Grassroots is becoming a Public Benefit Corporation!

On July 17th, Grassroots attended the signing of Public Benefit Corporation (PBC) legislation by Delaware Governor Jack Markell in Wilmington.  Delaware is the 18th state to create a PBC form, and by far the most important given Delaware's unique position as a leading state for incorporations and leadership in corporate law. Grassroots is among the first companies that will convert to the new structure and has changed its name to Grassroots Capital Management, PBC, effective August 1. Grassroots has been a certified B Corporation since 2008 and our funds are GIIRS Pioneer Fund Managers. Becoming a PBC helps Grassroots preserve its mission and ensure that the interests and rights of all our stakeholders are protected, contributing to a better, more just world.  

Public Benefit Corporations (“PBCs”), promoted by the originators of the B Corp certification system, are a new kind of socially conscious for-profit corporation intended to operate in a responsible and sustainable manner.  Their affairs are to be conducted for the benefit not only of stockholders, but also for public interest and those affected by the corporation’s activities. “We've all heard about corporations wanting to ‘do well’ while also ‘doing good.’  With this new law, Delaware corporations will now have the ability to build those dual purposes into their governing documents,” said Governor Markell at the signing ceremony.  The Delaware law requires directors of a PBC to balance the interests of stockholders with the best interests of those materially affected by the corporation’s conduct and the specific public benefits identified by the corporation.

Later in the day Grassroots attended a discussion hosted by the World Economic Forum in New York, attended by Governor Markell, officials of the Delaware Chancery Court, corporate lawyers, investors and B Corps.  The discussion noted the significance of Delaware's action in legitimizing such dual purpose for-profit corporations, while acknowledging that it will take time before it will become clear how much the PBC form will change behaviors.  

The discussion highlighted the range of views on what qualifies as impact investing and balanced returns.  In one view, expressed by, among others, a senior Chancery Court official and counsel, investors in a PBC must be prepared to accept lower financial returns if the new form is to mean anything.  In this view the effect of the law is to transform features of corporate practice that had previously been "instrumentalities" to the end of maximizing profit, such as environmental, workplace or client focused efforts that increase brand recognition or client and employee loyalty, into ends in themselves.  A representative of a well-established "social" company argued that resetting priorities in this way need not alienate investors, and that it was critical that companies be clear and unambiguous about prioritizing social goals.  

The other end of the spectrum was exemplified by several B Corps present that had carved out profitable, high growth market niches serving consumer demand for organic baby food and unique, vintage and handmade products.  In this view, taking a socially responsible approach to child nutrition or compensation commanded a premium and was entirely consistent with superior growth and returns.  

Other observations fleshed out the spectrum.  One view suggested that the primary value of including non-financial objectives among a corporation's goals was as a discipline on management, that while maximizing return to investors the company needs to bear constantly in mind the larger context in which they operate and effects they have on stakeholders, for better or worse.  Elaborating on this view, it was argued that wealth comes in many forms and financial wealth cannot be enjoyed if other types of wealth — community, environment — are not also preserved and enhanced in parallel. In this view, balancing or moderating profits with efforts to build these other forms of wealth does not represent a conflict or a trade-off but rather the only approach that enables financial wealth to preserve its real value.

This more holistic view of value was endorsed from a variety of perspectives:  It was suggested that it would resonate with both industry groups, such as the Business Roundtable, whose members are looking for some way of mitigating the deleterious effects of "short-termism" on their ability to build enduring shareholder value, and with pension and retirement fund managers who recognize the longer term requirements of their beneficiaries who want to be sure that there will be real value that can be enjoyed when they need it, rather than posting largely irrelevant short term financial returns.

Overall, the discussion reflected the fact that in a world where corporate owners and managers typically do not inhabit the same communities as workers or customers, where the roles and responsibilities of government, and not-for-profit and for-profit companies with respect to social problems and opportunities are in flux, and where access to information on corporate behavior and performance is vastly more accessible, Public Benefit Corps can provide a framework to engage these phenomena in positive ways.  At the same time, the discussion reconfirmed the diversity among "social" companies and investors, and the need to be clear in articulating our priorities and explaining how they interact among the communities of interest and stakeholders.