, such as - more diff cult decision maki»g and the resulting delays."). _ �'`�See B I_reb, su�n��� note 99 at S 402(d) {no�ing, in the context of benefit corporation � repor�s, that "co�upensatio» paid to directors and financial or proprietary information = inclucled in the benefit report ma�� be omitted fi�om the bei�efit report" that is pro��ided [o = _ tl�e se�retarv o1�state and the piiblic). _ �''OGel�er �: IIeI}erin�er, .it��rc� note I11, at 317; 13ainbridge, s2t/n-a. »otc 157, at ]06? (not- = ing tl�ai "German n�a»a�ers sometimes depi-i>>e the supervisory board of ii�foriiiation - because the� do not lvant �he supervisory board's emplo}�ee me�nbers to learn of it"). _ �s�A�u��:hr O. Hir.scii�i.-��, E�ri: V<�icF_, .��t� L<»'n��r�: 12Ls>>q�ses ro Drc���� �v Fir.n�is, Or.�:,�v�- _ ���no��s, ,��r� Si-rrF�s 30-31 (1970) (noti��g, ho�rever, that voice "can be overdone: the dis- _ contented ct�istomers or members could become so harassing that their protests ti��ould at , some point hinde� ratl�er than l�elp ���hate��er efforts at recovering are unclei-taken"); Saclo- ° ���ski et al., srr�n�n nore 15�i, at 4l (no�ing cost savings fi-om codetermination in lo���er �ur n- = o��cr rates, rednced hii-in� ancl training costs, and increased woi-ker produccivit��) (citing = 20l% / Stcrkelzolde�r Ad��iso���� Boa7�ds 9% = care about propei� outcomes but �lso are concerned about a fai�- _ pi-ocess in which theii- voices are heard.'�' > Additionally, negotiation theory tells us that both understanding inter- - ests of the parties and allowing parties to e�press their emotions are �£ 163 important in various dispute i-esolution situations. To negotiate effec- _ tivel��, it is important to understand the underlying issues at play and = the strength of prefei�ences of the pai-ties.��'4 Once the issues and the � preferences are understood, � skilled negotiato�- cai� look for solutions = that benefit multiple parties and may "expand the pie" bcfore division _ of resources takes place.165 Unc�er the unitary bo�rd model, officers and � � shai-eholders are the only stakeholder groups most c�irectors hear fi�oin = on a i-egulai basis.'�� The stakeholdei- advisory board would give the �� board of directors consistent and direct access to i-epresenratives of the � '� Richard B. Freeman & Edward P. Lazear, An Econonair, A�zalysi.s of Wo�-ks Cou��i-cils, ira Woxhs „ Cou��ciLs—CoNsu��r��noN, RL��uLse���.��,�o�, nvll Cooi>i-.R���r�o� » l�n�sriz�ai_ ReL.ano�s 2i-49 = (]oe] Ro�ers & Wolfgang Streeck eds., 1996)); Bodic, s�tep���a note i9, at 9l8 (noting that _ "workers who perceive that their workplaces are »�or-e procedurall}� jtist [througl7, fo�- ; example, significant voice] are mo�-e likely to work cooperati��ely, follo�v the firm's leader- _ ship, and comply wich ethical guidelines"); D�1rSchrnidt, su/rra� note 112 a[ 813-14 (citing = lowei- ttiu-nove�- costs and higher prodi.ictivit�� i» German firms ���i[h codeter���ination in f. corporate gove�-nance than in comparablc ,vnerican firms). _ �`'�'Bodie, sr.�/»-r� note 79, at 914-15 ("The `procedural justice' school of social }�sycl�ology has emphasized the importance of pi-ocess to individu�l satislaction and utility. Accorcling _ to research, ii�dividuals look to a numbe�- of facto�-s in determining �vhether a decision - making pi-ocess is pi�ocedw�ally just. The decision maker's i�npartiality, honesty, and integ- _ riry are critical components, as are tl�e opportunity to appeal ancl the qtialit�� of the deci- _ sion. I�ut ano�her critical component is ��oice: more specifically, having s�me � representatio�a ���ithin the decision maki»g process."l. - irssD�>�c;i.:�s S�r�»� ��r :��., DirFicu��r Co���i�_Rs.��rio��s: iI���c �ro D�sc�:ss bPii:�ar M:�rn,:Ks i�tl�>s�r - 12-�#3 (1999); Ro��J. Li,.a��ici;i ��r���., Nf.c,o�r���r���:v: Ri_�ni�c,s, E�f.acis�s, ����r> G:�srs 3 (2015). _ ��>`'Li�.icn L. "I-ri<>nn>so�, Trie 1V1i:�� _��v Hr_.-�a�r or �rri� Nt.co�ri.��rc>iz 70-�3 (�th ecl. 20]':i). D irs:�Id.; Rocr.H FisFit�:a ��r ,�L., G��rnvc �ro �'Ls: Nr_<;o�n:�n�c Acr.�i_�it�.��r 11'rnio��r Gn�i���; I�� - 56-80 (2d ed. 1991) (discussing strategies like group brainstor�uin�, listening, and askin� ` questions—for ge�ting to solutions that address the needs of both parties and lcad to a _ mutually agrecable outcome). _ "'''Sen su�n�a. notes 19-80 ancl accoi��pan��ing text. _ � 98 T/ol. 54 /Anae��ic��z Bz�c�ia2.ess L«zu Jo�t�.rna.l = other stakeholders, and much better visibility of periphei-al stakeholder = ��� = intei-ests and priorities. > B. Stakelaolder Adz�isory Board Co���a��osition, Elections, and Ter��as = Each major stakeholder group would have representation on the adviso- - i-y board that I propose.'�s� Shareholders rriay have one i�epresentative = for each major class of stock, though I recomrnend a cap to the number � of shareholdel- representatives to prevent abuse through creation of - multiple classes just to obtain �nore repY-esentation.169 Employees may = have multiple i�epresentatives as ��•ell, perhaps one for each major class � of employees—for exarnple, G-level executives, middle management, = and staff—as each representative brings a clistinctly different voice to � the conversation.l'0 Vendo�-s, customers, and creditors may offer helpfi�l � insight as representatives on the stakeholder advisory board.17� The �� environment and the community, likely represented by individuals from = local nonprofits, also could have rep�-esentatives, tl�is is particularly � helpful if these i-epresentatives ai-e customers as well, otl7erwise custom- ers could have one or inore standalone representatives. To pi�ovide sta- � bility and institutional knowledge, in rnost cases, it may be advisable to � � 16iSee infra Part IILC (detailing �he inform�ition rights and meetings of the stakeholdcr � f advisoiy board). ��'`�See suJ�ra note 150 and accompanying te�t. - ��`�Jesse M. Fried & Mira Ganor, /lge�racy Costs of I/e���t�r-��re Ca./�italist Control in Starticps, `�1 _ N.Y.U. L. RLv. 967, 9%% (2006) (noling that corporations may issue different classes of = stock with different rights �u�d intcrescs). = F �'OAnne Pisher, Note �o Lxectr�t,iz�es: Yo���r Eni��ln��ees Arc zn Glae Dn�r1�, Fox�ruv� (Apr. 30, 2013), � http://fortune.co�n/207 3/04/30h�ote-to-executi�es-yotu--e�nployees-are-in-tl�e-dark/ (discus- �-� r sing the relative lack of coinmunication bet�veen fi ont-line employees and eYectatives). = �`�Lynn A. Stout, Tlze Co2��or�rli�on ris Ti�nze �Vlnchz�ze: lute���e�a��ru-lio�zal Eluity, I��tte�ge��era.tiorzal Effaci.e7acy, c��ncl tlae Cna��o��ale Farnr, `�'S Se.:�'rru-: li. L. Ri_��. G85, 691-94, 692 (2015) (discussing - the importance of corporate stakeholders, such as "employees, customers, suppliers, ci-ed- � > itors," and noting ho��� their interests shoulcl be taken seriousl�, by the board of directors); = h�trt see Ribstein, s2���ra� i�ote G�, at 1440 (ar�uin� that nonshareholder stakeholde�-s prot.ect _ their rights through negotiating and enforcin� specific contracts, and that gieing nonshar- = eholder stakeholders additional i-iglirs would transfer ���ealth from shareholders, dea�eas- _ ing the amow�t cui-rci�t and prospecti��e shaa-eholders ��aould be rvilling to pay for equity - interests in the corporation). _ � 201% / Stakelzolder Ad�iso��y 13oa.rcls 99 - elect stakeholder representatives with thi�ee- to f ve-yeal, tei-ms.� '� Tl�e = representatives could be nominated and elected by the groups they rep- � resent. Employees or customers could elect community ancl environ- _ mental representatives, or one ol� more appropriate nonprofits could = provide an identifiable voting group. Stakeholder groups that elect rep- _ resentatives could remove the repi-esentatives "for cause" and would = have an opportunity �o elect new representatives at the end of eacl� � term.� '�3 _ C. Info��mat�io��z Riglats, Meetings, ayacl Repo��ting = Socially conscious firms should provide stakeholder advisory boards = with i��fol�mar.ion rights. Venture capitalists often insist on infoi-mation - rights as a way to keep a finger on the pulse of a company, and direc- = tors are presun�ed to have a right to corporate books and records.� '`� _ I�ike directors, stakeholder i,epi-esentatives on the advisory board should - be presumed to h�ve a proper purpose for accessing books and recorcls : because the i-epresei�tatives have positions that would occasionally - rec�uire rele��ence to the company recoi-ds.� 'r' Of coui-se, the presurnp- tion coulci be rebutted in the appi�opriate cases where the requests were - foi- impi-oper, nonfii-m purposes.176 Given the sometimes competitive " 1i2���hile �lie evidence is n�ixed, a recent study shows an inerease in firm value For coinpa- - nies �,�it17 staggered bozu-ds oi�directors, which generally employ three year ter�ns. See K.�. = Mar�ijn Cremers � Simone M. Sepe, The Sfia�elaolcle��� 1�a.lu.e of Ena��ozuered Boa,�-cls, 68 S�r��. L. = RE_v. 67, 76-108 (201G) (detailing tl�e staggered boai-d debate and providi��g new e��i- - dence); cf. "I�ho�nas�. Andre,Jr., Cultz����l Heg�e��aony: The Ex�ortatio��a of A�aglo-Suxo�a Co�i j�orule = Go��erna.�zce Ideo/o;�ies to Ge�r�na��i)-, %3 T�i.. L. Ri_v. 6�, 85-�% (1998) (listing various agencies, - inany �vitl� boards that serve five-year terms); Kirti Dada & P.ichard L. Revesz, Decnnslrt��rl- = ing ]nde�e��rcle�rat Ageracies (And Execa�tive Agencies), 98 CokUr:i.i. L. Rr.v. 769, i90 n.112, 7�9- 92 (2013). - �'�'Companies could take guidance from the process of removing n-aclitional directors bv = shareholders. Scv, e.;., Di��. Coi���: A��v. tir. 8, § l4](k) (201 1 & Supp. 2015) (dctailing the = rights of shareholdei-5 to remoae directors �u�de�- Delaware corporate lati�). = �``}Robert P Bartlett, llI, Sl�c��>-rlTolcler We�iltla lVlaxi��tizr�.lio���, as IYletans to a�n E�nd, 38 SF.:�i-r�_it l�. _ L. Ri_v. 25�, 2G3 (201�). - ���Di.i_ C�>»r. A.v��. tit. 8, � 220 (`�O1] & Supp. 201�)- - �`�'Id. � �?0(d) (notin� that the burden of proof is o�� [he corporation ����hen it seeks to _ sho+�v t.hat directors arc Seeking books ancl records tor a�� improper purpose). _ 100 vol. 54 /A�aer-ican I3usi.ness Lazu Jo2r.���nc�l i-oles played by einployees, vendors, and creditors, exceptions for sensi- ` tive information are appropri�te, although sharing infoririation could = create a cooperative, ti-ansparent atmosphei-e that is advantageous to all = parties.�'� Recipi-ocity is an innate response, and perh�ps stakeholders f. would z-espond to the extreme honesty and transparency with similar openness.i'g Dii-ectors often must trust infoa-mation �,eceivecl from offi- = cei-s; stakeholder advisory boards could provide checks on claims of the = officers and cut against office�- biases because stakeholder advisoiy - boal-d inembers would have certain knowledge based on their }�ositions � ' close to or within the fii-m.�'� In addition to the information righrs, the � stakeholder advisory board members should rneer with the board oF _ directors on a regular basis, perhaps quartei�ly, to engage in face-to-face �� dialogue i-egarding the issues facing the stakeholder groups.'�0 Stake- ° holder repi-esentatives should create regular reports, perhaps annually, _ to communicate with their respective groups and share prog�-ess over = the covered time period. � D. Proxy Access, Proposals, Derivative I.azusuits, and Selective Votin�� Ri�-lats �' One of the primary advantages of the st�keholder advisory board is that � it would increase the voice of peripheral stakeholders within the firm. _ ���CYN`I�HIrI ESl"LUND, WORIiING TOGr�1HER: HOW WORRPL�CL BOVDS STI:EN(:IIIEN A DIV'P:RSL - llL���ociz.acy� ll4-16 (2003) (noting that social capital is mac�e up of things like collective = decision making and eompro�nise); Aditi Bagchi, Wlao Shoacld Trzlk? Whr�G Co�-cnts t�s F.�ti��lo��ee = l�oice and 6VIzo Sta�2c�s to Gaiyz, 94 M,�uc�. L. R�v. 869, 8�44-8� (2011) (noting confidentiality - conce�-ns arising ft-o�n inforination rights). - �"�See gene�ra.11y Ro�Fu�r B. C��i.�»i, INFLUE�c�, THi�: Psvci-���Loc�� oE Pt.�zs�:�si�>u (1984) (dis- = cussing� natural reciprocal tendencies and the rule of reciprocation that most people fol- _ low); Greenfield, s2i�r�� note 57, at 9fil (stating that "[n]un�erous studies ha��e sho�ti�n �he ` truth of what �n�e intuit from our evei-yday interactions, namely� that human beings �u-e _ � `reciprocators"') . _ �'`'�amar Trankel, Co�l�o�a�te 13o«rds of Di�-er.tor.s: Ac1��isnrs o� S�r��u�rz�isors?, 77 L'�. Ci�. I.. Ri�_�_ _ �01, �03-04 (2008). _ ��Ol:liymer Rigb}�, A Fa.ce-Off�uith Vtrt�rru�l Meeting�s, Pi�. Tin�n�.s (May 1 l, 2014), ]�ttp://ww���.Ft_ � > com/cros/s/0/6�099bF0-d6cb-lle3-b95e-00144feabdc0.htrnl#axzz�9L��bgirrl2 (noting s��me = of �he ad��antages of in ��erson meetings, inclucling, building stronger bonds bet�vee» the = group members �u�d ger.ting the benefit of nonverbal communication). lioth hoard of = director members and stakel�older adviso�-y board members should ha��e �he opportunity ' to call i�Z to these meetings, hut use of cechnology should be discotn�a�ed and mavbc e��en - eapressly limited. _ � ?01%/ Stakelzolr.l�r Ad�iso���y Boards 101 - Aditi Bagchi, in the employment context, has differentiated between _ "hard voice. . . the ability to exercise power and shape the direction of _ the Fii�m" and "soft voice. . . the ability to engage in dialogue with oi- provide = feedback to the i-elevant decision makers."'�' "I,he previous section focused on soft voice.'s� I propose that tl�e stakeholder advisory board should also _ have selective power, called harcl voice by l�diti Bagchi. Soft voice without any = power may appear disingenuous to stakeholders, and may even� become _ counterproduc�ive if the increased dialogue, without results, frustrates the _ peripheral stakeholders.i��; Ha�-d voice or po���el-For the scakeholdei� advisory = • board could take the for�n of proay �iccess rights, stakeholder pi-opos�l rights, : � and voting ��ights in change of control ancl board election situations. Some = commentators �nay argue against dii-ect participation in corporate gover- � nance by peripheral stakeholders bec�use these stakeholders can use con- � tracts and regulation to �rotect their interests.��`� This argument is = unpersuasive because shai-eholdei-s benefit from their role in corporate gov- - ernance, even though shareholdei-s also czn use contracts (especially in pri- ; vate companies), and regulation c�u� protect shareholdei-s. Further, conti-�cts - are often not effective for stakeholclers like at-�vill employees, with little bar- � gaining power and ever-changin� employmen� handbooks.'�5 As the Ghief ` Justice of the Delaw�re Supreine Court has noted, boards of directors are � _ ���Bagchi, s2.e��-ct note 1 i%, at �'7l (differentiating bet���een hard voice and soft voice and > noting that use of the term "��oice [in the context of "hard voice"] is a bit euphemistic - because �he notion of po�ver ar�uably better char�ctei-izes what people seek with this type of `voice"'). = �`��See si��na Part III.C. � '�3Dau-Schmidt, sujn�a note 11�, at 89_I-26 (discussing "meaningful" ways to give employ- - ees ��oice in American corpora�e �overnance, �ind �nakin� suggcstions that couple soft = voice with actual polve��, such a; se.ats on the board oF directors); b�ie.t see Bodie, sz.��i��� note ° i9, �it 915-1 l (noting that the abilit�� t�> be heard is of��alue in and of itself, even if it does = not impact thc ultimate outcome). _ ��'�Dent, s�i.�jrrcr note 55, at �l 1-12. _ ��'lienneth f1. Sprang, Bc�zurr�e !he 7i�nthles.� T�i;e�: �3 Criliq�ce nf the Nloclel L;�n�[�loyvte��at Te��mi�na�- - Gion Act, 43 .���i. U. L. R���. 5�9, f�72—%3 (199�) (notin7 ho�v lit[]e barg�ining power the ty}�i- = cal employee of a �]ob�il corporation h��as in the modern eeonomy); Dau-SchmidC, st����ra- - note I l 2, at %82—�3 (20l 1) (noting the lacl: oC po�,�en c�)d by em��loyees �vhea� engaging in = negotiation wiil� their firms). _ IO2 I�ol. 54 /A��ze�y-zc�caa I3usiness Lazu Journccl _ most influenced by the actual po��e�- the shareholders wield; giving simil�r = power to peripheral stakeholders may widen directors' focus.��6 ; Proxy access fol- shareholdei-s has been proposed (foi� decades), _ adopted in soine_jurisdictions, and then overturned.l�' Much of the rea- _ soning bel�ind giving pi-oxy access to shareholders applies to giving proxy access to a stakeholder advisory board, but giving proxy access to � an advisor�� boai-d �n�ould give voice to all major stakeholders, not just � shareholders."'� If boarc�s of directors are at least nominated by vai-ious - stakeholclers, perhaps directors will consider peripheral stakeholders - ' moi�e seriously. The possibility of allowing the st�keholder adviso�y � � board to directl�� elect tl�e board of directors is also discussed below; _ pi-oxy access could be important even if the election righ�t were granted, � as the power to elect is most effective if coupled with the power to nom- _ inate.'s`' The advisory boards also could make stakeholder proposals, _ along the liries of sha�-eholder proposals to be included in the com- = pany's proxy seater�ient.190 This right would allow stakeholders to for- � mally advance theii- ideas. - Another potential power for the stakeholder advisory board is selec- _ tive voting rights, namely, the power to vote to block changes in control = and the power to vote for the board of directors.'�' Changes in control = can cause c�isruption for stakeholders, while being profitable for _ ���'See Strine, Corati�at.r�izb St�-rcg�g�le, szc�rr�. note 100, aC 250-51. - ��'See 7�chary�. Gublei; Ex�era.�nenla.l Rules, 55 B.C. L. RLv. 129, 13%-39 (2014) (discussing _ t.he historp and intended purpose of the proxy access rule); see generally Bo l�ecker et al., _ Does Shareholder Prox���ccess Irii�rove F��7�z I�cclz�-e? Evidence fro����. tlze 13�i,�si�zess Rozcnclt�cble's Chal- _ � le�nge, 56 _).L. �� Ecx>�. 12i (?013); �.1N. Verret, Defe�r2.cli�zg� Ag��.i��,st Slza.rehol�ler P�-oxy Acr.ess: � Dela�r��cr���e's Fi�.t�t�re Re��aezi�i�zg� Co�ia�ir����y Deferases in the E�-a, of Dodd-Fr�r,r,�nk, 36 �. Coizi� L. 39l � (201 l). - �'�,Gubler, .,irJ»-u notc ]`�7, at 13i. - �'��liicii ] I. A]��l)�niii��ll_ .11r���rliulrl,-� li�Gr<<�.ti. .S1��rir�lrnlrlr�i ,A'rnrrrirrrlinlrs. �r�rrl I'r,r�n�� 1'111,. :� l�r!zi.r- _ t.r.�� 13�5. L.J. ?05, 293 (2005). - �`�0l i C.I�:K. § 940.14a-8 (201�); see g��iPrrcll��, Paul Rose, S1acr.��elaolcle� 1'ro��osals z�n the lb�u�rke( _ for Crn/�mrr-!e Irtf/�rnnrr:, 66 i�i.:�. L. REv. 21%9 (2014) (discussing the role of sharel�older pro- - pos��ils in Eirm corpcn-ate governance). _ '`"C�. Bodie,s��nu n<xe 79, at �3%3 ro osin� a�noa��bi�n.dz�z� vote b � one rou� of stakehold- _ 1 / �P P � � ) � 1 ers (the eroplo��ees) in change of control si�uat�ions). - 201% / Stuke�zolder Advlso����y Boa��ds 103 - shareholders.��� Tl�e market for corpor�te conti-ol, however, n�a�� also = be a check on �nanagerial effectiveness and efficiency, and perhaps this _ blocking power would weaken that check.'�`� The benefits of the veto = power of the advisory board might be significant cost s�vings from = stakeholders who increase loyalty and commitmcnt to the firm because - of the voice their representatives have in ��hat can be the most disrup- = tive move for a firm. The real wol�ry, in a change of conti�ol situation, is = that directors will be self-seeking, and derivative lawsuits woulc� still be : available in those situations to check �nisbehaving directors.l�4 Also, _ � stakeholders would likely not choose to block all charlges of control, but � rather would just make certain that their interests are taken into = account. Yerhaps shareholdei�s would not reap the same premium they �< tiormally would if a deal was blocked or burdened ���ith stakeholaer con- ° cessions; yec perhaps the moneta�-y benefits fi-om more efficient, loyal � stakeholders would more than offset the lost premium.'`��' A precommit- - ment device structure, such as a stakeholder advisory board, shows : stakeholdei-s that their conipany will seek the input and approval of - � � �`'�'E����:a�� II,�L»oz�x & GeaaLll L. Kovac�c�-�, M�tzcLxs ����Ac�u�si�riovs SLc�arr�� 80 (2005) = (noting that mergers generally lead to at least some dis�runtled emplo}�ees); Richard A. _ 13ooth, Mino�-ity Disco2�-nts and Cont���ol Pre�iai��ms iaa A��rais��l Proceecli��a;s, :i i Bus. L-��v. 12%, ; 1?8 nn.4-5 (2001) (noting control premiums of thirty percent); Sabine Cosack et al., = Retr�i�2zng Key E�ia�loyees z��z Times of Change, M<;Ki�se�' Q. (2010), l�ttp://�vww.�nckinsey.com/ = insights/organization/retaining_key_ern}�loyees_in_times_of change (discussing how� to �_ retain emplo}�ees during disruptive times for a firm, such as chan�e i�� control). - �`'�jHenry G. Manne, �Vle�gers ancl the Ma.�-Itet for Co���n���¢te Co��ta��ol, 73 J. P�i.. Eco�. 110, 113 = (1965). - �`'�I�z �-e S. Peru Gopper Corp. S'holder Deriv�3tive Litig, 52 t�.3d 761, %g5—S19 (DeL Cl�. _ 20] 1) (a��rarding clamages over $] billion in a case centet-ing around a duty of loyalty <. claim, tivhei-e the defendant w�s on hoth sides of�he transaction); A�iii��i.�ni �. C.�r.n��r_��, Mi.izc;- �xs .a�i� .nc<���isrno,�s: Essr:vri�i_5 132-35 (2009) (noting the extra scrutinv received by - u�ansactions involving a conflict of interest); 1_ynn A. Stour, Tlze 1191'(1ric�rl Berrc fzts nf� Shr��re- _ hnlrler Co�at�ol, 93 V.a. L. Kr:��. i�9, 809 �i.19 (200%) (notin� that "[t�]niike rhe duty of care, = �a-hid� is notoriously te�7��ered b}� the business juclgment riile, the duty of loyalty has teeth. _ A director ��vho uses his position to promote an `interested' corporare transaction that ��er- - sonall�� e�u-id�es the directo�- miist be prepared to defend the tr�ulsaction in court as `flir' in terms of both price �nd process, and the burden of establishin� fairness rests on �he - director."). - �"'7-he specific amount of cost s�vings, if� any, fi-o�n ina-eased lov�ilty and efficiency of ` stakeholders is sometl�ing chat scholars could attempt to acldi�ess in futtu-e empirical _ researcI�. - 104 Vol. 54 /A�1ne7-�ir,ca�n Busi.�zess I azu Jo�,r,r7zcal = theii- representatives befoi�e a sale.'`'� There would be some questioi� as to = whether this authoriry could be given to stakeholders in a state like Dela- ; ware ti�ith the Rez�lon case that prioritizes shareholders, but in the public ben- _ efit coi-poration context in Del�ware, Re7�lon, may not apply.i�' As anothei- - rype of voting rights, the stakeholder advisoz,y board could be given the _ power to elect the board of dit�ectoi-s. This right may lead to directors more - sei-iously considering what is best for the firm and all of its stakeholders � because the directors would have been elected to theii- positions by a group _ i-epi-esenting all of the major corporate stakeholders. _ - The advisory board could be given the right to sue the directors on � � behalf of ehe coi�poration, though that drastic of a change may need to = be implemented slowly and later in time. For startei�s, monitoring the � board of directors through derivative lawsuits could be extremely time � consuining and taxing for st�keholder advisoi-y board members who s may be volunteei- or relatively lowly paid.'�� Moreover, this right might - make the relationship bet�veen the board of directors and the advisory - board a contentious one, hai�ming t��eir working relationship and lower- - ing the probability of issues being worked out in a consensual manner. � -� However, if the other rights are pi-oving inef�ective, then pei�haps the right - � '`��Delaware l�as been hostile to certain types of precommitment devices, where the clireo- = tors tie their l�ands in adv�nce, l�ut �he eote by the advisory board would be more similar - to the requirement of a sh�reholder vote thai� [o the disfavored precom�nitment. The _ advisory board voting requirement �vould change the rules of the game in which the board of directors play and would merely be a check on the board of directors authority. � See Clare O'Briei� 3c Rory O'Nalloran, T/ae Bocra�d's Pr-erogcitive a�zd, Mergers, Ht�uv. L. Se�i. F. _ o� Cofz�z Govi�Rvt»c� �C F�N. Rrc. (Sept. 28, 2015), ]lttp://corpgov.law.harvard.edu/2015/09/ _ 28/the-boai-ds-prerogative-and-�nergers/ (noting tl�e �ad�isability of "fiduciary outs" that = allow tt�e board of directors to change its »�ind if t�duciary duties so requirc, but also not- _ � ing that "a eourt could conclude tl�a[ a board }�roperly �ccept.ed restrictions on its ability = to change its recommendation as part of an overall transaction process tha[ resulted in tl�e = . best cleal reasonably available For its stockholders, finding that the bencfits gained in = exchan�e for agreeing to the limi[ation out�veigh the restrictions i�nposed on �he bov-d = limiting its fi-eedot» to cha��ge its r�ecoinn�enclation"). _ �`''See gene��ally Ke<�lon, Inc ��. Mac�ndre„�s � Forbes Holdings, Inc., :iOC A.2d l73 (Del. - 1986). Sc�e Strinc,sz�(�rr�� note �9, ar 24:i (the current Dela�vare Supreme Courc Chief�ustice v wri�es: "I3y �1�a}� of conci-ete e�ample, one of the mosr important conseguences of t}�e De1a- - ���are [PBC] statute is that i� n�akes clear thar. rhe Re��lon doctrine does not apply to beneGt � corporations"). = �`'�See, e.�., E. Norman Veasey. Tl�e C;o�zi���clricni nf llie Arbilru�tio�� ��s. Liligc�.tz-o�n De�is�on, 2015 _ Bus. L. �To�:»� 1, 3 (2015) (cliscussing the hi�l� ti»>e-related cos�s of]iti�ation). =_ 201% / Sta.kelaolcler Adv�iso�-y Boarcl,s 105 - to bring derivative lawsuits shotzld be consiclered. Also, giving the ri�ht to = bring clerivative lawsuits to a stakeholder advisoiy board may pi-ove good ; for the Cirrns, as a stakeholde�- advisoi�y board may be less subject to capture = by plaintif�s' la��ryers because the stakeholder advisory board members will _ be mo1,e closely tied to the fii�m than the avei,age plaintiff shareholder. _ F.. Soci�l Ente�prises v. Traditional Co�zpanies � Under this article's proposal, social entei-prises, such as benefit corpor�- - tions, al,e required to �dopt stakeholder advisory boards once they i-each a sufficiently large size (for example, perhaps, �100 inillion in = annu�l revenue) or go public.��`� Smallei� social enterprises �re exempt, = but i�equii-ed to explain �vhy they decided not to adopt a stakeholder � advisol-y board structtzre.�°° 1i�adition�l businesses zi-e not forced to = adopt stakel�older advisoi�y boards, but they are allowed to do so, and the market likely will i-eward the move, at least for those firms that : claim to be sociall�� focused.2°' These stakeholder advisory boards = shoiild bring diverse perspective to the decision-maki��g process, _ � �"`'�ohnson, sr.�,j»-re note %9, at 990 (no�ing the social and environmental foctis of benefit - corporations); S�e Strine,suj�ra. note S9, at 244 ("Importantly, the statute docs no1 permit a ' public benefit co�poration to be inonocular in locus, by pursuing one public benefit, while - other��vise acting irresponsibly toward othe�-s affected by the corporation's conduct. Rather, _ the staaate rec�uires bo[h that a public benefit corporation identify at Ieast one specific pub- _ lic benefit it is com�nitted to producing, and that the corporation `operate in a responsible _ and sustai��able manncr.' Thus, a Delaware benefiY corporation musl be an overal] good _ corporare citizen, and not just be indulgent to��ard one narrow cause or interest.") (inter- � nal citations omittecl). _ '°°Cf�. Sridhar Arcot et al., Co��ora.te Gove7�na�2ee in tlze UK: Is the Co��if�ly or Ex�lr�i�a A/�/»�oaclz = l�orki�n�r, 30 Iv�i'� K���. l,. �c Ec<��. 193, 194-95 (2010) (explaining the "comply or explain" ' . regiine in tlie United I�ingdom). ` '01The business judgment rule, exculpatory charter provisions, and constituenc�� statutes = largel}� }�rotect direcrors purst�in� soeietal goals.Janet T. Kerr, Sust�i��uahili.11� ItiJeels P��n�itrrbiTi- _ t1�: Th�r Co�r�ve�tae��1 Ti�a�ih o�Hozu llze B�tts���a.ess J�tcdgrn�e7il Rt�.le Protect.s A Bnarr('s Derisio�t. to L�i;a�� ' in Sn��iol L�2Ir%rrnvna:sh�(�, 29 C.aii�ozo L. RL�: 623, 6:i6 (2008). �I�hese legal rules, ho��cvcr, _ do not ;ener�ill�� maildare consideration of nonst��keholder conslituents. S��e s�r���rcr nores = 7�-78 and accouipanying text; Greenfield, sti��rr� note �i, at 96] ("[T�he business judg- mei�t nile, �f cunrse, does not a-eate any affirmative obligacion on the part of ma��agers to - look ai-t.er the coalcerns ol�non-sl�areholder stakeholders. Moreover, even at its sti-on;est, _ the blzsiness judginerit rule protects managers ���ho �vant to protect other stakeholders i1� = the «�anagers are dishonest abour their rauonale. If they l�onestly declare that the�° a�-e ' acting to benefit othes sta�eholders at the eYpense of shareholders, then the b��siness = 7Lidgmeni rulc ���ill not protect tl�e ma»ager."). _ 106 T�ol. 54 /A��ier�ican Busirtess Lazu Jou�-n<al = impi�ove the positive social impact of firms, ancl improve stakeholder = loyalry.'°' In the traditional firm (nonsocial enterprise) arena, these pro- ; posed reforms might be fii st embracecl (on a voluntary basis) by closely held _ private companies because wiclely held firms will face collective action prob- - lems and dil�erent social preferences among their many slzareholders.�03 _ Both law and social norins influence corporate decision making signif- = icantly.�°4 This st�keholder adviso��y board proposal seeks to affect not = only law, btit �lso social noi�ins. The pi��oposed la�� would mandate stake- = holder advisory boar-ds for lai-ge social entel-pa-ises, ancl over ti�ne, this � _ mandate m�y create a norm that will pressure socially focused fii-ms to = adopt similar stl�uctures. � � GONCLUSION � Social business forms have proliferatecl over tlie past decade, but the = basic corporate governance fi-amework in the United States remains = la�-gely the same. Directors, officei,s, and shareholders are the only stakeholders wielding real power. Outside of these thi-ee cel�ti-al stake- _ holder groups, the peripheral stakeholders are oFten ignored in the cur- � rent U.S. corporate govei�nance system. I advocate for the mandatory � n adoption of stakeholder advisory boards, endowed with certain corpo- _ rate governance rights, by large social enterprises. In addition, I = encourage the voluntary adoption of such stakeholder advisory boards = by s�nall social enterprises and by tradirional, socially focused, firms. _ Like any corporate governance mechanisin, stakeholder advisory boards f. can and will be co�-rupted, but the stakeholder advisory board struc�ur�e - will likely maximize the net benefits to the fii-m ancl all its constituents. _ Stakeholder advisory boards have many potential benefits, including = opening communication lines between directors and �eripheral stake- = holders, and increasing stakeholder voice, creative ideas, and loyalty. � Finally, adopting and empowering stakeholc�er advisory boards would � ci-eate a revised corpo��ate govei�n�nce fi-amework nlore ali�ned with the = purported goals of social enter�rises and socially consciotzs businesses. _ D '0'Christiane S. Bode et al., Corj�ora�te Soci�r.l, I�razGiulz��es mn��l E�n��Jn�'ee Kelc:nlio�z, (l�si.�n, Wo�zh- - i�c P,�i�i�.k No. 34, 2010}, http://papei-s.ssrn.con�/so1:3/}�apers.cfin�abstract_id=2�39609. _ ��u:sJohnson, sz�.��ru i�ote 79, at 989-90. _ �o`�M_�ci.�; sz��n-ra note 3�, ��� 9. - �