Many corporations seek to persuade their investors, customers, and employees that they care not only about profits but also about corporate constituencies such as workers, communities, and the environment. So-called public benefit corporations (“PBCs”) are at the forefront of this movement. The law requires the directors of PBCs to balance the goal of profit maximization with the public benefit specified in the corporation’s charter and the interests of other stakeholders. In theory, therefore, PBCs are legally committed to their declared public benefit.
In practice, however, the statutory defaults governing PBCs have significant limitations that undermine their effectiveness as commitment mechanisms. Overcoming these limitations requires PBCs to modify the statutory defaults in their charters. But do PBC charters actually contain provisions that modify the default rules to strengthen PBCs’ legal commitment to their stated public benefits? To answer this question, I use a novel handcollected and hand-coded dataset of more than 300 corporate charters. The dataset includes all non-SPAC PBCs that are or used to be publicly traded—nineteen in total—and matches each PBC with twenty general business corporations of similar size that are incorporated in the same state and have been publicly traded for the same number of years. I then compare the PBC charters with the corresponding general business corporation charters. I also examine PBCs’ use of potential signaling mechanisms outside corporate law, such as the composition of corporate boards and certification by the non-profit organization B Lab.
The picture that emerges from this analysis is complex and shows substantial heterogeneity across different PBCs. While some PBC charters contain multiple provisions seeking to reinforce the companies’ commitments to social or environmental causes, others forgo such provisions entirely, andmost fall somewhere between these two extremes. Similarly, the use of non-legal signaling mechanisms varies across corporations. Furthermore, I find that PBCs advised by law firms with more relevant experience were more likely to utilize charter provisions strengthening their commitment.
My findings have important legal policy implications. Numerous scholars have proposed reforms that would tighten the statutory restrictions on publicly traded PBCs. However, such calls are premature. Publicly traded public benefit corporations are a very recent phenomenon, and the existing heterogeneity in charter design offers a valuable opportunity to observe the effectiveness of different commitment mechanisms over time before taking regulatory action. Moreover, the positive correlation between lawyers’ experience and the level of legal commitment suggests that PBCs may move towards a greater level of legal commitment even without regulatory intervention. For the time being, therefore, regulators would be wise to exercise restraint.
