Let us say you are a company that wants to make a profit, but wants to consider not only the interests of the shareholders, returning some profit to them, but also the interests of other groups you characterize as “stakeholders”: employees; the public at large; the environment; the general economy. In the context of the American corporation now conceived as a machine designed to return profit to shareholders, how do you establish such a corporation without having the officers and directors breach their fiduciary duties by making decisions which reduce profit in order to benefit some other constituency?
About a year ago, the state of Delaware established a new concept for a corporate entity. In effect, by statute, it has expressly permitted rejection of the now-ingrained corporate focus on shareholder return. While it is perhaps not surprising that Delaware, our most imaginative of corporate jurisdictions, has developed this option, it is also mildly anomalous; after all, one of the fountain-heads of the current understanding of the corporation ( run by fiduciaries for the benefit of the risk-taking shareholders) is Delaware, home of so many of our larger or public for-profit corporations.
You can establish a public-benefit corporation in Delaware by simply so providing. There is an infinite range of interests that can be benefitted by a public-benefit corporation, in addition to the stockholders. The corporate formation papers must specifically identify one or more categories of stakeholders, other than stockholders, within a very wide variety of possible beneficiaries: the list includes but is not limited to the following constituencies: artists, charities, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological.
In lieu of including the cumbersome words “public-benefit corporation” in the legal entity name, you may use the abbreviation “PBC.”
Further, an existing for-profit corporation can amend its charter to become a PBC. The requirement is of a 90% vote of each class of stock. Of course, that can leave as many as 10% of the shareholders, who signed onto a for-profit corporation, suddenly facing a fundamental change in the nature of their investment. Consistent with general Delaware and corporate practice, a shareholder so negatively affected economically by a change in his or her investment, to which such shareholders did not consent, is entitled to statutory “appraisal” (a mandatory redemption of stock at fair value), rather than requiring a shareholder to be dragged unwillingly into a public-benefit corporation.
Interestingly, it requires only a two-thirds vote of outstanding shares to go the other way, which is to say to take a public-benefit corporation and flip it back into a for-profit corporation. No right of appraisal is afforded in such instance, because although the nature of the shareholder’s investment is being radically altered, that alteration presumably is deemed not to create an economic disadvantage.
There is an express provision which requires the board of directors to manage the affairs of the public-benefit corporation to reflect the interests of the various constituencies specified in the charter, and provides protection from director liability (shareholders cannot sue directors for taking action which they honestly believe to be in the best interest of the stakeholders specifically identified as benefitted by the PBC).
So, does Market Basket pressage a revised sensibility to the proper role of a corporation? Or is it a “one-off,” an oddity wherein a shareholder dispute triggered an unusual reaction? I note that no one has suggested that if “Arthur T” gains control and is reinstated (as was announced today), he will opt for a PBC approach, notwithstanding the incredible support he has received from employees and consumers; there seems to be a private equity firm backing him, as well as a load of new corporate debt, and I doubt that many PE firms or creditors would have an interest in the PBC model for Market Basket just now….