Opting Out of Shareholder Primacy: Is the Public Benefit Corporation Trivial?

Citation: David G. Yosifon (2016) Opting Out of Shareholder Primacy: Is the Public Benefit Corporation Trivial?.
Internet Archive Scholar (search for fulltext): Opting Out of Shareholder Primacy: Is the Public Benefit Corporation Trivial?
Download: https://ssrn.com/abstract=2733880
Tagged: benefit corporation (RSS), delaware (RSS)

Summary

Covers the uncertain extent to which private ordering allowed or not in Delaware corporate law.

Basic justifications for mandatory rules:

1. protect vulnerable parties to corporate contract, especially shareholders
2. protect externalization of harms to third parties, eg workers, consumers, communities
3. efficiency through network effects in organizational design (standards-like)

Objection: stifle autonomy and innovation, "threatening to leave us stuck with government designs that might have been established in ignorance, or through rent-seeking."

Public Benefit Corporations are a "menu option" which could increase effective choice through efficiency/network effects, but could effectively limit choice by increasing uncertainty even more about non-PBC private ordering. However, PBCs are extremely weak.

Quote:

The benefit provisions of a PBC therefore do not create a duty to non- shareholders. Only shareholders can enforce the directors’ obligation to pursue the non-pecuniary benefit described in the charter. It is therefore best to conceive of PBCs as “socially conscious shareholder primacy” firms, rather than firms with genuine non-shareholder beneficiaries. PBC’s are still concerned only with the shareholder interest, they simply conceive of the shareholder interest more expansively than just money. Some people – investors, workers, consumers – might desire to associate with a firm that allowed non-shareholders to enforce real duties that were really owed to them. Could a firm achieve such a design by forming a non-PBC firm with a charter provision specifying that directors have an enforceable obligation to the non-shareholding interest specified in the charter? If such private-altering is possible, then the Public Benefit Corporation was unnecessary. If the Public Benefit Corporation was necessary to achieve any deviation from shareholder primacy, or is now the only allowable alternative form, then it would appear that such private ordering is not possible.

Prescriptions:

• (feasible) clarify what private ordering is permitted
• (ideal) make multi-stakeholder corporate governance regime the federal default

Theoretical and Practical Relevance

Quote: "Twenty-dollar bills, apparently, sometimes lay around on sidewalks for decades before the state points them out, after which the private sector begins to pick them up."