Defending Patagonia: Mergers & Acquisitions with Benefit Corporations

Abstract

Yvon Chouinard, founder of Patagonia, stated that "benefit corporation legislation creates the legal framework to enable mission-driven companies like Patagonia to stay mission-driven through succession, capital raises, and even changes in ownership." This article uses Patagonia, one of the most visible benefit corporations, in the article’s examination of Chouinard’s claim and in the article’s exploration of issues surrounding benefit corporations in the mergers and acquisitions context.

Of special interest are the seminal Delaware cases of Unocal and Revlon, and how, if at all, the tests created by those cases should be applied to benefit corporations. This article concludes that the Unocal test could be used to evaluate takeover defenses erected by benefit corporations, but argues that the test should be modified to more clearly allow directors to protect the mission of their benefit corporation, even if the mission "openly eschews shareholder wealth maximization." A more difficult issue arises when the break-up or sale of a benefit corporation becomes inevitable and the benefit corporation, incorporated in a state that follows Delaware law, enters "Revlon-mode." To provide a practical corporate governance framework, this article concludes that Revlon could remain relevant, within its narrow confines, for benefit corporations that are incorporated in states following Delaware law, but proposes statutory amendments requiring a partial-asset lock and an annual charitable giving floor to ensure public benefit.

Keywords: social enterprise, social entrepreneurship, social business, B Lab, benefit corporation, certified B corporation, public benefit corporation, hostile takeover, constituency statute, deals, impact investing, general public benefit

JEL Classification: D60, D64, G34, K1, K10, K20, L21, L33, P31