Michael R. Littenberg and Emily J. Oldshue are partners and Brittany N. Pifer is an associate at Ropes & Gray LLP. This post is based on a Ropes & Gray memorandum by Mr. Littenberg, Ms. Oldshue, Ms. Pifer, Anne-Marie L. Beliveau, and Nellie V. Binder. Related research from the Program on Corporate Governance includes For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).
Over the last few years, corporate purpose has been under a spotlight. This scrutiny, which has intensified in 2020 and shows no signs of abating, is coming from institutional investors that are integrating the consideration of environmental, social and governance factors into investment and voting decisions, as well as other stakeholders, in particular consumers, employees and regulators.
Public benefit corporation statutes provide an alternative for-profit corporate form that expressly takes corporate responsibility into account. The Delaware General Corporation Law was amended in 2013 to add a public benefit corporation alternative. However, until the most recent DGCL amendments in July, a PBC was in a large number of cases an impractical or unavailable alternative. In this Alert, we discuss recent changes to the DGCL that in some cases may make PBCs a more attractive alternative, as well as related market trends.
The Delaware Public Benefit Corporation Provisions
Public benefit corporation legislation was enacted in Delaware in 2013. As defined under the statute, a “public benefit corporation” is a for-profit corporation that is intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner. The public benefit to be promoted by the corporation must be specified in its certificate of incorporation. Under the DGCL, a “public benefit” is a positive effect (or reduction of negative effects) on one or more categories of persons, entities, communities or interests (other than stockholders in that capacity), including but not limited to effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.