Update: Gov. Jack Markell signed Delaware’s “public benefit” corporation legislation into law on July 17, enabling the creation in the nation’s corporate capital of socially conscious for-profit corporations committed to operating in a responsible and sustainable manner.
The law requires directors of public benefit corporations to balance the interests of stockholders with those affected by the corporation’s conduct and the specific public benefits identified by the corporation.
“We’ve all heard about corporations wanting to ‘do well’ while also ‘doing good,’ Markell said in a press release. “With this new law, Delaware corporations will now have the ability to build those dual purposes into their governing documents.”
There will be a lot of buzz in the next few days about “public benefit corporations” and “fiduciary responsibility” now that Delaware’s governor has introduced legislation to create a legal structure to let companies take into account, say, the community, their employees, education or the environment, in addition to the interests of shareholders.
But the formalities won’t mean much unless the mission-oriented companies formed under such structures can attract institutional capital to finance a new wave of socially responsible businesses.
“There’s still a lot of hype,” says R. Todd Johnson, who heads the Silicon Valley office of Jones Day. “We’re not seeing capital attracted to this.” Johnson has been involved in drafting similar legislation in several states. Some of the highest-profile “benefit corps” such as the clothing line Patagonia are privately financed and thus not representative of a broader trend, he said. (Disclosure: Johnson is Impact IQ’s lawyer.)
Under the proposed legislation in Delaware, directors of a public benefit corporation would be charged with balancing shareholder interests with those of others affected by the corporation’s conduct, and to issue a report at least every two years on how they’re delivering their identified public benefit.
“Delaware will continue to be a leader and support a new movement of social entrepreneurs and investors who are stepping forward to meet high standards of corporate purpose, accountability and transparency,” Gov. Jack Martell said in a statement.
A dozen or so states already have such legislation (under a variety of names), but Delaware’s adoption would be significant because more than a million U.S. companies, including most of the biggest ones, are registered there, making it the nation’s de facto capital of corporate law.
“The message is: This is about more than just money. There are other values being created that are just as tangible,” said David Chen of Equilibrium Capital in Portland, Ore. and a board member of B Lab, a nonprofit based in Wayne, Penn., that has pushed for such legislation. B Lab certifies mission-driven companies as “B Corps,” an unofficial designation.
“It allows us to go back 40 to 50 years to the definition of the fiduciary function,” Chen said. “It takes us back to pre-Revlon,” a 1986 courts decision that requires directors to consider only shareholders’ interests, for example, in evaluating competing takeover bids.
The legislation, known as SB 47, has bipartisan support, as well as the backing of the Delaware State Bar Association as well as the Court of Chancery, which hears cases of corporate governance. If the bill passes, companies could form or convert into PBC’s beginning in August.