Corporate Governance

Shearman & Sterling LLP 41 | PBCs and the Pursuit of Corporate Good Meanwhile, in 2021, Veeva became the first publicly traded corporation to convert to a PBC after its IPO. 32 A medical technology company that also prioritized its social purpose, Veeva disclosed that converting to a PBC would allow the company to solidify its corporate purpose, provide flexibility in responding to conditions in the world, and allow it to better prioritize its employees and customers. 33 However, since its incorporation as a non-PBC in 2007, Veeva always aligned itself with a broader social mission. While Veeva now contributes to missions such as employee wellness/ success and sustainability, Veeva appeared to promote those causes before it converted to a PBC. For example, in 2014, instead of leasing offices to serve as its corporate headquarters, Veeva acquired the property for $24 million, citing that owning the property would allow it to implement sustainability measures at its headquarters that it would not be able to undertake as a tenant at the same location. 34 As illustrated by these two case studies, non-PBC corporations have ample discretion to pursue social benefit, if that's what they want to do. The examples of Dick's and Veeva stand in contrast with eBay Domestic Holdings, Inc. v. Newmark. In this case, the directors of Craigslist, Inc. ("Craigslist"), a non-PBC corporation, sought to prevent the takeover of Craigslist by eBay. 35 Craigslist had only three stockholders, eBay Domestic Holdings, Inc. ("eBay"), holder of 28.4%, and two directors who owned the remaining 71.6% interest. 36 The Craigslist board (controlled by its controlling stockholders) resisted the takeover attempt by eBay on the grounds that it needed to protect its unique "culture" as a free community service, to which eBay did not subscribe. The Delaware Chancery Court ultimately found that the directors did not act in good faith and violated their fiduciary duties by implementing a poison pill to resist the takeover by eBay because protecting a "community service" corporate culture was not a "proper corporate purpose." 37 The court went on to say "[t]he corporate form in which Craigslist operates ... is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment." 38 While the court expressly rejected Craigslist's attempt to prioritize community service over stockholder value, the facts in eBay Domestic Holdings are distinguishable from the actions taken by Dick's and Veeva because (i) the Craigslist board adopted a poison pill, a defensive measure that is subject to enhanced scrutiny rather than the business judgment rule in accordance with Unocal Corp. v. Mesa Petroleum Co., (ii) the Craigslist board was controlled by Craigslist's controlling stockholders, and the poison pill was adopted specifically to prevent eBay, the minority stockholder, both from taking over the company and selling all of its stock in one complete block to a third party and (iii) in the opinion of the court, the Craigslist directors "did not make any serious attempt to prove that the Craigslist culture, which rejects any attempt to further monetize its services, translates into increased profitability for stockholders." 39 While the eBay court did not address this, even absent the Unocal enhanced scrutiny standard, given director duties under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. to pursue the best price available in a change of control transaction, the courts would challenge any corporate board in a change of control transaction that eschewed a higher value offer in favor of a lower one in the sole interest of social good. The eBay opinion also points to the inverse: so long as, in the process of satisfying their fiduciary duties and determining that an action is in the best interest of a corporation, the directors justify a "socially good" action that has a corporate benefit, the decisions of directors will receive deference under the business judgment rule. Ultimately, a corporation pursuing a public benefit may be able to tie the positive impact of this benefit to one or more of the corporation's stakeholders, and thus to the corporation's business strategy and its overall profitability or health. 32 See PracticalESG, "More on PBCs — Publicly Traded Corporation Converts to a Public Benefit Corporation," https://practicalesg.com/2021/06/publicly- traded-corporation-converts-to-pbc (June 8, 2021). 33 See Veeva, "Veeva: A Public Benefit Corporation," https://www.veeva.com/pbc. 34 See Veeva, "Corporate Citizenship at Veeva," https://www.veeva.com/corporate-citizenship. 35 See generally eBay Domestic Holdings, 16 A.3d 1 (Del. Ch. 2010). 36 See Id. at 6. 37 See Id. at 32. 38 See Id. at 34. 39 See Id. at 33.

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