Shearman & Sterling LLP 39 | PBCs and the Pursuit of Corporate Good
While it is difficult to determine precisely how many PBCs
exist because certain states do not distinguish a PBC
from the non-PBC corporation,
7
there are estimated to be
thousands of PBCs in Delaware and nationwide.
8
Initially,
corporations in Delaware that elected to incorporate as
a PBC tend to be small, closely held corporations, but
larger and publicly traded firms are now opting for the PBC
form with increasing frequency.
9
Warby Parker, for example,
elected to become a PBC simultaneously with its initial
public offering ("IPO") last year, and Lemonade, Inc. also
successfully completed its IPO in 2020 as a PBC.
10
From
2013 to July 2020, there were only three publicly traded
PBCs in Delaware. Today, there are 19 publicly traded
PBCs. Some large and well-known public companies have
also found it beneficial to acquire PBCs (or their state-
specific equivalent) to operate these entities as subsidiaries.
For example, Campbell Soup Company acquired Plum
Organics,
11
which is a PBC with a mission to "deliver
nourishing, organic food to our nation's little ones
and to raise awareness and advance solutions for
childhood hunger and malnutrition in the United States."
12
After Danone acquired WhiteWave Foods Co. in a take-
private transaction in 2017, it incorporated the combined
entity as a PBC, and today the plant-based, organic
and health foods brand is the largest PBC in operation.
THE 2020 AMENDMENTS TO THE PBC CODE
The PBC Code adopted in 2013 required the approval
of 90% of a corporation's outstanding stock, whether
voting or non-voting, to adopt, or reverse, the PBC form.
13
For a large, publicly traded corporation, this high voting
requirement meant that any attempt to convert into
a PBC faced relatively significant uncertainty. In 2015,
to respond to the challenges imposed by the high vote
threshold, the PBC Code was amended to require only
a two-thirds majority vote of outstanding voting stock
to adopt, or reverse, the PBC form.
14
While the 2015
amendment loosened the PBC Code's voting requirements,
it did little to impact the rate at which corporations adopted
(or reversed) their PBC status. Thus, in 2020, the PBC Code
was further amended to require only a simple majority
of stockholder approval to convert to or from a PBC, making
it more practical for publicly traded corporations to embrace
the PBC form.
15
The 2020 Amendments also eliminated the statutory
appraisal rights of stockholders in connection with the
conversion to or from PBC form, which decreased the risk
of becoming a PBC because corporations have less worry
about costly litigation over appraisal rights and appraisal
payouts to dissenting stockholders.
16
The 2020 Amendments importantly clarified certain aspects
of directors' fiduciary duties, providing some assurance to
boards of directors contemplating adopting the PBC form.
17
Before the 2020 Amendments, the PBC code provided
"a public benefit corporation shall be managed in a manner
that balances the stockholders' pecuniary interests, the best
interests of those materially affected by the corporation's
conduct, and the public benefit or public benefits identified
in its certificate of incorporation."
18
The 2020 Amendments
added Section 365(c) to clarify that a director's failure
to satisfy the balancing requirement does not constitute
an act or omission not in good faith or a breach of the duty
of loyalty for purposes of the exculpation or indemnification
of directors unless the PBC's certificate of incorporation
provides otherwise.
19
Section 365(c) also clarified that
a director's ownership or other interest in the PBC's stock
will not constitute a conflict of interest that would call into
question the director's decision made after balancing the
interests of all parties, so long as the ownership interest
would not constitute a conflict of interest if the corporation
were a non-PBC corporation.
20
7
See Michael B. Dorff, Why Public Benefit Corporations? 42 Del. J. Corp. L.
77, 79 (2017).
8
See Simmerman, et al. infra note 9.
9
See Amy L. Simmerman, Ryan J. Greecher, & Brian Currie, "Converting to
a Delaware Public Benefit Corporation: Lessons from Experience," Harvard
Law School Forum on Corporate Governance, https://corpgov.law.harvard.
edu/2022/02/18/converting-to-a-delaware-public-benefit-corporation-
lessons-from-experience (February 18, 2022).
10
See Twelfth Amended and Restated Certificate of Incorporation
of Warby Parker Inc. https://www.sec.gov/Archives/edgar/
data/1504776/000162828021018962/exhibit42-resalesx8.htm.
11
See McKenzie Holden Granum, "With the Emergence of Public Benefit
Corporations, Directors of Traditional For-Profit Companies Should Tread
Cautiously, but Welcome the Opportunity to Invest in Social Enterprise,"
38 Seattle U. L. Rev. 765, 766 https://digitalcommons.law.seattleu.edu/sulr/
vol38/iss2/21 (January 2015).
12
See Plum Organics, "Plum, PBC? What's a Public Benefit Corporation?,"
https://www.plumorganics.com/benefit-corp.
13
See Michael R. Littenberg, Emily J. Oldshue, & Brittany N. Pifer, "Delaware
Public Benefit Corporations — Recent Developments," Harvard Law
School Forum on Corporate Governance https://corpgov.law.harvard.
edu/2020/08/31/delaware-public-benefit-corporations-recent-
developments; Richards Layton & Finger, "Delaware Governor Jack
Markell Signs Legislation Amending the Delaware General Corporation
Law," Richard Layton & Finger, https://www.rlf.com/delaware-governor-jack-
markell-signs-legislation-amending-the-delaware-general-corporation-law
(June 24, 2015).
14
See Littenberg, supra note 14.
15
Id. Del. Code Ann. Tit. 8, § 242(b), 251, Sections 363(a) and (c) were
removed from the PBC Code (West 2020).
16
Id.
17
Id.
18
See Del. Code Ann. Tit. 8, § 362 (West 2015).
19
Id.
20
See Del. Code Ann. Tit. 8, § 335(c) (West 2020).
