Public Benefit Corporations (PBCs) are companies that blend profit-making with a commitment to creating positive societal or environmental impacts. Unlike standard corporations, PBCs are legally required to balance financial returns with the interests of stakeholders like employees, customers, communities, and the environment.
Key Features of PBCs:
- Dual Purpose: Profitability and a stated public benefit.
- Legal Accountability: Directors must balance shareholder returns, stakeholder interests, and public benefit goals.
- Transparency: Regular reports on progress toward public benefit objectives.
Examples of PBCs:
- Patagonia: Focuses on environmental conservation.
- Warby Parker: Improves vision care and donates glasses.
- Kickstarter: Supports creative projects with a social mission.
Quick Comparison: PBCs vs. Traditional Corporations
| Aspect | Traditional Corporation | Public Benefit Corporation |
|---|---|---|
| Main Goal | Maximize shareholder value | Balance profit with public benefit |
| Stakeholder Focus | Shareholders only | Shareholders + broader community |
| Reporting | Financial performance only | Financial + public benefit progress |
PBCs offer a way for businesses to align their operations with societal values while remaining profitable.
Core Elements of Public Benefit Corporations
Legal Setup and Requirements
Public Benefit Corporations (PBCs) operate under specific legal frameworks that distinguish them from traditional corporations. For example, in Delaware, a company must declare its PBC status in its certificate of incorporation and clearly outline one or more public benefits it aims to achieve. Additionally, all stock certificates must reflect the corporation’s PBC designation.
PBC directors are tasked with balancing three key responsibilities: maximizing shareholder returns, considering the interests of all stakeholders, and pursuing the public benefits the corporation has committed to.
"A ‘public benefit corporation’ is a for-profit corporation organized under and subject to the requirements of this chapter that is intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner." – 8 Delaware Code § 362
These legal requirements ensure that PBCs embed their social impact goals into the very foundation of their operations.
Social Impact Goals
PBCs are unique in how they weave social and environmental missions directly into their business strategies. Take Vital Farms, for example. This Delaware PBC, which went public in 2020, focuses on producing ethically sourced food while protecting natural resources. Similarly, Danone North America became a PBC in 2017, committing to improving health by making food more accessible and creating long-term economic and social value. Another example is Lemonade, Inc., which incorporates charitable giving into its insurance offerings, blending business success with community impact.
These examples highlight how PBCs prioritize meaningful contributions alongside profitability.
PBCs vs Standard Corporations
Business Goals and Priorities
Standard corporations typically focus on one thing: maximizing shareholder returns. Public Benefit Corporations (PBCs), on the other hand, take a different path. They aim to balance financial performance with a commitment to creating a positive impact on society. This dual mission is baked into their legal framework, giving them the flexibility to pursue both profit and purpose at the same time.
"To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society."
- Larry Fink, Leader of BlackRock
This approach has already shown success in the business world. Take Laureate Education, for example. It became the first PBC to go public, proving that prioritizing social impact doesn’t have to come at the expense of financial growth. Another example is AltSchool, an education technology company structured as a PBC, which raised $100 million in 2015 from major investors like Andreessen Horowitz and Founders Fund.
Here’s a quick breakdown of how PBCs differ from traditional corporations:
| Aspect | Traditional Corporation | Public Benefit Corporation |
|---|---|---|
| Core Focus | Maximizing shareholder value | Balancing profit and public benefit |
| Decision Criteria | Driven by financial returns | Considers social, environmental, and financial impacts |
| Business Activities | Focused on profit-making | Includes mission-driven initiatives |
| Stakeholder Consideration | Primarily shareholders | Includes shareholders, community, environment, and others |
This broader mission also influences how PBCs are run, as seen in their unique governance structures.
Management Rules and Oversight
To uphold their dual focus, PBCs have governance structures designed for accountability. Directors of a PBC are tasked with balancing three key priorities: shareholder returns, the company’s stated public benefit, and the interests of other stakeholders. This expanded responsibility requires careful oversight and transparent decision-making.
Here’s how PBCs ensure they stay on track:
- Legal Accountability: If at least 5% of shareholders believe the company isn’t meeting its public benefit goals, they can take legal action.
- Board Discussions: Meetings often include dedicated time to discuss the interests of various stakeholders.
- Benefit Reports: Regular reports are published to show progress toward the company’s public benefit objectives.
To further safeguard against liability, PBC boards often include specific language in their actions to confirm they’ve considered all required interests. A notable example is Plum Organics, which became a PBC the same year it was acquired by Campbell’s Soup.
"A public benefit corporation shall be managed in a manner that balances the stockholders’ pecuniary interests, the best interests of those materially affected by the corporation’s conduct, and the public benefit or public benefits identified in its certificate of incorporation."
This governance model aligns with shifting consumer and investor expectations. For instance, a 2018 global survey by Accenture Strategy found that 62% of customers want companies to take a stand on issues like sustainability, transparency, and fair employment practices.
Benefits of Choosing a PBC Structure
Protecting Company Values
Opting for a Public Benefit Corporation (PBC) structure ensures a company can protect its mission and values as it scales. Unlike traditional corporations, PBCs are designed to uphold their social or environmental objectives, even during pivotal moments like leadership changes, fundraising rounds, or going public.
This structure embeds the public benefit into the company’s certificate of incorporation, creating a legally enforceable commitment to balance profit with purpose. It empowers directors and officers to consider social impact alongside financial performance.
"Due to factors such as its public benefit purpose and legislated reporting requirements, a PBC provides the socially conscious investor or consumer with an enhanced level of accountability and transparency, which often adds to its overall appeal." – LegalZoom
A standout example is Veeva Systems, which transitioned to a PBC in 2021 through a shareholder vote. Veeva’s goals include making clinical trials faster and more affordable while creating high-quality jobs – showcasing how the PBC structure allows businesses to grow without compromising their core values.
By safeguarding a company’s mission, the PBC model not only secures its values but also makes the organization more attractive to investors and top-tier talent.
Funding and Hiring Advantages
The PBC model’s strong commitment to mission can also provide tangible benefits in securing funding and attracting talent. The growing impact investing market, which reached $1.164 trillion in 2022, highlights the increasing interest in businesses that deliver both financial returns and measurable social impact.
Here’s how PBCs gain an edge:
- Employee Engagement: Teams are more motivated when they align with the company’s mission.
- Talent Recruitment: Mission-driven individuals are drawn to organizations that prioritize purpose.
- Investor Interest: PBCs appeal to impact-focused investors seeking both profit and societal contributions.
- Customer Trust: Socially conscious consumers are more likely to support companies that reflect their values.
The results speak for themselves:
"We believe social and economic benefits go hand in hand and have always operated with the long-term view that doing the right thing for our customers, employees, and communities ultimately allows us to deliver the best results for investors." – Peter Gassner, Founder and CEO, Veeva Systems
This structure particularly resonates with younger generations who value purpose in their careers and purchase decisions. By aligning with these priorities, PBCs foster stronger connections with employees and customers, creating a cycle of growth and engagement.
The popularity of the model is evident: over 40,000 companies have completed the B Impact Assessment, and more than 5,000 businesses have incorporated as Benefit Corporations across 37 states, Washington D.C., and Puerto Rico.
Common PBC Hurdles
Extra Documentation Requirements
Public Benefit Corporations (PBCs) have to meet additional reporting and documentation standards that go beyond what traditional corporations face. These extra steps are designed to ensure transparency and accountability as PBCs work toward both profit and public benefit goals.
One of the key requirements is the biennial benefit report. This report outlines how the corporation is progressing toward its stated public benefit objectives and must include:
- Clear, measurable goals
- Data showing actual progress
- Assessments of social impact
- Evidence of how stakeholder interests are being balanced
When it comes to stock-related matters, PBCs must also comply with specific documentation rules. For instance, stock certificates and meeting notices must explicitly state the PBC designation. Additionally, potential stockholders have to be informed about the company’s PBC status before any stock is issued.
Take Patagonia as an example. During its 2023 restructuring, the company implemented detailed systems through the Patagonia Purpose Trust and Holdfast Collective to monitor both environmental impact and financial performance. These efforts highlight how PBCs must not only focus on detailed reporting but also juggle the interests of various stakeholders.
Managing Multiple Priorities
Beyond documentation, PBCs face the challenge of balancing the needs of shareholders, employees, customers, and the broader community.
A notable example is Dick’s Sporting Goods. In 2018, the company made the decision to stop selling assault rifles and high-capacity magazines, fully aware of the potential financial risks. Initially, this move resulted in:
- A 3.1% drop in same-store sales
- Roughly $250 million in lost revenue
- Pushback from certain stakeholders
Despite these setbacks, the decision aligned with the company’s values and, over time, paid off. By the fourth quarter of 2019, Dick’s reported:
- A 4.7% year-over-year increase in net sales
- A 3.2% growth in same-store sales
- Higher sales in stores that discontinued firearm sales altogether
To effectively manage competing priorities, PBCs can take several steps:
- Keep detailed records of board decisions, factoring in both financial and social impacts
- Set clear metrics to evaluate both financial performance and social outcomes
- Develop structured methods to address conflicts between stakeholder interests
- Communicate openly with stakeholders about trade-offs and decision-making processes
Delaware law also plays a critical role by giving directors the flexibility to prioritize public benefit over short-term financial gains when necessary. This legal protection allows PBCs to stay committed to their social impact goals, even when tough decisions arise.
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PBC Success Stories
Patagonia‘s Conservation Commitment
Patagonia stands as a shining example of how a Public Benefit Corporation (PBC) can blend environmental responsibility with commercial success. Operating under the PBC framework, Patagonia proves that businesses can thrive financially while prioritizing the planet.
In 2022, the Chouinard family made a groundbreaking move by transferring ownership of Patagonia to the Patagonia Purpose Trust and the Holdfast Collective. This structure ensures that all company profits are directed toward combating climate change and preserving undeveloped land.
"We needed to find a way to put more money into fighting the environmental crisis while maintaining Patagonia’s values… The new ownership structure ensures the company stays true for another 50 years or more and uses the wealth the company generates to protect our home… I hope Patagonia can serve as a model for other businesses as they evaluate their own environmental policies, and that this company’s success is proof you can make a profit doing the right thing." – Yvon Chouinard
Over the years, Patagonia has achieved impressive milestones:
- 100% of virgin cotton converted to organic practices
- 63,000 garments repaired in 2023
- 85,000 workers positively impacted through Fair Trade initiatives
- 1,700 tons of plastic waste removed from oceans since 2020
Looking ahead, Patagonia has set ambitious goals for 2025, including:
- Reaching carbon neutrality
- Phasing out virgin petroleum-based materials
- Transitioning to fully sustainable packaging
Patagonia’s journey demonstrates how purpose-driven businesses can lead the way in addressing environmental challenges while maintaining profitability.
Kickstarter‘s Creative Impact
Kickstarter took a bold step in 2015 by becoming a Public Benefit Corporation, embedding a social mission into its operations. This shift has allowed Kickstarter to redefine creative funding while staying true to its values.
"Becoming a PBC allowed us to unshackle from the extractive, inhuman, and societally unsustainable framework that compels companies to optimize for profit over everything." – Perry Chen, Kickstarter Chairman and CEO
By 2020, Kickstarter had achieved remarkable outcomes:
- $777,750,950 pledged by 3.5 million backers
- $475,000 donated to initiatives addressing systemic inequality
- 49% of projects incorporating environmental commitments
Since its launch in 2009, Kickstarter’s cumulative impact has been extraordinary:
- $5.4 billion in pledges from 19 million supporters
- 750,000 part-time and 80,000 full-time jobs created
- 20,000 new companies launched
- $13.5 billion in total economic impact generated
Kickstarter’s influence extends beyond numbers. It has supported projects like the Oscar-winning short film Hair Love and helped venues like Brooklyn’s Saint Vitus Bar weather the challenges of COVID-19. These achievements showcase how PBCs can successfully merge profitability with social and creative impact.
An Overview of "Public Benefit Corporations"
Making the PBC Decision
Recent data reveals that 71% of consumers prefer supporting socially responsible brands, and venture capital investments in Public Benefit Corporations (PBCs) hit $870 million in 2019. These figures underscore the growing appeal of aligning your business with a public mission, attracting both consumers and investors.
If you’re weighing the move to a PBC framework, here are some key factors to consider:
Defining a Clear Purpose
A PBC requires a well-defined, measurable public benefit to guide its operations. Helen McNamee from Queensland Investment Corporation explains:
"As an investor, we see many benefits to converting to a PBC. It delivers a clear message that the company is delivering on its mission".
Balancing Stakeholder Interests
Operating as a PBC means balancing several priorities, including:
- Financial returns for stockholders
- Advancing the stated public benefit
- Considering the impact on employees, customers, and local communities.
Gaining Market Advantages
PBCs come with unique perks. For instance, 75% of Millennials shift their spending to support brands with purpose, purpose-driven companies are better at attracting and retaining mission-oriented employees, and venture capitalists are investing in PBCs at levels similar to traditional corporations.
Experts also advise early action for those considering this route:
"If you think you might want to be a PBC, incorporating as one from the get-go will save you time and money".
Established companies like Veeva Systems and United Therapeutics have successfully transitioned to PBCs. Their examples show that with thorough planning and clear communication with stakeholders, the shift can enhance market positioning. Additionally, the requirement for biennial reports detailing public benefit achievements can build trust. In fact, 55% of global online consumers are willing to pay premium prices for brands that offer this kind of transparency.
FAQs
How is the legal responsibility of directors in a Public Benefit Corporation different from that in a traditional corporation?
Understanding Public Benefit Corporations (PBCs)
Public Benefit Corporations (PBCs) operate under a distinct framework compared to traditional corporations. Their directors are tasked with balancing three main priorities: the financial interests of stockholders, the specific public benefit outlined in the corporation’s charter, and the broader impact of the corporation’s actions on stakeholders. Unlike traditional corporations, where the focus is primarily on maximizing shareholder value, PBCs take a more balanced approach.
In a PBC, directors are not required to favor any single group, including those benefiting from the public purpose. Instead, their decisions must be informed, impartial, and reasonable. This setup enables PBCs to pursue profit while also addressing social or environmental goals, all within a framework that ensures legal accountability. This dual focus makes PBCs a unique option for organizations aiming to combine financial success with a commitment to making a positive impact.
What challenges do Public Benefit Corporations face in balancing profit with their social mission, and how can they address these issues?
Public Benefit Corporations (PBCs) often walk a fine line between staying profitable and staying true to their social or environmental mission. This balancing act comes with its own set of hurdles, like juggling the often conflicting expectations of shareholders and stakeholders, avoiding the trap of greenwashing (making hollow promises about social or environmental impact), and dealing with minimal legal requirements for public accountability.
To tackle these challenges, PBCs can take proactive steps. For instance, they can strengthen their corporate charter by adding provisions that safeguard their mission – such as requiring a supermajority vote to make changes. Regular impact reporting is another powerful tool, as it not only boosts transparency but also builds trust with stakeholders. And, of course, working with seasoned legal advisors can help ensure the company’s governance structure supports both its mission and its long-term vision.
How does becoming a Public Benefit Corporation help companies attract investors and employees?
Becoming a Public Benefit Corporation (PBC) can make a company more attractive to both investors and employees by showcasing a commitment to balancing profit with purpose. For investors, particularly those interested in social or environmental impact, the PBC structure provides a legal framework that ensures the company is dedicated to advancing a mission beyond just financial performance. This clear alignment with values helps build trust and draws in mission-focused investors.
For employees, PBCs often stand out as workplaces driven by purpose. Many professionals today are looking for more than just a paycheck – they want to be part of organizations that align with their personal values and contribute to meaningful change. By emphasizing both financial success and a broader social mission, PBCs can attract and keep talented individuals who are eager to make a difference through their work.
