On July 17, I signed into law a bill enabling the formation of a new type of corporation that is hard wired to compete to be the best in America at being the best for America.
These new Delaware public benefit corporations will harness the power of private enterprise to create public benefit. In the short term, they will create high quality jobs and improve the quality of life in our communities. In the long term, as many enter the public capital markets, they will help combat the plague of short termism that we have seen over the last five years can undermine a shared and durable prosperity.
Some of the most innovative and fast growing private companies in America -- like eco-home care brand Method, organic baby food business Plum Organics, fair trade company Alter Eco, and green paper supplier New Leaf Paper -- will be among the first to register as Delaware public benefit corporations on August 1st when this law goes into effect.
These businesses, and over 100,000 like them, are profitable, but consider profit to be the means -- not the exclusive end goal -- of their business. They see profits as a means to fuel growth in social impact as well as to generate attractive returns for stockholders.
Through meetings over the last several years with my staff, the Corporation Law Council of the Delaware Bar, and the Court of Chancery, it became clear that a new Delaware corporate entity was possible that can bring together these innovative business leaders and the investors who want to back them, while maintaining the high standards that are the hallmark of Delaware corporate law.
Many of the businesses considering this new corporate structure -- like waste management firm Rubicon Global, e-commerce platform Etsy, and eyewear industry disruptor Warby Parker -- feel understandably constrained by existing corporate law that recognizes only one legitimate corporate purpose -- to maximize value for stockholders.
Delaware public benefit corporations will function like and enjoy all the same benefits as traditional Delaware corporations and they will have three unique features that make them potential game changers. These three features concern corporate purpose, accountability, and transparency.
- Corporate Purpose: Delaware public benefit corporations will have a corporate purpose 'to operate in a responsible and sustainable manner'. In addition, to provide directors, stockholders, and ultimately the courts, some direction, they are also required to identify in their certificate of incorporation a specific public benefit purpose the corporation is obligated to pursue. The overarching language helps ensure that a public benefit corporation serves the best long term interests of society while it creates value for its stockholders. The requirement to identify a specific public benefit purpose gives managers, directors, stockholders, and the courts, important guidance to ensure accountability, while preserving flexibility for business leaders and their investors to choose the specific public benefit purpose they feel will drive the greatest total value creation.
- Accountability: Unlike in traditional corporations, whose directors have the sole fiduciary duty to maximize stockholder value, directors of public benefit corporations are required to meet a tri-partite balancing requirement consistent with its public benefit purpose. Directors are required to balance 'the pecuniary interest of stockholders, the best interests of those materially affected by the corporation's conduct, and the identified specific public benefit purpose.'
- Transparency: Delaware public benefit corporations are required to report on their overall social and environmental performance, giving stockholders important information that, particularly when reported against a third party standard, can mitigate risk and reduce transaction costs. Given the trend in public equity markets toward integrated ESG (Environmental, Social and Governance) reporting and the growing private equity market for direct impact investing, this increased transparency can help investors to aggregate capital more easily as they are able to communicate more effectively the impact, and not just the return, of their investments.
The creation of Delaware public benefit corporations is a powerful, no cost, market-based solution to the systemic problem of short termism and an innovative approach to using market forces to solve our most challenging problems.
Because of Delaware's leading role in U.S. corporate law, enactment of benefit corporation legislation in my state is critical for these businesses that seek access to venture capital, private equity, and public capital markets.
Public benefit corporations are not a replacement for traditional corporations in America. But as the next generation of publicly-traded companies comes into being, benefit corporations will be among them, helping to build public trust in business, and becoming an attractive investment opportunity for the growing number of investors who increasingly want to make money and to make a difference.
And that's best for America.
Jack Markell is in his second term as Governor of Delaware. He previously served as the state's Treasurer and was the 13th employee at Nextel (a name he coined), where he served as Senior Vice President for Corporate Development.