Michael Dorff is the Michael & Jessica Downer Endowed Chair, Southwestern Law School; James Hicks is an Academic Fellow at the University of California, Berkeley, School of Law; and Steven Davidoff Solomon is Professor of Law at University of California, Berkeley, School of Law. This post is based on their recent paper.
The public benefit corporation (“PBC”) is one of the hottest developments in corporate law. The sine qua non of this new form is that directors are permitted under their fiduciary duties to consider purposes other than profit in decision-making. The PBC has thus been described as different from the traditional corporation, which in some measure must be devoted solely to a for-profit motive. The PBC has been hailed as the “new corporate form”: one that permits a corporation to both earn money and serve a social purpose.
While there has been significant hype and theoretical consideration of this new form, to date there has been little empirical study. Critics of the PBC argue that it will be used for “purpose washing,” merely advocating a public purpose for public relations purposes while still maintaining a purely for-profit motive. Critics also argue that the current corporate form has enough latitude to serve multiple purposes. Advocates counter that the PBC will do nothing less than transform the U.S. capital markets, arguing that the profit maximization norm has contributed to a litany of preventable social ills, from global warming to income inequality, and from declining job stability to political corruption. By incorporating values other than profit-seeking into a company’s “DNA,” proponents assert, the law can tame capitalism’s worst excesses while retaining its many virtues.