Corporate Form and Sustainability: How to Leverage Benefit Governance

Abstract

This chapter investigates whether corporate form matters in building a more sustainable business. The most prevalent corporate form that purports to increase sustainability is the benefit corporation, which has been around for almost a decade as of this writing. In that time, over 10,000 benefit corporations have been formed and over 300 have collectively raised more than $4 billion in outside capital; three have gone public; and two other public companies have committed to take a vote to their shareholders to convert. Three additional companies traded in the United States have adopted benefit corporation governance, a form of private ordering available to companies in jurisdictions where the benefit corporation is not available. Many well-known brands belong to these companies including Dannon Yogurt, Silk Milk, Eileen Fisher, Avon Products, The Body Shop, and Allbirds Shoes. Financial services like Amalgamated Bank and Lemonade Insurance are included as well. The chapter includes a summary of the important elements of benefit governance, focusing on the form adopted in Delaware, the public benefit corporation (PBC). It covers the directors' balancing obligation and how it affects director decision-making. It also covers the unique role that shareholders play in protecting stakeholder interests and the disclosure obligation of a PBC. The chapter also provides an overview of the differences directors may encounter in overseeing the management of a benefit corporation. This section covers the use of board committees, considerations in the normal course of business and the role of executives. The discussion includes ordinary business, as well as sale and defensive situations. Readers should remember that benefit corporation governance is only the map, and not the territory itself. By shifting corporate purpose from shareholder wealth to shared value, this new corporate form can show the way for executives, directors and shareholders to work together to build business models that derive sustainable profits from efficiency and innovation and that reject the business of extraction and exploitation.