In A First, A Traditional Corporation Converts To A PBC'will It Spark A Trend?

• Published date: 26 January 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Shareholders
• Law Firm: Cooley LLP
• Author: Mr Cydney Posner

For several years, we've witnessed a fierce debate regarding the extent to which, in making decisions, boards of traditional corporations may take into account constituencies or stakeholders other than shareholders, such as employees and the larger community, or must consider only the impact of the decision on shareholder value. In a 2014 article In the Harvard Business Law Review, then-Chief Justice Leo Strine of the Delaware Supreme Court argued forcefully that, notwithstanding the allure of "stakeholder capitalism," current corporate accountability structures make it difficult for directors to "do the right thing." However, he contended, there is a way to effectively shift the power balance to create incentives for good corporate citizenship: the public benefit corporation. By articulating new corporate purposes and mandates, in Strine's view, the PBC tweaks the normal corporate accountability and incentive structure that traditionally has made corporate managers accountable to only one constituency-shareholders. (See this PubCo post.) But while there have been a few corporations willing to take the IPO plunge as PBCs, there haven't been any that have taken the risk, as public companies, of changing to the benefit corporation form-until now that is. And what's most intriguing is that the shareholder vote at this company in favor of becoming a PBC was overwhelming. Is there more public shareholder support for PBCs than we thought?

A "public benefit corporation," according to the Delaware General Corporation Law, "is a for-profit corporation.that is intended to produce a public benefit.and to operate in a responsible and sustainable manner. To that end, a public benefit corporation shall 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 public benefits identified in its certificate of incorporation." To put it another way, as described in this article in the Institutional Investor, a PBC is a corporation that is "legally permitted to consider its impact on people and planet to be equally important as its impact on shareholders' wallets.."

According to Strine, what was "refreshing" about the benefit corporation movement was that,

"[r]ather than ignore the importance of the accountability structure within which corporate managers operate, the benefit corporation movement set out to change it. In the liberal tradition of...