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

Abstract

The central command of corporate governance law is that directors must serve the shareholder interest. Directors may not sacrifice shareholder value in favor of other stakeholders or values. In this Article, I examine whether this rule is mandatory, or merely a default rule which can be altered through private ordering. I argue that Delaware’s corporate law, the most important corporate law in the United States, should be understood to have long-permitted deviation from shareholder primacy by charter specification. This conclusion, however, is at least complicated by the recent legislative creation of the Public Benefit Corporation (PBC). The PBC is a new form of business organization that explicitly charges directors with balancing the interests of shareholders and non-shareholders in corporate operations. The PBC innovation may lead judges to conclude that if corporate promoters want to deviate from shareholder primacy, they must do so by using the Public Benefit Corporation. The organizational and governance requirements of the PBC are highly particular, and most of its important features are mandatory. Thus, the Public Benefit Corporation may inadvertently have narrowed flexibility in the creation of corporations that alter the shareholder primacy norm, rather than expanded it, as the PBC’s proponents and many commentators have presumed.A more desirable interpretation, however, is that private-ordering of corporate beneficiary is still permitted under the Delaware General Corporation Law, and that the PBC is merely one alternative structure – a non-exclusive “menu option” – which promoters seeking alternatives to shareholder wealth maximization may find convenient to use. I urge judges to adopt this second interpretation, and I urge Delaware lawmakers to clarify their intentions to avoid jurists adopting the view that the PBC is the exclusive path to multi-stakeholder governance.