The first ever public benefit corporation appeared in 2017 with an Initial Public Offering. It was Laureate Education, the largest degree-granting higher education institution in the world. Today there are over three thousand public benefit corporations (PBCs), accounting for .01% of American businesses. However, they aren’t all brand new. Existing companies can become PBCs if they have a proven commitment to a social or environmental mission. Patagonia became California’s first PBC in 2012 despite being founded in 1973.
The obligation for private industries to benefit the shareholders above all else, including society, was upheld by the 1919 Supreme Court Decision. Dodge v. Ford Motor Co. Although some economics experts believe this ruling was a mistake, there is still a large consensus among the economics and business realms that ensuring maximum shareholder profits are a fiduciary responsibility. PBCs benefit from their status because they are legally protected when considering both financial and non-financial interests in pursuit of their main mission, rather than just what makes the most money. They can also consider these things when deciding over future company ownership. The board of directors are not obligated to maximize financial returns for shareholders. PBCs must also publish annual benefit reports about progress towards their social or environmental goals if required by the state. Shareholders and the state can revoke PBC status if the company fails to show a commitment to their stated mission.
Some disagree with the supposed goodwill of PBCs, such as modern-day philosopher Dr. Daryl Koehn in, “Why the New Benefit Corporations May Not Prove to Be Truly Socially Beneficial“. Koehn presents evidence that nonprofit organizations do not necessarily produce higher-quality goods or gain more consumer trust. Nonprofit hospitals are one example of this. The question then remains, are businesses seeking PBC status to prevent hostile takeover by competitors, and to brand themselves as “green” businesses? Do PBCs deliver the level of societal or environmental benefit that they promise?
As Koehn states in the article, PBC directors need to be held legally liable to follow their mission to benefit society or the environment. As the current rules stand, the legal repercussions of straying from their public benefit mission are murky. According to Koehn, many are not concerned about being held responsible for a breach of duty. Other issues include gaining and maintaining enough capital, balancing competing stakeholder interests, accountability, narcissistic leadership, and accountability. Koehn communicates that all corporations should be public benefit corporations. There should not have to be a legal reason to produce an ethical product.
Others, such as Dr. Lilia Ventura as quoted above, admire public benefit corporations as a gesture of firm altruism. As for myself, I am fascinated by emerging public benefit corporations in the climate mitigation field, but I also understand the difficulty of placing that much responsibility in the hands of any industry. Due to their hybrid for-profit nature, new PBCs are able to pursue cutting edge research and technologies while taking steps to reverse climate change and address environmental injustice in ways that the government is not able to. Take a look at Aclima and Project Vesta to see some examples of public benefit corporations and their missions.
“If we look at the law as a tool capable of shaping social awareness and at the same time as an expression of the internal dynamics of civil society…it is possible to assess…how the introduction of benefit corporations’ statutes contributes to creating a new culture of altruism, educating entrepreneurs, consumers and investors in a new form of capitalism, and…how it corresponds to the cultural transformation currently happening in civil society and supports the growing collective desire for firm altruism.”Lilia Ventura, European Business Organization Law Review (2022)