Alliance Advisors, a proxy solicitation and corporate advisory firm, has just posted its 2021 Proxy Season Preview, a useful introduction into the major themes of this season—well worth a read. First, and most obviously, there is COVID-19 and its direct and indirect impact. The pandemic is having a significant direct impact this year—not just in necessitating recourse to virtual-only annual meetings again this season—but also in focusing the attention of investors and proxy advisors on “how well corporate leaders navigated the crisis and protected business operations, liquidity and the health and welfare of employees.” But the pandemic has also had a somewhat surprising broader indirect impact. While it was widely anticipated that the challenges of COVID-19 would overwhelm any other concerns, the impact appears to be otherwise, as the pandemic has highlighted our increasingly precarious condition, including the effects of climate change, and intensified our social and economic inequality—all issues that are front and center this season. The Preview predicts that environmental and social proposals “are likely to see stronger levels of support in view of last year’s record 21 majority votes… and more assertive investor policies on diversity, climate change and political spending.”
For several years, we’ve witnessed a fierce debate regarding the extent to which, in making decisions, boards of traditional corporations may take into account constituencies or stakeholders other than shareholders, such as employees and the larger community, or must consider only the impact of the decision on shareholder value. In a 2014 article In the Harvard Business Law Review, then-Chief Justice Leo Strine of the Delaware Supreme Court argued forcefully that, notwithstanding the allure of “stakeholder capitalism,” current corporate accountability structures make it difficult for directors to “do the right thing.” However, he contended, there is a way to effectively shift the power balance to create incentives for good corporate citizenship: the public benefit corporation. By articulating new corporate purposes and mandates, in Strine’s view, the PBC tweaks the normal corporate accountability and incentive structure that traditionally has made corporate managers accountable to only one constituency—shareholders. (See this PubCo post.) But while there have been a few corporations willing to take the IPO plunge as PBCs, there haven’t been any that have taken the risk, as public companies, of changing to the benefit corporation form—until now that is. And what’s most intriguing is that the shareholder vote at this company in favor of becoming a PBC was overwhelming. Is there more public shareholder support for PBCs than we thought?
I can think of only one public company that is currently a Delaware Public Benefit Corporation. That’s Laureate Education, which initially filed with the SEC in 2015 and went effective in 2017. (See this PubCo post.) Now, finally, we have a second company that has filed for its IPO as a PBC—Lemonade, Inc., which declares on the cover page of its prospectus that it is incorporated in Delaware as a PBC as a demonstration of its “long-term commitment to make insurance a public good.” It’s been quite a long dry spell since the PBC legislation was signed into law in 2013. In the last few years, however, we have witnessed intensifying investor focus on sustainability as a strategy (see, for example, this PubCo post), as well as swelling numbers of companies declaring their commitments to all stakeholders, as reflected, for example, in the Business Roundtable’s adoption of a new Statement on the Purpose of a Corporation (see this PubCo post) and the World Economic Forum’s Stakeholder Principles in the COVID Era (see this PubCo post). What’s more, new legislation just passed by the House in Delaware will, if ultimately signed into law, make it easier to slip in and out of PBC status. [Update: This bill was signed into law on July 16.] Will these trends toward sustainability and stakeholder capitalism, together with the Delaware legislation, fuel a renewed interest in the PBC for public companies and expecting-to-become public companies? Will Lemonade open the floodgates?
According to this column in the LA Times, it’s the “single most pernicious idea in modern American finance.” Can you guess? It’s the idea “that the corporation exists to ‘maximize shareholder wealth,’” the columnist proclaims. “As the mantra has evolved since it was declared by conservative economist Milton Friedman in 1970, it has come to mean ‘maximize shareholder wealth to the exclusion of everything else.’ The harvest has been stagnating worker wages, squeezed suppliers, noxious government economic policies, and the steady flow of corporate income to the top 1%. It’s long past time to bury this bad idea in the grave.” Needless to say, many would take issue with the columnist’s view, but probably not Senator Elizabeth Warren, who has recently introduced the “Accountable Capitalism Act,” which would mandate that specified large companies have as a corporate purpose identified in their charters—their new federal charters—the creation of a “general public benefit.”
by Cydney Posner An interesting topic of discussion at a meeting last week of the SEC’s Investor Advisory Committee was “unequal voting rights of common stock” — the trend over the last decade (plus) for a small number of IPO companies, particularly tech companies, to offer low-vote or, more recently, no-vote […]
Delaware Governor signs into law prohibition on fee-shifting bylaws and authorization of exclusive forum bylaws
by Cydney Posner On June 24, 2015, the Governor of Delaware signed into law amendments to the Delaware General Corporation Law proposed by the Delaware Bar’s Corporation Law Council and overwhelmingly passed by the Legislature regarding fee-shifting and forum selection provisions in Delaware governing documents. (See this post and this post […]