Pomerantz LLP

Doing Well While Doing Good in Delaware

Pomerantz Monitor, May/June 2013 

On April 18, 2013, Delaware Governor Jack Markell introduced legislation enabling the formation of public benefit corporations. Because Delaware is already the legal home of more than one million businesses, including many of the nation’s largest publicly traded corporations, this legislation, if adopted, has the potential to radically transform the corporate landscape. 

Public benefit corporations are socially conscious for-profit corporations. While not new, until recently most public benefit corporations were established by government, not the private sector. Social entrepreneurs, a growing sector of the economy, argue that the current system, with corporations focusing only on profits, almost assures a negative outcome for society. They have been pushing the corporate focus towards pursuit of a “triple bottom line” of people, planet and profits, with the mantra “doing well while doing good.” Shareholders who value socially responsibility seek to invest in companies that are serious about sustainability, and such companies want to differentiate themselves from competitors. While it may come as no surprise that California and Vermont allow for creation of public benefit corporations, so do Illinois, New York, and South Carolina. 

Some states have “constituency statutes” that explicitly allow corporate directors and officers to consider interests other than those strictly related to maximizing value for shareholders, including the interests of the community. Nearly a third of constituency statutes apply only in the takeover context, allowing directors to consider interests of employees, for example, in deciding how to respond to a takeover offer. On the other hand, directors of a public benefit corporation have an affirmative obligation to promote a specified public benefit. 

The proposed legislation identifies a public benefit as a positive effect, or a reduction of negative effects, on people, entities, communities or other non-stockholder interests. Such effects could include, but are not limited to, effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, and scientific or technological nature. 

Directors of a public benefit corporation would have to balance the financial interests of stockholders with the best interests of those affected by the corporation’s conduct, as well as the specific public benefits identified by the corporation. 

If enacted, the legislation will take effect on August 1, 2013.