Shearman & Sterling LLP PBCs and the Pursuit of Corporate Good | 40
THE AIMS OF THE PBC CODE
Delaware developed the PBC Code to give corporations
more flexibility and freedom to balance "conduct[ing]
business for the benefit of stockholders"
21
with the interests
of other stakeholders and the public benefit identified
in the certificate of incorporation.
22
Legislators intended
to give corporations the opportunity to do well while
doing good
23
and codify such purpose into their governing
documents. As Governor Markell signed the legislation
into law, he remarked that the PBC code would achieve
two related purposes: 1) to allow corporations to pursue
a social purpose; and 2) to fill the demand by the market
for a business organization that allows directors and officers
to pursue those social goals.
24
However, nine years after the passage of the PBC Code,
questions remain: does Delaware law permit a non-PBC
corporation to pursue socially beneficial goals in the same
manner — and without heightened litigation risk — as a
PBC? Are the pursuit of social benefit and the best interests
of the corporation mutually exclusive? While the PBC Code
is intended to give PBCs and their directors greater flexibility
in pursuing social purposes, it is not clear that directors of
non-PBC corporations are exposed to higher degrees of risk
than their counterparts at PBCs if they authorize corporate
actions that are socially beneficial but still defensible as
being in the interests of the corporation. In fact, even if
there are alternatives that are less costly to the corporation,
in many circumstances directors may still be acting in the
best interests of the corporation and its shareholders when
electing to pursue socially beneficial goals.
While the PBC Code provides a degree of protection
to boards that want to serve other stakeholders and
public benefits, Delaware law is likely already sufficiently
deferential to corporate boards and their business judgment,
including in respect of decisions to pursue socially
beneficial goals. So long as directors of non-PBCs have
satisfied their fiduciary duties of loyalty and care by being
reasonably well-informed and acting on a disinterested,
independent and good-faith basis in the interests of the
corporation, they can make decisions that benefit a public
good. In other words, most corporate actions are subject
to the same deference granted by the business judgment
standard, regardless of whether they serve a public benefit
and actions that benefit a public good are not automatically
deemed to be mutually exclusive with the best interests
of the corporation.
CAN NON-PBC CORPORATIONS PURSUE SOCIAL GOALS?
When evaluating decisions of boards of directors, courts
have typically recognized that actions taken to serve
social causes actually may constitute a "proper corporate
purpose"
25
because such contributions can create
partnerships between organizations, contribute to
the brand's image, or manage an area of business risk
that would otherwise end up costing the corporation
money. In turn, these benefits can lead to maximizing
stockholder value.
For example, after the 2018 shooting at Marjory Stoneman
Douglas High School, Dick's Sporting Goods, Inc. ("Dick's")
announced that it would no longer sell assault rifles and
high-capacity magazines in its stores, and would stop
selling guns to customers under 21 years old, despite being
one of the largest gun retailers in the U.S.
26
Several weeks
later, Dick's destroyed over $5 million in semiautomatic
rifles.
27
Following the decision, same-store sales fell 3.1%,
with Dick's CEO attributing much of the loss on the decision
to stop selling assault rifles.
28
The CEO also reported that
the decision cost the company $250 million.
29
Despite the
significant initial losses, only one Dick's stockholder spoke
out against the decision, and no lawsuit resulted.
30
Several
months later, Dick's reported same-store sales had actually
increased by 3.2% and in stores that had stopped selling
all types of firearms, Dick's reported overall higher sales.
In the fourth quarter of 2019, Dick's reported a 4.7% increase
in net sales year over year.
31
21
See Delware.gov, "Governor Markell Signs Public Benefit Corporation
Legislation," https://news.delaware.gov/2013/07/17/governor-markell-signs-
public-benefit-corporation-legislation (July 17, 2013).
22
See Del. B. Summ., 2013 Reg. Sess. S.B. 47 (2013).
23
See Delware.gov, "Governor Markell Signs Public Benefit Corporation
Legislation," https://news.delaware.gov/2013/07/17/governor-markell-signs-
public-benefit-corporation-legislation/ (July 17, 2013).
24
See Dorff, supra note 7 at 80.
25
See eBay Domestic Holdings, 16 A.3d at 32.
26
See Valentina Caval, "Why Dick's Sporting Goods Decided to Stop Selling
Guns," Yahoo! Finance, https://finance.yahoo.com/news/why-dicks-
sporting-goods-decided-to-stop-selling-guns-ceo-231006766.html
(October 8, 2019); Laura M. Holson, "Dick's Sporting Goods Destroyed
$5 Million Worth of Guns," New York Times, https://www.nytimes.
com/2019/10/08/business/dicks-sporting-goods-destroying-guns-rifles.html
(October 8, 2019).
27
See Holson, supra note 27.
28
See Caval, supra note 27.
29
See Holson supra note 27.
30
See Megan Henney, "Dick's Sporting Goods CEO Confronted by
Shareholder Over Gun Policies," Fox Business, https://www.foxbusiness.
com/retail/dicks-sporting-goods-ceo-confronted-by-shareholder-over-gun-
policies (August 30, 2018).
31
Id.
