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Legal Frameworks For Social Enterprise

Legal Frameworks For Social Enterprise Author: The World Bank Group

Date Published: 4:47:08 PM Thursday, 23-January-2020

We can safely say that Milton Friedman’s words, that the social responsibility of business is to increase its profits, no longer apply today (Friedman 1970). A change in attitude has occurred since the 1970s with regard to the role of business, and this has been followed by a number of legal developments. There have been changes to business law to reflect the changing view of the role the board of directors plays, the body that governs a company on behalf of its owners (the shareholders). U.S. business law started to evolve in the 1980s with the adoption of constituency statutes that permitted directors to look beyond shareholder interests to consider the effects their decisions would have on other stakeholders. This included employees, local communities and customers (Bainbridge 1992). In the United Kingdom, the Companies Act of 2006 adopted for the first time what is known as the “enlightened shareholder value” approach, which requires U.K. company directors to “have regard to” a range of stakeholder interests as they promote the success of the company for shareholders. These interests include the interests of the company's employees as well as the impact of the company's operations on the community and the environment. Courts and parliaments in other countries have also resorted to the enlightened shareholder value approach as a way to ensure that their company directors are not prioritizing profit at all costs.