In 2013, Delaware adopted legislation authorizing a corporation created in Delaware to become a public benefit corporation (PBC). The new law (like its counterparts, now adopted in more than thirty U.S. jurisdictions) allows for-profit companies to operate in a manner that sustainably creates long-term value for its stakeholders and others. Specifically, the Delaware law defines a PBC as a for-profit corporation that is intended to produce a public benefit or benefits and to operate in a responsible and sustainable manner.
The statute does not define “responsible and sustainable,” but instead mandates that the directors must balance the interests of its stockholders with the public benefits it has identified in its charter, and the interests of those materially affected by the corporation’s conduct. The Delaware law gives directors broad discretion with respect to such balancing, and allows corporations to eliminate monetary liability for disinterested directors making such balancing decisions. The statute also requires that the corporation provide its stockholders with a “benefit report” at least once every two years. The report must include:
the sustainability objectives established by the board;
standards adopted to measure progress in promoting those objectives;
factual information based on those standards, regarding the corporation’s success in meeting the standards; and
an assessment of the corporation’s success in meeting the standards.
Thus, in order to operate in a responsible and sustainable manner and meet its reporting requirements, the board of a PBC should engage in a continuing process of (1) determining who is materially affected by the corporation’s business, (2) developing and maintaining criteria for balancing both the interests of those so affected, as well as any specific benefit identified in the corporation’s charter, and (3) measuring progress against those criteria. The board may determine that some or all of the balancing obligations may be met by adopting one or more third-party standards, and engaging in a continuing process of measuring against those standards.
The list below is an example of procedures a board may adopt to ensure that it is properly attending to the balancing question. There is no requirement that these particular procedures be followed.
Establish a stand-alone committee or delegate sustainability issues to audit, governance, or other committee. Include in committee charter oversight of and/or recommendation with respect to:
third-party standards, if any;
internally generated standards;
choice of certifying body or bodies, if any;
benefit report;
sustainability objectives and standards; and
sustainability strategies and policies.
Recommendations on third-party standards and internally generated standards
Recommendations on certification issues
Recommendation of sustainability objectives and standards
Recommendation of sustainability strategies and policies
Report on progress toward impact objectives
Draft benefit report
Cycle should be synchronized with benefit reporting period
Sustainability objectives to be established and assessed on an annual basis
Quarterly committee meetings
Quarterly report to board, with longer session once or twice a year, giving board significant opportunity to balance public benefits and stockholders’ pecuniary interests
Board to approve benefit report and impact objectives
Management charged with bringing significant sustainability issues to the board that come up out of cycle and that are not covered by policies (e.g., negotiation of energy contract; significant building projects)
Committee should consider sustainability issues implicated by new developments (e.g., whether to purchase renewable energy or obtain LEED certification for new buildings)
Committee may make balance decision or decide to take balance question to board based on significance; should report any decision to board
Management recommendations to committee and committee recommendations to board should be distributed well in advance of committee and board meetings in order to give directors adequate time to review
Where materials update prior materials, directors should be provided with redline copies, so that they can focus on changes
Minutes should reflect sustainability issues discussed, resolution of those issues, and any direction given to the committee or management
Internal checklists should be reviewed to determine whether sustainability issues should be added
Where third-party or internal standard is adopted, materials and minutes should reflect consideration of how standard maps to interests of those affected by the corporation’s conduct
Identify materially affected constituencies (including specific benefits)
Identify any standards or certifications that company uses that are implicated by decision
Determine how different options would be assessed under such standards
Determine whether there are any third-party standards not being used by the company that should be used to assess the various options
If so, determine how each option will be assessed under such standards
Determine whether any outside expertise should be brought in
Use relevant standards, certifications, management input and outside expertise, as applicable, to determine the effects of different options on shareholders and other relevant constituencies
If the different choices the board faces have better implications for shareholders or one or more constituencies, board should acknowledge the necessity of making trade-offs, and make what it believes to be a reasonable decision
A record should be made of the standards used, and how they were applied, as well as reports from management and outside experts
The minutes should reflect the board’s acknowledgment and consideration of the trade-offs at issue