Game Changer: Delaware, Home to Fortune 500, Passes Benefit Corporation Law

from Shareable

Last week, Delaware initiated what is being called a “seismic shift” in corporate law by enacting benefit corporation legislation (Senate Bill 47).

Unlike corporations whose sole purpose is to maximize shareholder value, public benefit corporations (PBCs) are for-profit corporations designed to work in a socially and environmentally responsible manner. From their creation, PBCs strive to create a positive impact on the environment and society, they take into account factors besides profit when making decisions, and they make public their social and environmental performance.

Already, 18 states plus D.C. have passed benefit corporation legislation. So what’s the big deal with Delaware? Delaware is the nation’s hotbed of corporate activity. Because the state offers favorable corporate laws and conditions, it’s home to over one million legal entities including 50% of all publicly-traded companies in the United States and 64% of the Fortune 500.

With this new legislation, corporate entities in Delaware have the freedom to focus on the triple bottom line: people, planet and profit.

“We’ve all heard about corporations wanting to ‘do well’ while also ‘doing good,’” said Governor Jack Markell in a statement. “With this new law, Delaware corporations will now have the ability to build those dual purposes into their governing documents.”

Perhaps this seismic shift will be the shift heard ‘round the world, signaling a new way of doing business.

More here.

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9 Responses to Game Changer: Delaware, Home to Fortune 500, Passes Benefit Corporation Law

  1. David Webster February 12, 2016 at 7:40 pm #

    Cat Johnson discusses what appears to be a watershed moment in Delaware and National businesses regarding Public Benefit Corporations (PBC). The definition and purpose of a PBC can be found right in the name– that they aim to benefit the public as well as those directly involved in the company. Specifically, a public benefit corporation is a for-profit entity which is managed not only for the monetary interests of its stockholders but also for the benefit of other persons, entities, and communities. The general 21st century consensus is that we need to be protecting our planet. This is not limited to the environment of our planet, but also refers to the people and communities of our planet. Corporations have started to gear themselves towards this type of benefit. For one, there are obvious positive implications of benefiting the public, Additionally, however, it creates a positive and likeable image for corporations if they generate this type of positivity and social consciousness.
    So, what’s significant about Delaware’s new policy? According to the article, 18 states as well as D.C. have already enacted this legislation. However, Delaware holds a major significance in the United States with regards to corporate legislation. Since the early 20th century, Delaware has held the status as the corporate haven of the United States. Over 50% of publicly traded corporations in the United States and 60% of the Fortune 500 are incorporated in the state of Delaware. This staggering number results from a variety of incentives for businesses to incorporate themselves in delaware. Because of this large number, the new legislation talked about in Johnson’s article holds extremely high significance.
    I looked further into exactly why Delaware is the corporate haven. I knew it held this status, and I knew it had something to do with taxes, but the rest was unclear. It turns out, it is a myriad of reasons–not just one. For one, the legal system is extremely favorable for businesses. Delaware has developed a legal system and laws that protect shareholder rights. This business-oriented legislation is a major player in Delaware’s corporate prominence. Additionally, the population of Delaware is very favorable to businesses. The people of Delaware are aware that the income received from corporation franchise taxes is an important part of the state budget and that Delaware law firms that specialize in business law matters employ significant numbers of people. As a result, the citizenry supports the legislature in keeping Delaware’s business laws state-of-theart. I also found that Delaware also has many incentives with regards to banking. Delaware has attracted many major credit card banks because of its relaxed rules regarding interest. Many U.S. states have usury laws limiting the amount of interest a lender can charge, making Delaware’s policy especially appealing.
    This background information of the significance of Delaware with regards to corporate legislation has made me appreciate the event in question. It is a relief to know that corporate America is taking serious steps towards benefiting the general public.

    https://corp.delaware.gov/pdfs/whycorporations_english.pdf
    http://www.nytimes.com/2012/07/01/business/how-delaware-thrives-as-a-corporate-tax-haven.html

  2. Christian Alvarado February 13, 2016 at 11:02 am #

    When reading the article, I learned that Delaware passed the benefit corporation law. That surprised me because Delaware is home to Fortune 500 and I would assume that state would have some law like that already in place. The funny thing that I read in the article is that only 18 states have this law in place, while 11 states are working to get this type of law in place. This law I feel is going to be important to the United States over time because it will have a positive impact on our country’s economy. This in turn would make business run more positively by not only taking into consideration profit. That is significant because social and environmental performance is taken into consideration based on the law with public benefit companies. I agree with the author that this shift in business could make the business world better in the future.

  3. Morgan Cole February 13, 2016 at 12:03 pm #

    Recently in class we have been taking about businesses based in Delaware. Delaware is home to more than 50% of Fortune 500 companies as well as millions of other businesses. The reason is because Delaware’s court system has a high understanding for corporate issues. The latest corporate law created in Delaware is allowing benefit corporation legislation. Though these corporations are for profit, they work with social and environmental aspects in mind. Because of this new law, Delaware is attracting even more business, and most importantly, corporations that want to “do good” for the world around them as well.

    I see nothing wrong in the passing of this law. Corporations settle in Delaware because of its knowledge in business law and this is only more appealing. There are always corporations that are unethical and try to get around the law, but by having these Public Benefit Corporations, there will be a new, positive light in the business world. I think that this law should be reviewed by other states or on a federal level, as it is a new positive way of doing business.

  4. MP February 13, 2016 at 5:27 pm #

    Public Benefit Corporations (PBC) work to be socially responsible and help make the world a better place to live. Delaware is a state that has half of US publically traded companies and 64% of the Fortune 500. Many businesses want to be in Delaware because of taxes and a legal system that helps businesses. It definitely makes sense that Delaware would enact benefit corporation legislation. I think this is a good thing happening in Delaware. Since so many companies are situated in Delaware, PBC will help those businesses be better to their people. The more ways we can help corporations to help the world, the more they will. Innovation today has a theme of helping the world, and many corporations want to help the world.
    Corporations don’t necessarily need to reinvent the wheel anymore with most products. Food is food, clothes are clothes, and so on. Companies that make these products can really move towards being more socially and environmentally responsible. Delaware is helping its companies help the world. Many companies are already in Delaware and it is a good state to have a business, so the fact that they can now do good things with their business will really help them. Also, consumers today like to support companies that help to make the world a better place and not just solely make money. This move will be good for consumers and businesses alike.

  5. Parth Parikh February 15, 2016 at 10:37 pm #

    This is a great move by Delaware to enact this rule so companies who do not plan on making profits and plan on helping others and the environment can turn into legitimate corporations. Delaware is known for their loose laws against corporations and when a company wants to be incorporated, Delaware is the state that asks for the least requirements and only have a few restrictions that hold other firms from becoming a corporation. Many people are aware of this and with 50 percent of public companies having their incorporation process done in Delaware, along with 320 Fortune 500 companies also having their incorporation done in the state. In a moral perspective, this is a good look for Delaware as they not only allow worthy and well-intentioned companies gain incorporation but it will change the world as each get approved. It is good to hear that companies that want to help socially and environmentally are being recognized for their work and there are people out there who wish the best for these corporations as they make life and the Earth better for not only us to live in, but for future generations like our children and our grandchildren. Companies with good and ethical behavior deserve the respect as some of the largest and most common companies we have come to know and are aware of and I think this is the best step for Delaware, considering that 18 other states had let public benefit corporations earn proper incorporation rights. States like California, New York, and New Jersey house many headquarters for the top corporations and businesses so for them, they have to cater to the companies in their state so they can stay and give that state jobs for the people. States like Oregon, Nevada, Colorado, Vermont, South Carolina and Virginia are establishing the act to bring more industries and companies and so they can show they are more business-friendly to attract a new group of clients to the companies who want to attract businesses, especially the public benefit ones to also promote businesses and the states’ drive for a more socially and environmental friendly area to live and to work in. There is hope for the 11 states that are thinking about passing the PBC law, such as Texas, Montana, Alabama, Florida, North Carolina and Iowa. States like those are not sure if they are willing to be business-friendly, considering their political backgrounds and unwillingness to change their tough business laws. Those states should know that opening their states to business opportunities and letting companies come and operate within their borders will help the states’ employment rate and also keep more citizens within so they do not have to travel elsewhere to get the job that they really want to pursue. For example, many states can be hubs for technological advances using the resources that are available within the state, so opening businesses to PBC and tech companies will improve the stability of the states and improve the workforce to make America a more smarter and knowledgeable working population.

  6. Debbie Barbiero February 17, 2016 at 10:50 pm #

    I feel this law is going to become a more and more important them in businesses around the US. It is strange to me that more states have not already passed this law, and the fact that only 18 states have this law in place, with 11 working on it is surprising. This law could really do great things for this country and create a big change in the way americans do business. I feel that Delaware is already a very popular state for corporations to function due to their good understanding of corporate and business issues, but this law will make it even more desireable to do business in Delaware. This law can be extremely beneficial to our country and could help businesses benefit the people who contribute to it in addition to the employees that work there.

  7. Beth O'Brien February 20, 2016 at 12:41 pm #

    Game Changer: Delaware, Home to Fortune 500, Passes Benefit Corporation Law

    Delaware leads the nation in housing publicly traded companies as well as the major portion of Fortune 500 companies. Now they sign a new legislation for entrepreneurs of public benefit corporations to do business with less restrictions from the government, benefiting the companies by making it easier to obtain investors with common values. Public Benefit Corporations have a mission to enhance and improve the environment and they can be held accountable by the investors. This is good for the investor who feels strongly about the environment, with the new legislation investors can whole the company accountable for their decisions.

    The founders of Corporation’s sole purpose is to make a profit for the shareholders and they are focused on that single goal. New entrepreneurs are starting companies focusing not only for profits, but on how they can make the environment better. These entrepreneurs are not afraid to make decisions based on the social effect it will have before considering the profit aspect. They want to enlist investors who feel the same way about the environment and society. This new legislation will give these investors the opportunity to have a vote on management decisions and the capability of holding the companies accountable. The Company has a mission and that’s what the investor wants to stand behind, but the investor expects the founder and company to follow through on that mission and now they will be empowered by the legislation that changes the governance of these companies. Also, the benefit corporation provides an annual report to update the shareholders and public of their continued mission.

    According to Benefit Corporations (benefitcorp.net/faq) Public Benefit Corporations “volunteer to meet different standards of a corporation’s purpose are accountability and transparency.” 50% of the workforce are Millennials and they want a job with meaning and purpose not just a boring job.(benefitcorp.net). The investors of corporations are ones with a mission and that’s their priority. With much more focus on the environment it’s encouraging that entrepreneurs are taking steps to make a difference in day to day operations, and investors now will have less obstacles to back them.

    The author states the “focus on the triple bottom line” that Public Benefit Corporations look at people, planet and profit. That is the new type of business taking into consideration if they are creating a positive impact on society, on workers, their community as well as the environment.

    http://www.shareable.net/blog/game-changer-delaware-home-to-fortune-500-passes-benefit-corporation-law

  8. Eb_rider February 20, 2016 at 3:33 pm #

    I think it’s monumental for Delaware to pass the benefit corporation legislation. It carries a significant meaning because Delaware is a state that houses more than 60% of the Fortune 500 and half of other public traded companies.

    Traditional corporations usually just focus on bringing shareholders maximum value in a dollar sense, they often pay little attention to their social and environmental responsibilities when running their companies. There are way too many firms out there that just want to make high profits, and they pay employees with low wages and provide little worker benefits. These companies don’t care about the wellbeing of their workers, they undercut their suppliers, and they give a little back to their communities, but pure social or environmental responsibilities are not part of their corporation mission statement. Public Benefit Corporations (PBCs) are said to be created to change that. While maximizing shareholder’s wealth, PBCs will put forward people, society and environment. Companies move to Delaware because the state offers tax benefits and has favorable corporation laws to allow companies to conduct business. With this new legislation in Delaware, it would allow more firms in the state to have the freedom to set up this new form of corporation that want to make a positive impact on society and the environment. However, it does make me to wonder somehow it was not legitimate for the corporations in Delaware to practice positive social and environmental responsibilities in the traditional form of corporation before? If not, then why did they need to pass this new law in order for companies to do the right thing? As it looks to me, the only difference between the traditional form of corporation and this new one is that Public Benefit Corporations carry the social and environmental responsibilities. I found this new law quite interesting.

  9. Harun Filipovic February 28, 2016 at 8:55 pm #

    The notion of public benefit corporations (PBCs), companies whose mission it is to do business in a socially and environmentally responsible manner, is a very interesting one. In one of my previous blog comments I talked about how one of the massive failings with the Dodd-Frank legislation and the state of post-recession Wall Street is that the largest financial and banking firms are still incentivized to conduct business in a risky manner; specifically, business that is risky to investments coming from the public sector as opposed to money derived from the firms themselves. However, unlike the major Wall Street firms, PBCs “strive to create a positive impact on the environment and society…by taking into account factors besides profit when making decision” (http://www.shareable.net/blog/game-changer-delaware-home-to-fortune-500-passes-benefit-corporation-law). This is a revolutionary shift in the corporate business model, as moving away from focusing entirely upon maximizing shareholder value demonstrates that some corporations are aware of the negative environmental and societal impacts that capitalist-driven green has had.
    The article points out that while “18 states plus D.C have [already] passed benefit corporation legislation” (http://www.shareable.net/blog/game-changer-delaware-home-to-fortune-500-passes-benefit-corporation-law), Senate Bill 47, the bill that would introduce benefit corporate legislation to the state of Delaware, is quite significant in that “over one million legal entities, including 50% of all publicly-traded companies in the United States and 64% of the Fortune 500” (http://www.shareable.net/blog/game-changer-delaware-home-to-fortune-500-passes-benefit-corporation-law) are based out of Delaware.
    I think that Delaware passing benefit corporate legislation is a great thing for our national economy. Because so many businesses are based out of Delaware, many important corporations that contribute greatly would be held to societal and environmental standards in addition to economic performance. This bill would help reinforce the notion of accountability; it would be unacceptable for a company to push for profit-maximization at the expense of a marginalized group of people or a certain sector of the environment, which is regrettably more often than not the case.

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