The greater good and company objectives oftentimes go together like oil and water. Running a business with no connection to a discernible public benefit can leave employees and other company stakeholders disillusioned. Economist, Milton Friedman, in his book Capitalism and Freedom, championed the principle of shareholder primacy when he stated "corporations have no higher purpose than maximizing profits for their shareholders." The shareholder primacy theory has been the guiding principle of corporate governance for over 100 years in America. In fact, in 1919 the Michigan State Supreme Court in Dodge vs. Ford Motor Company affirmed the primacy of shareholder value maximization in a ruling. Various other court rulings affirmed or generally agreed with this ruling. Essentially, a company’s board of directors must consider the interests of shareholders above all else. The business judgment rule does give the board a good amount of discretion, but its decisions still must in some way be connected to the benefit of shareholders above all.
Now, for profit companies do not have to be governed by shareholder primacy; they have a choice: the Benefit Corporation. Benefit Corporations (a.k.a. Public Benefit Corporation or PBC) are authorized by 35 U.S. states and DC. PBCs are not required to act solely in the interest of shareholders; they can take into account making a positive impact on other stakeholders, such as: society, employees, the community and the environment. This is certainly appealing to many new entrepreneurs whose mission isn’t simply to get rich but to also leave the world in a better place.
PBCs have certain requirements that C-Corps do not have. First, PBCs must create an Annual Benefit Report (“Report”). This Report must be measured against a 3rd party standard, which has required criteria. Second, management must consider benefits of all stakeholders, including: consumers, suppliers, stockholders, suppliers, employees and the global and local environment. Third, your corporate articles must state a clear "public benefit."
Further, PBCs have discernible legal advantages and disadvantages. Below are some of the legal advantages and disadvantages. Here are some of the following advantages: 1) Director liability risk goes down because they're no longer subject to shareholder primacy rule. PBCs can consider non-shareholder objectives. 2) There is no discernible legal liability for to perform on meeting public benefit spelled out in your art. 3) There are no tax credits thus far with the exception of a small tax break in Philadelphia. Here are some of the following disadvantages: 1) There is more time and cost company must dedicate to perform an assessment of your public benefit (annual report and 3rd party standard evaluation). 2) Board decision-making becomes more complex as boards must be mindful of all stakeholders and not simply the shareholders.
Forming a PBC can certainly be beneficial for the right company, but it’s not for everyone. There are social responsibility investors and other companies that will likely be more attracted to investing or doing business with your company. You join a community of other like-minded companies. Last, you can direct the company in a way that is meaningful to you. If you’re interested in potentially forming a PBC, you should reach out to a corporate attorney to determine if a PBC is right for you.