Wednesday, October 14, 2015

Public Benefit Corporations: Take 2

Fellow BLPB editor Haskell Murray highlighted Laureate Education's IPO (here on BLPB) last week as the first publicly traded benefit corporation.  Steven Davidoff Solomon, the "Deal Professor" on Dealbook at NYT, focused on the interesting issues that can be raised by public benefit corporations in his article, Idealism That May Leave Shareholders Wishing for Pragmatism, which appeared yesterday.  Among the concerns he raised were the  vagueness of the "benefit"provided by the company, the potential laxity or at least untested waters of benefit auditing, and the potential for management rent seeking at the expense of shareholder profit in the new form.  Davidoff Solomon, who (deliciously and derisively) dubs benefit corporations the "hipster alternative to today‚Äôs modern company, which is seen as voracious in its appetite for profits," is certainly skeptical. But the concerns are valid and will have to be worked out successfully for this hybrid form to carve out a place in the securities market.  What I found particularly interesting was his focus on the role of institutional investors, who as fiduciaries for their individual investors, have fiduciary obligations to pursue profits which may be in conflict with or at least require greater monitoring when investing in these alternative firms.  The question of institutional investors' appetite for alternative purpose firms, like benefit corporations, is the focus of a recent article of mine, Institutional Investing When Shareholders Are Not Supreme, and a big question for the future success of these firms.

For those of you wanting to highlight alternative firms in a general corporations course or a seminar, this article would be a good introduction and an accessible summary of the issues on the forefront. I will be including this in my seminar reading next semester as it is surely to generate discussion.

-Anne Tucker

 

https://lawprofessors.typepad.com/business_law/2015/10/public-benefit-corporations-take-2.html

Anne Tucker, Business Associations, Corporate Governance, Delaware, Haskell Murray, Securities Regulation, Shareholders, Social Enterprise | Permalink

Comments

Thanks for highlighting this article, Anne. I agree that there is good reason to be skeptical, though I seem to be the pessimist in the room when talking to business people about this topic and the optimist when talking to legal folks. There is plenty in need of fixing in the benefit corporation law, which makes it a fertile area for scholarship. The benefit corporation form may or may not thrive in the future, but talking to students and business people around the country, I am convinced that social enterprise/social business is likely to grow and increase in popularity.

Posted by: Haskell Murray | Oct 14, 2015 2:16:16 PM

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