Delaware Public Benefit Corporations: The Ecocentric Corporate Form
What is “ecocentrism”?
For those not familiar with environmental ethics, “ecocentrism” is a worldview that values the environment as a whole above all else. In other words, when human wants (or those of any other particular species) clash with the health of the environment as a whole, such human wants should not be elevated above those of the broader environment.
Ecocentrism thus contrasts sharply with anthropocentrism, the paradigm that currently dominates human activity and mandates that any consideration of non-human value be subordinated to considerations related to maximizing human value. In other words, anthropocentrism sees only humans as having intrinsic value or as being ends in themselves. All other things — mountains, forests, and non-human species — are simply means to our ends. Everything except us has value but only so long as it can serve us.
In contrast to anthropocentrism, ecocentrism broadens the ambit of what has intrinsic value such that the environment as a whole is given intrinsic value. For many environmental activists, humanity’s adoption of an ecocentric ethic is the key to humanity actually achieving a sustainable existence.
The traditional corporate form — which is the corporate form used by the vast majority of corporations functioning in our economy is entirely anthropocentric.
For example, under traditional Delaware corporate law, when corporate directors are making any decision, any consideration of any non-stockholder stakeholders must be subordinated to considerations related to maximizing stockholder value. And of course, only humans can be stockholders.
–See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 176 (Del. 1986) (stating that the concern for the impact on constituencies other than stockholders is proper only if there is some rationally related benefit accruing to the stockholders).
–See Allen v. El Paso Pipeline GP Co., L.L.C., 2014 WL 2819005, at *8 (Del. Ch. June 20, 2014) (“directors may promote the interests of other corporate constituencies . . . [but] stockholders’ best interest must always, within legal limits, be the end”).
–Leo E. Strine, Jr., The Social Responsibility of Boards of Directors and Stockholders in Change of Control Transactions: Is There Any “There” There?, 75 S. CAL. L. REV. 1169, 1170 (2002) (“The predominant academic answer is that corporations exist primarily to generate stockholder wealth, and that the interests of other constituencies are incidental and subordinate to that primary concern.” (citing Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919))).
Delaware public benefit corporations (“PBCs”), on the other hand, which are entirely different from the more famous “B-Corps” are an ecocentric corporate form.
PBCs are relatively new and unique creatures of statute in Delware which mandate directors balance profit and purpose alongside the interests of non-stockholder stakeholders. In this way, PBCs move away from regime of stockholder (i.e. human) primacy and instead move us towards a corporate regime that might consider all stakeholders.
The Delaware General Corporation Law does this in several ways:
–See Delaware General Corporation Law; Subchapter XV; §362(a) (stating that a PBC must specify its public purpose in its certificate of incorporation).
–See Delaware General Corporation Law; Subchapter XV; §365(a) (stating that Directors must balance three interests: (1) shareholders’ pecuniary interests; (2) the best interests of those materially affected by the corporation’s conduct; and (3) the specific public benefit identified in its certificate of incorporation (we can call this the “Balancing Requirement”)).
–See Delaware General Corporation Law; Subchapter XV; §365(b) (stating that a director is protected by the Business Judgment Rule and his or her fiduciary duties are satisfied when he or she makes any decision implicating the Balancing Requirement so long as “such director’s decision is both informed and disinterested and not such that no person of ordinary sound judgment would approve.”)
Hence, unlike traditional corporations, PBCs provide directors with the air cover they need (from a legal perspective) to make decisions that are genuinely sustainable and ecocentric (e.g. deciding to procure more expensive renewable energy to run a company’s operations despite the increased pecuniary cost to stockholders because, on balance, the benefits associated with a less polluted environment and which accrue to a company’s other stakeholders, such as the community materially affected by the company’s conduct and the environment as a whole, outweigh such pecuniary costs).
In theory then, directors of PBCs may not subordinate non-human and non-stockholder value to human/stockholder value when making their decisions.
And the cherry on top?
Becoming a Public Benefit Corporation is about to get much easier.
On June 23, 2020, the Delaware General Assembly adopted amendments to the Delaware General Corporation Law (DGCL) which, when signed into law by the Governor, will make it much easier for traditional corporations to become PBCs.
More specifically, the amendments will delete two impediments that currently exist when a traditional corporation converts (by merger or charter amendment) to a PBC: (1) the 2/3 high vote of stockholders and (2) appraisal rights, which are currently triggered whenever a private company converts to a PBC and in some circumstances when a public company converts to a PBC by way of a merger. The amendments would lower the statutorily required vote to convert to or from a PBC to a majority and eliminate appraisal rights.
This is a key development that is likely to have a material positive impact on companies’ willingness to convert PBCs.