Publicly Traded Public Benefit Corporations: An Empirical Investigation

Abstract

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 truly and effectively committed to their declared public benefit.

In practice, however, the statutory defaults governing PBCs have significant limitations that undermine their commitment value. 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 in such a way as to strengthen PBCs’ legal commitment to their stated public benefits?

To answer this question, I have hand-collected and hand-coded a novel dataset of 359 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. Whereas some PBC charters contain multiple provisions seeking to reinforce the companies’ commitments to social or environmental causes, others forego such provisions entirely, and most 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. Overall, my results suggest that the governance practices of publicly traded PBCs are still evolving and that the low levels of commitment observed in some PBCs’ charters may be due to limited experience on the part of law firms.

My findings have important legal policy implications. Numerous scholars have proposed reforms that would tighten the statutory restrictions on publicly traded PBCs. However, the fact that publicly traded PBCs still appear to be at an early stage of evolution suggests that regulators would be wise to exercise restraint.

Keywords: Benefit corporations, public benefit corporations, shareholder primacy, empirical, corporate governance