Delaware public benefit corporation model: analysis and comparison

Carlos Arménio da Silva OliveiraDelaware Public Benefit Corporation Model: analysis and comparisonUniversidade do MinhoEscola de DireitoAbril de 2019 Carlos Arménio da Silva OliveiraDelaware Public Benefit Corporation Model: analysis and comparison Minho | 2019U Carlos Arménio da Silva OliveiraDelaware Public Benefit Corporation Model: analysis and comparisonUniversidade do MinhoEscola de DireitoAbril de 2019Master thesis Master in European and Transnational, Business LawThis work was realized under the supervision of:Professora Doutora Catarina Santos Serraand under the co-orientation ofDoutor Rui Dias ii DIREITOS DE AUTOR E CONDIÇÕES DE UTILIZAÇÃO DO TRABALHO POR TERCEIROS Este é um trabalho académico que pode ser utilizado por terceiros desde que respeitadas as regras e boas práticas internacionalmente aceites, no que concerne aos direitos de autor e direitos conexos. Assim, o presente trabalho pode ser utilizado nos termos previstos na licença abaixo indicada. Caso o utilizador necessite de permissão para poder fazer um uso do trabalho em condições não previstas no licenciamento indicado, deverá contactar o autor, através do RepositóriUM da Universidade do Minho. Licença concedida aos utilizadores deste trabalho Atribuição CC BY https://creativecommons.org/licenses/by/4.0/ iii Acknowledgments It was a privilege to be part of this LL.M. program. First, I would also like to thank Professor Catarina Santos Serra, my thesis supervisor, and Professor Rui Dias, my co-supervisor, for the suggestions given, the availability, as well as, for pointing me in the right direction. I am most grateful to Romina Cardozo for all her help and support during the production of this thesis. Without her, this would not be possible. I would also like to express my sincere gratitude to my family and friends, especially Paulo Vieira, who directly or indirectly contributed for the production of this essay. To my LL.M colleagues, Alexandra, Romeo and especially Sara Oliveira, your support was particularly important throughout the Master Degree. This accomplishment would not be possible without them. iv STATEMENT OF INTEGRITY I hereby declare having conducted this academic work with integrity. I confirm that I have not used plagiarism or any form of undue use of information or falsification of results along the process leading to its elaboration. I further declare that I have fully acknowledged the Code of Ethical Conduct of the University of Minho. v Delaware Public Benefit Corporation Model: analysis and comparison Resumo O objectivo desta dissertação é de conseguir uma sólida compreensão das complexidades e características fundamentais do modelo de Empresa de Benefício Público de Delaware e compará-lo com a legislação europeia existente e modelos de empresas de países europeus tais como o Reino Unido, Itália e Portugal. O objetivo final será o de discernir o estado geral na Europa em relação a este modelo de empresa, considerando se há necessidade ou não da introdução geral do modelo de Empresa de Benefício Público de Delaware nos países europeus, em particular, em Portugal, e o que poderia ser alcançado com a possível introdução deste novo modelo. Iremos observar as atuais semelhanças e diferenças entre a Empresa de Benefício Público de Delaware e as características dos Modelos de Empresas Europeias, com foco nas empresas sociais do Reino Unido, a sociedade de benefício Italiana e os modelos de sociedades Portuguesas. Por fim, a Tese tentará descobrir se as Empresas de Benefícios Públicos podem ser um instrumento eficaz para o reforço da Responsabilidade Social das Empresas, remodelando os modelos Europeus de direito das sociedades com o objetivo de desenvolver uma abordagem empresarial mais sustentável para o ambiente da empresa. Como não há, ainda, considerável debate académico na Europa sobre este novo tipo de empresa e as mudanças que poderia trazer, esta tese está, no momento atual, na vanguarda do Movimento de Benefício Público na Europa. Palavras-chave: Direito das sociedades; benefício público. vi Delaware Public Benefit Corporation Model: analysis and comparison Abstract The main objective of this research is to attain a solid understanding of the complexities and core features of the Delaware Public Benefit Corporation Model and compare it with existing European legislation and Company Models from European countries such as the United Kingdom, Italy and Portugal. The final goal will be to discern the overall state in Europe in relation to the PBC Model, considering if there is a need or not for the general introduction of the Delaware Public Benefit Corporation Model in the European countries, particularly in Portugal, and what could be achieved with the possible introduction of this new model. We shall observe the current similarities and differences between the Delaware Public Benefit Corporation Model and the features of the European company models, with focus on the UK Social Enterprises, the Italian Società Benefit and the Portuguese company models. Finally, the Thesis will try to assert if the Public Benefit Corporations can be an effective tool for the reinforcement of the corporate social responsibility, remodeling European company law models in the aim of developing a more sustainable business approach for the company environment. Since there is not, yet, any considerable academic debate in Europe about this new type of company and the changes it could bring, this thesis is, at the present, at the forefront of the Public Benefit initiative in Europe. Keywords: Public benefit corporation; company law; vii Table of Contents Acknowledgments ....................................................................................................................... iii Resumo ....................................................................................................................................... v Abstract ...................................................................................................................................... vi Abbreviations .............................................................................................................................. ix Table List ..................................................................................................................................... x Introduction ........................................................................................................................... - 11 - Chapter I ................................................................................................................................. - 13 - General Considerations about the Topic ..................................................................................... - 13 - 1. Changing the focus on Corporations...................................................................................... - 14 - 1.1. The notion of Public Benefit in Companies .......................................................................... - 18 - 2. Public Benefit Corporation - The Concept ............................................................................... - 25 - Chapter II................................................................................................................................. - 32 - The Public Benefit Corporation Model in Delaware ...................................................................... - 32 - 1. Delaware Corporate Environment .......................................................................................... - 33 - 1.1. Challenges to Delaware Position ...................................................................................... - 34 - 2. The Delaware Public Benefit Model ........................................................................................ - 37 - 2.1. Becoming a Benefit Corporation ...................................................................................... - 38 - 2.2. Accountability in Public Benefit Corporations ................................................................... - 41 - 2.3. Protection against hostile takeover and Company Mission ................................................ - 42 - 2.4. Issues/Disadvantages concerning Public Benefit Companies ........................................... - 44 - 3. Kickstarter – A Delaware Public Benefit Corporation ............................................................... - 47 - Chapter III ................................................................................................................................ - 49 - The Public Benefit Model in Europe ............................................................................................ - 49 - 1. Public Benefit in Europe ......................................................................................................... - 50 - 2. The United Kingdom Social Enterprises .................................................................................. - 53 - 2.1 The Community Interest Company ................................................................................... - 56 - 2.2. Company Limited by Guarantee ...................................................................................... - 57 - 2.3. Vernova Healthcare and Bath: Hacked - CICs .................................................................. - 57 - 2.4. CICs and LBGs - Assessment .......................................................................................... - 58 - 3. The Italian Società Benefit (SB) .............................................................................................. - 60 - - 14 - 1. Changing the focus on Corporations Nowadays, we face a convergence of crises with environmental, social and economic consequences. Although governments have a responsibility for dealing with crises such as market failures and their negative externalities, they might not be always prepared to deal with the resulting consequences. Indeed, most governments and its institutions regularly fail to address their citizens needs in a competently or timely manner. Governments can also be corrupt, inefficient, their actions (or inaction) can sometimes exacerbate the crises in question, and many end up simply failing to provide the desired public good. As such, one of the potential solutions1 to solve this issue is to use the immense power and resources that modern corporations have at their disposal for the public benefit2. On the other hand, due to the fact that companies are legal entities that have been granted extraordinary privileges by the State, and operate apart from the natural persons who form and run them, we must point out that they are one of the main reasons for this current situation3. Furthermore, this lack of restriction has allowed corporations to organize trillions of dollars of capital and create wealth beyond what most countries possess, ultimately exacerbating economic inequality by accruing incredible wealth for their shareholders while contributing to decades of wage stagnation (Palladino and Karlsson, 2019). Moreover, while many disagree4 on the character of the company’s main drive, it is clear that profit 1 Alexandra Pires, in her comparative analysis between American and Italian Public Benefit Models, already warns that, because of its characteristics and objectives, the discussion about for-benefit organizations may involve new conceptions of the roles of the State and the private sector. For more information regarding Pires research, see PIRES, A. (2017), The fourth sector and the benefit companies: a comparative analysis between the American and the Italian models , University of Milan, Social Science Research Network. Retrieved from https://www.clflegal.com/uploads/outros/publicacoes/2/4e90980560dc6687d75316cf1d3f0839.pdf (last time consulted: 12-04-2019) 2 Despite referring to the role of Corporate Social Responsibility in the private sector and its importance for preserving social welfare through the private provision of public goods, Allen Ferrel, Hao Liang and Luc Renneboog make some very good arguments that can be used to support the Public Benefit Corporation movement. They cast doubt on the belief shared by many researchers that such private provision of public goods can be associated with agency problems that divert shareholder wealth and even undermine the foundations of capitalism. For them “ Corporate governance reforms should take into account such positive externalities ”. For more information, see FERREL, A; LIANG, H; RENNEBOOG, L. (2016), Socially Responsible Firms , European Corporate Governance Institute (ECGI) - Finance Working Paper No. 432/2014. Retrieved from https://ssrn.com/abstract=2464561 or http://dx.doi.org/10.2139/ssrn.2464561 3 Reinforcing the idea of discontent from the company’s operations, Nass states, “(…) In light of the current period of economic uncertainty, and the awareness of the necessity and desire for sustainability, many Americans are disenchanted with the operating practices and philosophy of major corporations ”. For more information on Nass work, see NASS, M. (2014), The Viability of Benefit Corporations: An Argument for Greater Transparency and Accountability , University of Iowa, The Journal of Corporation Law, 39 Iowa J. Corp. L. 875. 4 As an example, Colin Mayer, Peter Moores Professor of Management Studies at Saïd Business School, Oxford University, and an expert on corporate finance, governance and taxation, has the opinion that the purpose of a company is to perform actions that will bring “benefit to communities, societies, customers and in the process of doing that the owners of a company generate profits but profits are not as such the objective of a corporation ”. For more information, see: Purpose. (2017), Prof. Colin Mayer on corporations and ownership . Retrieved from https://purpose-economy.org/en/blog/colin-mayer/ [Accessed on 27-09-2018]. Lipton (2019) further affirmed that the prioritization of the wealth of shareholders at the expense of employee wages and retirement benefits - 15 - maximization is the primary foundational principle of modern corporate purpose. This principle is perfectly expressed by the American economist Milton Friedman’s famous statement “ the only responsibility of corporations is to make profits ” (New York Times Magazine, 1970, p.122). In fact, USA corporate environment obliges, by law, corporations to maximize shareholder value without regard for anything else, like worker safety requirements, pollution, the public interest, social impact and other actions that are able to benefit society. Even though, this perspective has been challenged in recent years by the Benefit Corporation movement and the codification of the for-profit mission-driven entity in state corporation statutes, profit maximization continues to be the goal for the majority of the companies in the world. In effect, despite the growing numbers of Public Benefit Corporations, many economists still argue that the idea of creating a new type of company that invests its profits back into the business to grow infrastructure and pay higher wages, providing environmentally friendly housing, education and entertainment, is not the purpose of a corporation, but of a charity or foundation5. As wrong or right their thoughts may be, if we want to change this reality and shift over to a sustainable path, we need companies to increase their role, and the Public Benefit Corporation Model has the potential to play an important part in facilitating such a necessary contribution. In fact, as it becomes patent that there is a necessity to provide new measures to develop European company law, the Public Benefit Corporation Model seems to be an exceptionally valuable tool, both for the development of European company law and for a better implementation of the Corporate Social Responsibility (CSR)6 efforts. Regarding CSR in Europe, Sjafjell and Anker-Sorensen7 claim that companies are not to an adequate extent using the room they have to integrate CSR into their core gave rise to the deepening inequality and populism that today threaten capitalism from both the left and the right. See more in LIPTON, M. (2019), It’s Time to Adopt the New Paradigm , Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved from https://corpgov.law.harvard.edu/2019/02/11/its-time-to-adopt-the-new-paradigm/ (last time consulted: 28/03/2019) 5 Peter Schmitt considers that while they are needed to force a discussion on the issue, “… PBCs are not necessary as an entity type and will likely not stand on their own for long ”. For more information, see SCHMITT, P. (2016), Public Benefit Corporations: Pushing the Social Venture Discussion, The Hubert H. Humphrey School of Public Affairs/Carlson School of Management, University of Minnesota. P.27 6 Corporate social responsibility is a very broad concept that addresses many and various topics such as human rights, corporate governance, health and safety, environmental effects, working conditions and contribution to economic development. It is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders. For more information, see Financial Times. Definition of corporate social responsibility, (CSR). Retrieved from http://lexicon.ft.com/Term?term=corporatesocial-responsibility--(CSR) (last time consulted: 28-05-2018) 7 For more information, see SJAFJELL, B.; ANKER-SORENSEN, L. (2013), The Duties of the Board and Corporate Social Responsibility (CSR). Hanne Birkmose, Mette Neville & Karsten Engsig Sørensen (eds.), Boards of directors in European companies – reshaping and harmonising their organisation and duties , Kluwer Law International, 2013, University of Oslo Faculty of Law Legal Studies Research Paper Series No. 2013-26; Nordic & European Company Law Working Paper No. 10-40. Available on SSRN: https://ssrn.com/abstract=2322680. - 16 - business, and are failing to comprehend the business potential of contributing to sustainable development. Furthermore, they consider that the board8 is the key to unlock companies’ potential to integrate CSR into the core business of the companies but the pressing question is how to turn the key. During this thesis, we shall present the Public Benefit Company Model as one of the possible ways to turn the “key”. Nevertheless, some authors consider that corporate rights should come with societal responsibilities of the firms to advance the public interest. Moreover, if the nations in Europe or the European Union in its fullness officially adopts the Public Benefit Corporation Model or a similar legal model, this accomplishment could have the potential to take the lead in this changing process within the world9, and thereby turning away from the current trend of “short-term growth mania” and onto a more sustainable path. For that reason, the main question of this thesis will focus on what is a Delaware Public Benefit Corporation, how it differs from other types of corporations and how the main concept could severely change the European corporate environment. In addition, we need to take into consideration the effective role of the law in the consolidation of the PBC Model, as mainly regulatory laws, which are a prime example of the modern social state, being defined as an “(…) instrumental law, as a mechanism of regulation or social direction, in order to achieve certain objectives formulated by the political system "10. During this paper, we should remember that legal rules, ownership structures, the fiduciary duties of the management and the board of directors, executives’ incentives, and the decision-making process are very different outside the Anglo-American world, which significantly influences the debate around PBCs. Therefore, when concerning the quantity of the debate on the role and importance of PBCs, we will see that it often reflects the differences of the levels of capitalism between countries and the limitations they 8 Allen Ferrel, Hao Liang and Luc Renneboog found the existence of a positive relation between CSR and value and that CSR attenuates the negative relation between managerial entrenchment and value. 9 I share Leo E. Strine, Chief Justice of the Delaware Supreme Court, opinion, in which “(…) The United States and Europe must lead by example. Our societies obviously went through periods when we callously disregarded the rights of labor and the integrity of the environment. We therefore must help the developing world make the same progress we did but with fewer externalities ”. For more information, see STRINE, L. (2005), The Delaware Way: How We Do Corporate Law and Some of the New Challenges We (and Europe) Face , Delaware Journal of Corporate Law, Vol. 30, No. 3, pp. 673-696. Available at SSRN: https://ssrn.com/abstract=893940 10 TEUBNER, Gunther. Jurisdição – Noções, características, limites, soluções . Revista de Direito e Economia, Coimbra, ano XIV, 1988, p.46. Regarding Regulatory Law, it deals with procedures established by federal, state, and local administrative agencies, as opposed to laws created by the legislature (statutory laws) or by court decisions (case law). Regulations can relate to a large array of executive branch activities, such as applications for licenses, oversight of environmental laws, and administration of social services like welfare. For more information, see HG.org Legal Resources. Regulatory Law. Retrieved from https://www.hg.org/regulatory-law.html (last time consulted: 22-02-2019) - 17 - place on their companies. This will be clearly seen when comparing the differences between the American Public Benefit Corporation Model and the Italian Società Benefit approach. - 18 - 1.1. The notion of Public Benefit in Companies Since the creation of companies, the legal rules binding and defining them has changed considerably, to the point where the company’s notion has been severely altered, from being a public creation to a typically market creation in which privileges to the large companies are granted and retained without the obligation of following a determined public purpose. In effect, according to Professor Colin Mayer11, the “(…) a notion of servicing their customers ” that has changed during the 20th century when companies “(…) shifted to the importance of the shareholders, to maximize in terms of shareholders ”. Indeed, despite the fact that the fiduciary duty of the directors is to the company, in practice that means little since the control rights belong to the shareholders12. This change consequently altered the main direction of corporate governance practices for the maximization of the profits and interests of the shareholders, resulting in the general detriment of the society who ultimately bears the social costs of the corporation’s decisions13. On the opinion of Palladino and Karlsson, this misguided focus, driven by the neoliberal conception of shareholders as the only actor within the firm who is critical to corporate success, is the result of decades of flawed theory in corporate law and policy. Moreover, according to Holly J. Gregory and Sidley Austin, the corporation’s purpose is also subject to an ever-changing public sentiment and 11 For more information on Professor Colin Mayer opinion, see: Purpose. (2017), Prof. Colin Mayer on corporations and ownership . Retrieved from https://purpose-economy.org/en/blog/colin-mayer/ (last time consulted: 27-09-2018) 12 A corporation’s board owes its “fiduciary duties” exclusively to shareholders, meaning that the board, as it makes decisions, is solely accountable to shareholders. Crucially, if corporate leaders’ decisions are driven by other priorities, they can be challenged either by “activist” investors threatening to take over boards, or by legal action; these threats work to disincentive any deviation from the shareholder primacy norm (eBay v. Craigslist 2010). For more information, see PALLADINO, L. and KARLSSON, K. (2019), Towards Accountable Capitalism: Remaking Corporate Law Through Stakeholder Governance , Roosevelt Institute. Retrieved from https://corpgov.law.harvard.edu/2019/02/11/towards-accountable-capitalism-remaking-corporate-law-throughstakeholder-governance/ (last time consulted: 21/03/2019) 13 Increasing economic evidence suggests that shareholder primacy is not benefiting other corporate stakeholders, including workers, suppliers, consumers, or communities. Lenore Palladino has a very interesting opinion on the influence of the shareholders in corporate decisions, writing, “ At its core, the logic necessitates that all corporate decisions are made according to the effect that they will have on the share price ”. Consequently, corporate boards “ understand themselves as ultimately accountable only to shareholders, because all other corporate stakeholders—employees, customers, taxpayers—are covered by “contracts ”. For Palladino, “ prioritizing shareholders means keeping costs—among them, employee wages—as low as possible, even if that will have a negative effect on the corporation’s long-run ability to grow and prosper ”. For more information, see PALLADINO, L. (2018), Public Benefit, Incorporated , Boston Review. Retrieved from http://bostonreview.net/class-inequality/lenore-palladino-public-benefit-incorporated [(last time consulted: 06-01-2019). A commended 2017 article in the Harvard Business Review, “ The Error at the Heart of Corporate Leadership ,” by Harvard Business School Professors Joseph Bower and Lynn Paine, reject shareholder primacy while making a compelling case for director-centric stakeholder governance: “ We are capitalists to the core. We believe that widespread participation in the economy through the ownership of stock in publicly traded companies is important to the social fabric, and that strong protections for shareholders are essential. But the health of the economic system depends on getting the role of shareholders right. The agency model’s extreme version of shareholder centricity is flawed in its assumptions, confused as a matter of law, and damaging in practice. A better model would recognize the critical role of shareholders but also take seriously the idea that corporations are independent entities serving multiple purposes and endowed by law with the potential to endure over time. And it would acknowledge accepted legal principles holding that directors and managers have duties to the corporation as well as to shareholders. In other words, a better model would be more company centered ”. - 19 - cultural norms, being regarded differently in distinct parts of the world. Continental Europe (particularly Germany, France and the Netherlands) and countries in Asia have inclined toward satisfying the needs of employees and other “stakeholders”, variously defined to include suppliers, creditors and the communities in which corporations operate. On the contrary, the USA, Canada and the United Kingdom have leaned towards shareholder primacy as a standard that is easily measured and observed, avoiding a diffusion of accountability and the risk of differing interpretations about what constitutes good performance14. However, regarding the company’s economic approach, most countries’ legal and economic systems allow either for-profit or nonprofit activity, but not a mix of the two. This generates negatives outcomes, plainly evidenced when more socially minded entrepreneurs end up having to restrict their vision into one structure or the other and end up being hindered in their activities by the rules of the company type they chose15. 14 For more information on the corporation’s purpose, see Austin, S. and Gregory, H. (2019), Everything Old is New Again—Reconsidering the Social Purpose of the Corporation , Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved from https://corpgov.law.harvard.edu/2019/03/12/everything-old-is-new-again-reconsidering-the-social-purpose-of-the-corporation/#2 (last time consulted: 28/03/2019) 15 Heerad Sabeti approaches this issue with a solution, the creation of a For-Benefit Enterprise, in which the Public Benefit Corporation Model is one of its many types, with a commitment to social purpose and a reliance on earned income. Once recognized and adopted by governments, markets, and entrepreneurs, the model would pave the way for the “emergence of a fourth sector, which, according to Sabeti, “ (…) has been there all along, though cloaked by conventional adherence to old categories ”. For more information, see SABETI, H. (2011), The For-Benefit Enterprise , Harvard Business Review. Retrieved from https://hbr.org/2011/11/the-for-benefit-enterprise (last time consulted: 12-04-2019) - 20 - 1.2. The tendency to change company’s traditional purpose Conversely, as the 21st century pushes on, there has been an increased emphasis on other stakeholder values, with particular attention being directed to social and environmental concerns. In fact, a recent survey of 500 institutional investors, known as the Edelman Trust Barometer16, found that investors are increasingly taking into account as investment factors longer-term social and environmental considerations and the corporation’s cultural health. They are also expecting companies to take a stand on relevant social issues. In fact, 64 percent of the investors surveyed assumed that “(…) CEOs should take the lead on change rather than waiting for government to impose it ” and a full ninety-eight per cent thought, “(…) public companies are urgently obligated to address one or more societal issues to ensure the global business environment remains healthy and robust ”17. Authors such as Kent Greenfield18 have discussed the issue in question and proposed modifications to corporate law that, if applied, would challenge corporate power. To better present his ideas, Greenfield went to the point of formulating five principles for those developing public policies in the area of corporate governance. Firstly, he stated that the ultimate purpose of corporations should be to serve the interests of society as a whole, and relates with his second principle, that corporations are distinctively able to contribute to the societal good by creating financial prosperity. Greenfield third principle asserted that corporate law should further principles 1 and 2, reminding us “(…) there is no such thing as a limited liability society ”. His forth point insisted on the idea that a corporation’s wealth should be fairly shared among those who contribute to the creation of that wealth. Finally, the fifth one emphasized on the importance of Democratic corporate governance as the best way to ensure the sustainable creation and equitable distribution of corporate wealth. Fortunately, Greenfield is not the only one trying to provoke 16 The Edelman Trust Barometer Special Report: Institutional Investors reveals new criteria for evaluating investments as well as insights on what drives institutional investor trust in companies. The second annual special report finds that investment criteria are evolving to target areas beyond financial metrics, with a strong focus on corporate culture, Environmental, Social and Governance (ESG) investing, and companies’ roles within broader society. The research surveyed more than 500 chief investment officers, portfolio managers, and buy-side analysts in five countries (U.S., Canada, UK, Germany and Japan), representing firms that collectively manage over $4.5 trillion in assets. For more information, see Edelman. (2018), Trust Barometer Special Report: Institutional Investors. Retrieved from https://www.edelman.com/research/trust-barometer-institutional-investors (last time consulted: 28/03/2019) 17 For more information, see Edelman Trust Barometer. (2018), Special Report: Institutional Investors US Results . P-14. Retrieved from https://www.edelman.com/sites/g/files/aatuss191/files/2018-11/Edelman_Trust_Baromter_Institutional_Investor_US_Results_0.pdf (last time consulted: 28/03/2019) 18 Kent Greenfield’s The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities posits that corporation law shouldn’t be thought of as “private” law, which governs the relationships of individuals, but as a branch of “public” law, such as constitutional, tax, or environmental law. In his assertions, the author adds that the American nation could and should choose “ to require that democratic values govern corporations, rather than having corporate values govern democracy .” For more information, see GREENFIELD, K. (2010), The Failure of Corporate Law: Fundamental Flaws and Progressive Possibilities , University of Chicago Press. - 21 - changes in how corporate law is designed. In effect, with the growth of the nonprofit sector in the last decades and the increase of its scope of influence regarding public goods and services, the common view about company’s for-profit sole purpose has been increasingly challenged19. At the present, the newest evolutionary corporate form20, the Public Benefit Corporation Model is a debated model, and has been particularly discussed in the North-American Academia, as Lidstone21 questions, “ (…) why a Public Benefit Corporation Rather Than A Non-PBC? ”. Besides PBCs, other movements, such as the also recent Environmental, Social and Governance (ESG) Criteria22, social entrepreneurship and impact investing23 are assisting individuals to clearly distinguish between traditional companies and those that are committed to a broader set of stakeholder values. They represent part of a global shift in consciousness, which thrives to recognize that humanity needs to take better care of its 19 As an example, in his January 2018 letter to CEOs, BlackRock CEO Larry Fink discussed the need for portfolio companies to have a “ sense of purpose ” and shared his view that to “ prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers and the communities in which they operate ”. Fink adds, “ Without a sense of purpose, no company, either public or private, can achieve its full potential ”. For more information, see BlackRock. (2018), Larry Fink’s Annual Letter to CEOs: Purpose & Profit . Retrieved from https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter (last time consulted: 28/03/2019) 20 Montgomery, J. Mastering the Benefit Corporation , Business Law TODAY. For more information, see: https://www.americanbar.org/publications/blt/2016/07/02_montgomery.html (last time consulted: 02-06-2018) 21 Henrrick K. Lidstone discusses the role of Public Benefit Corporations in Colorado but also in general. For more information, see The Long and Winding Road to Public Benefit Corporations in Colorado . Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2266654 22 Environmental, Social and Governance – ESG Criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how the company’s manages relationships with employees, suppliers, customers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights. The introduction of ESG factors in the decisions of companies and investors, along with the economic and financial factors, seeks to reduce financial risks (for example, those associated with polluting industries), and preserve the market, increasing financial returns and the development of businesses and markets. For more information on this criteria, see CHEN, J. (2019), Environmental, Social and Governance – ESG Criteria , Investopedia. Retrieved from https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp (last time consulted: 2804-2019) and CMVM. O que são fatores "ESG"? , Perguntas e Respostas sobre Finanças Sustentáveis, Área do Investidor, Comissão do Mercado de Valores Mobiliários. Retrieved from https://www.cmvm.pt/pt/AreadoInvestidor/Faq/Pages/faq-financas-sustentaveis.aspx (last time consulted: 28-04-2019) 23 Impact investing, as defined by the Global Impact Investors Network, are “ investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return ”. While Impact investors actively seek to place capital in businesses, non-profits organizations, and funds in industries such as renewable energy, basic services including housing, healthcare, education, micro-finance, and sustainable agriculture. Impact investing has gained traction among a wide range of investors, including the largest financial institutions, pension funds, family offices, private wealth managers, foundations, individuals, commercial banks, and development finance institutions. The US SIF Foundation's 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends, found that sustainable, responsible and impact investing (SRI) assets accounted for $12.0 trillion of the $46.6 trillion in total assets under professional management in the United States. For more information, see US SIF. Research. (2018), US SIF Foundation Releases 2018 Biennial Report On US Sustainable, Responsible And Impact Investing Trends . Retrieved from https://www.ussif.org/blog_home.asp?Display=118 (last time consulted: 20/03/2019). See also Dallmann, JP. (2018), Impact Investing, Just A Trend Or The Best Strategy To Help Save Our World? Retrieved from https://www.forbes.com/sites/jpdallmann/2018/12/31/impact-investing-just-a-trend-or-the-best-strategy-to-help-save-our-world/#3f60612b75d1 (last time consulted: 20/03/2019) - 22 - resources. Confirming this tendency, Schmitt24 writes that, “… The need for sustainable environments, economies, and societies is becoming a mainstream topic and receiving significant attention ”. As so, representing the opinion of many entrepreneurs that businesses should be more than money, today’s business world has been shifting into a more public good awareness. Following this perspective drift, thriving firms like Ben & Jerry’s25 or Patagonia26, who are both Benefit Corporations, keep prioritizing societal and environmental agendas. Additionally, companies like Google and Farfetch are praised by the public on how they take care of their employee’s welfare27 and the broader impact their actions have on society28. Lastly, the avant-garde 4-day workweek experimentation made by the Perpetual Guardian29, 24 For more information about the importance of pushing social venture discussion, see SCHMITT, P. (2016), Public Benefit Corporations: Pushing the Social Venture Discussion, The Hubert H. Humphrey School of Public Affairs/Carlson School of Management, University of Minnesota. (p.3) 25 Ben & Jerry’s has been a certified B Corporation since September 2012, however, the company’s was already know for pioneering socially responsible business movement for many years before the B corporation movement, being one of the first in the world to value its social mission as highly as its economic mission. As an example, Ben & Jerry’s Foundation gives 7.5% of the company’s pre-tax profits to charity since 1985. For more information, see LINDE, D. (2016), Before the B-Corp, there was Ben & Jerry’s. Medium . Retrieved from https://innovationsjournal.net/before-the-b-corp-there-was-ben-jerrys1300fc1551eb (last time consulted: 26/03/2019). See also Certified B Corporation. (2018), B Impact Report: Ben and Jerry's . Retrieved from https://bcorporation.net/directory/ben-and-jerrys (last time consulted: 26/03/2019) 26 In 2011, Patagonia, Inc incorporated as a benefit corporation in the state of California. According to Kristin A. Neubauer, “ Patagonia’s corporate purpose has always been rooted in an environmental focus-donating time, services and at least 1% of sales to environmental groups throughout the world ”. For more information, see NEUBAUER, K. (2016), NOTE & COMMENT: Benefit Corporations: Providing A New Shield for Corporations With Ideals Beyond Profits. University of Maryland Francis King Carey School of Law, Journal of Business & Technology Law, 11 J. Bus. & Tech. L. 109. 27 Google has been ranked as one of the best companies to work for, with the tech giant employees consistently reporting high levels of job satisfaction and praising the excellent benefits and compensations the company provides. Some of those perks that Google’s employees have range from having every meal at work for free, taking free cooking classes to learn how to make new dishes, attending and help organizing Talks at Google, having on-site gyms and free workout classes, education subsidies and generous tuition reimbursements, etc. For more information, see YANG, Lucy. (2017). 13 incredible perks of working at Google, according to employees. Insider. Retrieved from https://www.thisisinsider.com/coolest-perks-of-working-at-google-in-2017-2017-7 [Accessed on 16/03/2019]. See also JANG, E. (2018), Are Google Employees More Productive Because Of Company Perks? Forbes. Retrieved from https://www.forbes.com/sites/quora/2018/07/09/are-google-employees-more-productive-because-of-company-perks/#736b78e54b4d (last time consulted: 16/03/2019) 28 Indeed, a 2015 Warwick study noticed that Companies like Google have invested more in employee perks and, as a result, employee satisfaction has risen 37 percent. The study also provided evidence of a link between human happiness and human productivity, with the somewhat obvious conclusion that happier workers achieve higher productivity, suggesting the need to pay more attention to emotional well-being as a causal force. Lastly, the study remarks that if wellbeing boosts people’s performance at work, it raises the possibility, at the microeconomic level and perhaps even the macroeconomic level, of self-sustaining spirals between human productivity and human well-being. For more information, see OSWALD, A.; PROTO, E. and SGROI, D. (2015), Happiness and productivity , University of Chicago Press, Journal of Labor Economics, 33 (4). pp. 789-822. Retrieved from https://www.journals.uchicago.edu/doi/abs/10.1086/681096 (last time consulted: 02/04/2019) 29 The 4-day workweek was an experiment made by the New Zealand’s financial services Company Perpetual Guardian with assistance from researchers at the University of Auckland and Auckland University of Technology. The experiment results reported an increase in workers productivity and focus with the employees acknowledging having lower stress levels, higher levels of job satisfaction and being able to better manage work-life balance. For more information regarding this experiment, see DEOBUSH, G. (2019), This Company Swears By a 4-Day Work Week. Now It Has Advice on How Your Employer Can Make the Switch . Fortune. Retrieved from http://fortune.com/2019/02/20/four-day-work-week-research-benefits/ (last time consulted 12-04-2019). See also, ROY, E. (2018), 'No downside': New Zealand firm adopts four-day week after successful trial , The Guardian. Retrieved from https://www.theguardian.com/world/2018/oct/02/no-downside-new-zealand-firm-adopts-four-day-week-after-successful-trial (last time consulted: 12-042019) - 23 - between March and April of 2018, in which the company’s 240 employees experimented a four day workweek with remarkable outcomes that brought to the community the discussion of making a switch to a more condensed workweek. The company reported an overall increase in workers productivity and focus and decided to make the changes permanent in the end of the same year. Connected to this increasing change in public consciousness, there is a renewed importance of the Corporate Social Responsibility (CSR) in Europe with the Enterprise 202030, CSR Europe's flagship initiative to address European and global challenges to achieve smart, sustainable and inclusive growth. Enterprise 2020 current goals are to increase the integration of sustainability into business models and management of companies while also being a platform for collaboration with stakeholders and a catalyst for innovation to build a sustainable and inclusive society in Europe and beyond. Moreover, this movement works in order to engage with the European institutions about strategies to drive the global sustainability agenda, and has the ultimate goal of becoming a recognized global leader business network. There is also the current effort for the introduction of the American Public Benefit Corporation (PBC) Model in the European company environment, which the Italian Società Benefit Model serving as an admirable example of that determination. As for the role of the Millennial generation, recent surveys show that they consider that businesses do not prioritize issues that matter to them and, despite realizing that profits are both a priority and a necessity, they also believe that business success should be more than just financial performance31. What 30 Since its launch in 2010, Enterprise 2020 has become the European movement for companies committed to developing innovative business practices and working together with their stakeholders to provide solutions to existing and emerging societal needs. In response to the European Union’s Europe 2020 strategy, the Enterprise 2020 initiative addresses sustainability issues, which are increasingly bringing into question our current patterns of living, working, learning, communicating, consuming and sharing resources. In 2015, in response to the urgent need to address unemployment, climate change and demographic changes in Europe, this Movement launched the Enterprise 2020 Manifesto. The Manifesto called on businesses and governments to work together and take action on three strategic priorities during the five years leading up to 2020: Make employability and inclusion a priority across boards, management and value chains; Stimulate companies to engage as committed partners with communities, cities and regions to develop and implement new sustainable production methods, consumption and livelihoods; Put transparency and respect for human rights at the heart of business conduct. This movement, brought together by CSR Europe, already includes more than 40 National Partner Organisations and over 10,000 companies across Europe. For more information, see CSR Europe. Our strategy , The European Business Network for Corporate Social Responsibility . Retrieved from https://www.csreurope.org/about-us/our-strategy (last time consulted: 22/02/2019) 31 A recent international survey by Deloitte also found that millennials believe that corporations should set out to achieve a broad balance of objectives that include: Making a positive impact on society and the environment; Creating innovative ideas, products and services; job creation, career development and improving people’s lives; An emphasis on inclusion and diversity in the workplace. For more information, see Deloitte. (2018), The Deloitte Millennial Survey 2018: Millennials disappointed in business, unprepared for Industry 4.0 . Retrieved from https://www2.deloitte.com/global/en/pages/aboutdeloitte/articles/millennialsurvey.html (last time consulted: 28-11-2018). A Deloitte’s 2015 Millennial Survey had already concluded that 7,800 future leaders from 29 different countries considered that the business world was getting it wrong, with around 75% of them saying that they felt businesses were focused on their own agendas rather than improving society. For more information on Millennial’s opinions, see also Poswolsky, A. (2015), What Millennial Employees - 30 - B Lab Role Developed Model Legislation, works for its passage and use, offers free reporting tool to meet transparency requirements; No role in oversight, however, when choosing a third party standard, many companies choose B Lab. Certifying body and supporting 501c3, offering access to Certified B Corporation logo, portfolio of services, and vibrant community of practice among B Corps; * Delaware Public Benefit Corporations are not required to report publicly or against a third party standard. - 31 - 2.2 How many Benefit Corporations are there in the USA? According to James Woulfe45, Benefit corporations are creatures of state law, and since it is not certain that each state will expertly record the number of benefit corporations operating in the state, it is difficult to exactly determine how many of them are active. While some states, like Oregon and Connecticut, allow the public to track the number of active benefit corporations in the state in real time, other states are less transparent and the data concerning the number of active benefit corporation’s may only be available by special request. Nevertheless, the best data we can have on the number of benefit corporations in the U.S. comes from B Lab who periodically reaches out to Secretaries of the State around the country, inquiring about the number of active benefit corporations in each state, and listing them on its website. Therefore, as of 6th July of 2018, B Lab unofficial count was approximately 5400 total Public Benefit Corporations in the U.S46. 45 James Woulfe is the Director of Government Affairs at the Connecticut Group, LLC, a full-service government affairs and public relations firm. For more information on his articles, see WOULFE, J. (2018), How Many Benefit Corporations Are There in the U.S? SocEntPolicy. Retrieved from http://www.socentpolicy.com/how-many-benefit-corporations-are-there-in-the-u-s (last time consulted: 02/04/2019) 46 Related with the PBCs topic, in April 2019, B Lab announced that it had more than 2800 Certified B Corporations all over the world. For more information on B Lab Total Certified Corporations, see B Lab Europe and Luís Amado Twitter on B Corps. Retrieved from https://bcorporation.eu/about-b-lab/countrypartner/portugal (last time consulted: 15-04-2019) - 32 - Chapter II The Public Benefit Corporation Model in Delaware - 33 - 1. Delaware Corporate Environment One feature of the U.S. corporate law environment that always generates curiosity between outside observers and newcomers is the predominance, on the legal landscape, of the Delaware law. This peculiarity generally concerns a main question, as to why companies are drawn to Delaware in the first place47, as more than one million48 business entities have made Delaware their legal home. There is a clear perception that there is an advantage to incorporating there, but what are those perceived advantages? As if answering this particular question, Lewis S. Black wrote49, “ (…) Of the corporations that make up the Fortune 500, more than one-half are incorporated in Delaware ”. The author continued to explain that there are various reasons for companies to select Delaware to incorporate. Ranging from all the history and tradition surrounding Delaware Corporation Law to the fact that it is “one of the most advanced and flexible corporation statutes in the USA”50. Lastly, the action of its Courts, in particular, the Court of Chancery51, and the state legislature, which includes the Secretary of State’s Office helps to strengthen the fact that “ Delaware law is the gold standard 52”. The Delaware General Corporation Law (Title 8, Chapter 1 of the Delaware Code) is the statute governing corporate law in the U.S. state of Delaware and is considered the most important jurisdiction in the United States corporate law since the early 20th century. Delaware corporate law decisions often have applications for both private and public company clients, especially nowadays as fewer companies go public and as large, sophisticated private companies become increasingly prevalent. As stated by Leo E. Strine53, in Delaware, the aspects of company law such as competition law, labor law, trade, and requirements for the filing of regular 47 In 2015, Delaware had approximately 60% of publicly traded companies in the United States incorporated there, including 63% of the Fortune 500 companies and over 90% of companies that incorporate outside of their principal state of operations making Delaware their state of incorporation. For more information, see ANDERSON, R.; MANNS, J. (2015), The Delaware Delusion , Columbia Law School’s Blog on Corporations and the Capital Markets. Retrieved from http://clsbluesky.law.columbia.edu/2015/08/03/the-delaware-delusion/ (last time consulted: 23-02-2019) 48 Delaware Division of Corporations. Retrieved from https://corp.delaware.gov/aboutagency/ (last time consulted: 22/03/2019) 49 For more information on why corporations chose Delaware, see BLACK, L. (2007), Why Corporations Choose Delaware , Delaware Department of State, Division of Corporations. P.3 50 As Black writes, “(…) It includes the Delaware General Corporation Law which is one of the most advanced and flexible corporation statutes in the nation ”. P.3 51 The Delaware Court of Chancery is a unique 220-year-old business court that has written most of the modern U.S. corporation case law. 52 For more information, see DORFF, M. (2017), Why Public Benefit Corporations? Delaware Journal of Corporate Law (DJCL), Vol. 42, Forthcoming; Southwestern Law School Research Paper No. 2016-10. Available at SSRN: https://ssrn.com/abstract=2848617. P. 4 53 For more information regarding Leo E. Strine views on Delaware Corporate Law and its challenges, see STRINE, L. (2005), The Delaware Way: How We Do Corporate Law and Some of the New Challenges We (and Europe) Face , Delaware Journal of Corporate Law, Vol. 30, No. 3, pp. 673-696. Available at SSRN: https://ssrn.com/abstract=893940 - 34 - disclosures to public investors, are not part of Delaware's corporation law. Instead, Delaware corporation law governs is only focused on the internal affairs of the corporation specializing on the form of contract law that governs the relationship between corporate managers (the directors and officers) of corporations, and the stockholders. 1.1. Challenges to Delaware Position Nevertheless, there are several challenges to the Delaware current dominance role regarding corporate law, and in the most recent years, many scholars and economic analysts have put forward that Delaware’s competitive position is eroding. For instance, in 2013, an article from The Economist, one of the most important and influential economic journals in the world, praised Delaware for its well-developed body of company law and the expertise of its judges but warned about existing threats to its dominance. Such threats were identified as the losing of attractiveness regarding company litigation, corporate scandals that tend to prompt bouts of rulemaking by the Securities and Exchange Commission (SEC) and lawmaking by the U.S Congress, and the fall in the number of big public firms, because of excessive litigation and red tape54. One criticizing example of the Delaware dominance is “The Delaware Delusion”55, a paper by Pepperdine University Law Professor Robert Anderson IV and George Washington University Law Professor Jeffrey Manns. In their paper, the two authors disagree with the exceptional importance of Delaware and argue about Delaware’s dominance of the incorporate market56. The results presented in their proposition seem to suggest that lawyers engage “(...) in default decision-making based on Delaware’s past preeminence, rather than actively weighing the value-added Delaware and other states offer to their clients ”. In addition, the authors propose that this default decision making does not 54 For more information, see The Economist. (2013), Delaware’s corporate courts: A new judicial boss . Retrieved from https://www.economist.com/business/2013/11/23/a-new-judicial-boss (last time consulted: 23/03/2019). Ultimately, Delaware’s main threat and competitor in making corporate law is the USA Federal Government. Indeed, Mark J. Roe, one of the most important authorities on this matter, claims that the US Federal Government can easily displace State corporate law, and, consequently, “ (…) Delaware players have reason to fear that if they misstep, they will lose their lawmaking business ”. See ROE, M. (2005), Delaware’s Competition , Harvard Law Review, 588. Available on https://www.questia.com/library/journal/1G1-133777271/delaware-s-politics (last time consulted: 29-04-2019) 55 After analysing an eleven-year data set of mergers (from 2001 to 2011) these two legal scholars found that “ financial markets place no economically consequential value on Delaware law relative to that of other states ”. For more information, see ANDERSON, R.; MANNS, J. (2014), The Delaware Delusion . North Carolina Law Review, Forthcoming. Available on SSRN: https://ssrn.com/abstract=2500465 56 After analysing an eleven-year data set of mergers (from 2001 to 2011), the authors found that financial markets placed no economically consequential value on Delaware law relative to that of other States. - 35 - necessarily serve the interests of corporate clients57. They denote the existence of a default-to-Delaware mentality in which “(…) Lawyers appear to turn to Delaware because it is the law they are most familiar with ” while assuming markets value Delaware law and regard it as a “(…) safe default that does not trigger pushback from corporate managers ”. Regarding the stakeholder’s role in Delaware incorporated companies, Lenore Palladino, Senior Economist and Policy Counsel and Kristina Karlsson, a Program Associate at the Roosevelt Institute, criticize the fact that stakeholders of corporations chartered in Delaware, such as employees or creditors, have no political voice in the creation of Delaware corporate law. They also condemn that Delaware corporate law is solely dependent on the political will of the Delaware voters, whose population composed of less than one million people, is “(…) fewer in numbers than the total number of hourly employees at Walmart ”. Their comparison is a clear critic on the dominant position concerning corporations’ resolutions that such a small American State holds. Lastly, the improper58 ruling in Shawe v. Elting59, in which the Delaware Supreme Court held that the Court of Chancery properly exercised its equitable powers under Delaware’s custodian statute when, upon finding the presence of shareholder and director stalemate, appointed a custodian to sell a massively profitable corporation to a third party60. According to Dershowitz61, this decision set a new and dangerously 57 Both Anderson and Manns regard it as a disservice to clients, in the macro sense. Since the markets do not care about corporate law, it makes little difference where the company is incorporated in the micro sense. Thus, lawyers are not really harming individual clients by choosing Delaware. Nevertheless, they consider that these micro-level decisions lead to an overall dysfunction that harms all businesses, and indeed society as a whole by undermining competition. For more information, see ANDERSON, R. and MANNS, J. (2015), The Delaware Delusion , Columbia Law School’s Blog on Corporations and the Capital Markets. Retrieved from http://clsbluesky.law.columbia.edu/2015/08/03/the-delaware-delusion/ (last time consulted: 23-02-2019) 58 77 Md. L. Rev. 900 (2018). The court trivialized the irreparable harm requirement of Section 226(a) (2) and declined to holistically review the case law cited by the Court of Chancery in support of its proposition that irreparable harm may be deemed to encompass damage to “(…) a corporation’s reputation, goodwill, customer relationships, and employee morale .” The court also failed to recognize the unprecedented nature of a custodial sale absent stockholder consent and instead made a sweeping determination, without due consideration of less intrusive and incremental alternatives, that the Court of Chancery correctly concluded that whole sale was the only viable way to “excise” Shawe and Elting’s dysfunction. For more information, see SAMAHA, S. (2018), Shawe v. Elting: The Imperfect Sale of TransPerfect Global, Inc . Maryland Law Review, Volume 77. Available at https://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=3796&context=mlr (last time consulted: 07-02-2019) 59 157 A.3d 152 (Delaware, 2017). In Shawe v. Elting, the Delaware Supreme Court held that the Court of Chancery properly exercised its equitable powers under Delaware’s custodian statute when, upon finding the presence of shareholder and director deadlock, it appointed a custodian to sell a massively profitable corporation to a third party. 60 In the litigation that ensued, the Court of Chancery found that the deadlock between Shawe and Elting satisfied the threshold requirements of Section 226 of the Delaware General Corporation Law (DGCL) and appointed a custodian to force a sale of the multi-million dollar corporation to a third party, despite Shawe’s objections. 61 For more information, see DERSHOWITZ, A. (2017), Should Your Company Incorporate In Delaware? Not So Fast , Forbes. Retrieved from https://www.forbes.com/sites/janetnovack/2017/10/27/should-your-company-incorporate-in-delaware-not-so-fast/#1dcf51eb723d (last time consulted: 03-02-2019) - 36 - disruptive precedent that corporate America ought to view with concern. Since, for the first time ever, the Court of Chancery, the no-jury “business court”, has ordered the forced sale of a privately held, thriving corporation over the objections of shareholders who own half of the company. This action has brought a great damage to Delaware’s supremacy as America’s capital of incorporation, and it may seem that unless this situation is remedied by legislation, corporations may have to think twice before incorporating in Delaware, especially “(…) if they want predictability, fairness and justice ”. Despite these challenges, most corporation’s and their lawyers continue to consider Delaware the most significant U.S. state with respect to corporate law62, the State of Delaware continues to be a leading domicile for USA and international corporations and Delaware preeminent position will not change in the near future. For that reason, it is clear that the most significant recognition of the mission-driven PBC as a viable and capable vehicle for social and environmental impact was its acknowledgment by the state of Delaware. 62 Corporate lawyers and businesses that seek access to capital and public markets look to Delaware for well-established case law, a modern statute, and a pro-business legislature. For a comprehensive discussion of Delaware’s prominence in corporate law, see BLACK, L. (2007), Why Corporations Choose Delaware , Delaware Department of State, Division of Corporations. The author remarks that there is no doubt that Delaware has the most complete and most responsive legal regime for corporate entities, whether publicly traded or not. Thus, when the decision to incorporate or reincorporate is made and the lawyer faces the question of where is the most complete, responsive and least ambiguous set of rules for the entity, Delaware becomes the rational choice, which is why Delaware is so dominant. - 37 - 2. The Delaware Public Benefit Model In July 2013, Delaware enacted Sections 361-368 of the Delaware General Corporation Law (DGCL), providing for the incorporation of socially and environmentally conscious public benefit corporations. Most significantly, on 1 August 2013, the amendment to the Delaware General Corporation Law became effective, permitting entities to incorporate as a Public Benefit Corporation, allowing companies to commit themselves to more than revenue generation. The section 362 of the DGCL states that a Public Benefit Corporation is a for-profit entity “ intended to produce a public benefit or public benefits and to operate in a responsible and sustainable manner ”. The statute name of the entity must include either Public Benefit Corporation or PBC. However, Delaware decided not to adopt B Lab’s model statute and, as a result, this decision led to some sensible variations from B Lab’s model. One important difference is the entity’s title, while B Lab (and the majority of the American states) use the term “Benefit Corporation”, Delaware employs the term “Public Benefit Corporation” (term in use during this thesis when referring to any kind of Benefit Corporations). As Michael B. Dorff remarks, Delaware already had a “(…) successful formula before adopting PBC legislation ”63. As a result, the question as to why did Delaware felt the need to adopt this type of benefit corporation statute may well arise. According to Dorff, the two purposes for Delaware Governor Jack Markell passing the PBC legislation were “ (…) to allow corporations to institutionalize a social purpose, thereby helping the public, and to fill the market for a form of business organization that permits this ”. Moreover, Delaware Corporate Statutes, unlike most legislation, often originates with a committee of the Delaware State Bar Association: the Corporation Law Council of the Corporation Law Section. PBC legislation followed this pattern with the “Council” concluding that Delaware ought to offer businesses the flexibility to adopt social goals64. Furthermore, some members of the Council believed that benefit corporations could influence all corporations to operate more sustainably and responsibly. This is evidenced by the fact that, unlike every other corporation in Delaware, under which it is a matter of common law development, Delaware PBC statute provides an articulation of directors’ duties. It states that the “(…) board of directors shall manage or direct the business and affairs of the public benefit corporation in a manner that balances the pecuniary 63 As stated by Dorff, “ (…) Delaware already had a successful formula before adopting PBC legislation: it was the leading state for corporate law and the state of choice for incorporations, especially for public companies ”. For more information, see DORFF, M. (2017), Why Public Benefit Corporations? Delaware Journal of Corporate Law (DJCL), Vol. 42, Forthcoming; Southwestern Law School Research Paper No. 2016-10. Available at SSRN: https://ssrn.com/abstract=2848617. P. 11 64 See the “Council” views in Dorff, supra note, at page 13. - 38 - interests of the stockholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefit or benefits identified in its certificate of incorporation ”65. Another reason for the adoption of the PBC legislation by Delaware is the need to keep the Delaware General Corporation Law updated with the most recent Company Law Models. The adoption of the PBC Model not only demonstrated Delaware willingness to update its legal framework with the most recent trends but also granted Delaware a renewed attractiveness allowing the State to capture demand from impact investors and stockholders who champion ideals beyond simply profit maximization, and for whom the mission of the company is one of their main concerns. These factors are of most importance if Delaware wants to strengthen its position as a leader regarding company’s incorporation. 2.1. Becoming a Benefit Corporation In order to become a Benefit Corporation, the shareholders of the company must vote in favor of becoming a Benefit Corporation and change the articles of incorporation so that the company will pursue the purpose of creating general public benefit. In the event the company pursues a specific public benefit, this additional information may be included in the articles of the incorporation. They do not require any type of specific certification from B Lab or other third party. In short, changing the status of the Company to a Benefit Corporation that holds itself accountable to its stated public good requires both a top-down and bottom-up focused effort resulting in clearly expressed and measurable goals that are shared in such a transparent way that clients and employees understand how the changes affect their everyday work. The shareholders of the benefit corporation can later vote to terminate the benefit corporation status (by a 2/3 supermajority vote) and if the company fails to show a commitment to working towards these public goals, it can lose its public benefit status. 2.1.1. Differences from other types of companies 65 DGLC, 363, section a. - 39 - Despite the more social focus of a PBC, in every other manner, the structure of a Delaware Public Benefit Corporation mirrors the organization of the other Delaware traditional for-profits corporations. Additionally, many other types of companies already commit some of their profits to charitable events and endeavors, without being legally considered a benefit corporation. Consequently, the main difference is that, despite those companies contributing with charitable donations in a voluntarily basis, their financial commitment can change from year to year depending on the shareholders decisions. Whereas through the Public Benefit Corporation they will be committed to dedicating their resources, funds or both toward its chosen public benefit, and shareholders cannot halt or reduce the commitment from year to year. Nonetheless, in a PBC, management should regularly refer back to the company’s identified public benefit purpose and assess how the company is pursuing mission. To sum up, Delaware Public Benefit corporations have, as stated by former Delaware Governor Jack Markell66, “ three unique features that make them potential game changers ”. Concerning corporate purposes, it ensures that public benefit corporations “ serve the best long-term interests of society while it creates value for its stockholders ”. On the accountability, PBCs are “ required to meet a tri-partite balancing requirement consistent with its public benefit purpose ”. Finally, on the transparency issue, they are obliged to “ report on their overall social and environmental performance, giving stockholders important information ”, that provides assistances to investors in order “ to aggregate capital more easily as they are able to communicate more effectively the impact, and not just the return, of their investments ”. 2.1.2. Non-Profit Corporation vs Public Benefit Corporation 66 For more information see: MARKELL, G. (2013), A New Kind of Corporation to Harness the Power of Private Enterprise for Public Benefit, Huffington Post . Retrieved from https://www.huffingtonpost.com/gov-jack-markell/public-benefitcorporation_b_3635752.html?guccounter=1 (last time consulted: 26-052018) - 46 - is a need to inform investors and entrepreneurs of the PBCs potentials in order for them to grow more familiar with this new company model83. Another major reason is the lack of case law for Public Benefit Companies, mostly due to their early age. Since these corporate entities are very recent, there is not any noteworthy amount of case law clarifying how courts will interpret the requirement for PBCs to balance their profits with their stated purpose or purposes. This uncertainty, as opposed to the substantial amount of court opinions for other types of companies, especially in Delaware, may be a detractor for investors who fear that potential litigation could not only cost the corporation a significant amount of money, but also hold up funding rounds or exits. There is also the growth in paperwork required to operate, as PBCs need to be more transparent about their activities and prove that they are adhering to their defined social mission84. For companies that do decide to become PBCs, this added paperwork may serve as a disadvantage when competing against other business types that do not have to follow those transparency requirements. Lastly, Public Benefit Corporations need greater access to startup financing resources because their social value intentions make finding traditional startup funding difficult due to lower projected returns in investment. 83 See Schmitt, supra note 81. 84 Public Benefit Companies also risk losing their PBC status if it is found clear that they are not following their stated public benefit mission/goal. - 47 - 3. Kickstarter – A Delaware Public Benefit Corporation As a leading example that there is a sustainable alternative to the pursuit of profit above all else, in 2015, Kickstarter converted85 from Kickstarter Inc. to Kickstarter PBC, a Public Benefit Corporation86 (re-incorporated in Delaware). Kickstarter hardcoded its mission into the company’s charter, along with commitments to always support art and artists, to operate in accordance with the firm’s values, and to donate 5% of its post-tax profits to arts education and organizations fighting inequality87. In 2017, eight organizations committed to building a “more creative and equitable world” received the donations, they were Film Society Kids, The Lamp, The Landromat project, Little Kids Rock, NYC Books through Bars, Sylvia Rivera Law Project, Black Girls Code, and the Bronx Freedom Fund. The company maintains a global crowdfunding platform focused on the mission to “ help bring creative projects to life ” and has reportedly88, received more than $3.7 billion in pledges from 14.7 million backers to fund 404,129 creative projects, such as films, music, stage shows, journalism, video games and technology. As stated by the Kickstarter founders in the company blog89, the “(…) idea of a for-profit company pursuing social good at the expense of shareholder value had no clear protection under U.S. corporate law, and certainly no mandate ”. In their opinion, Benefit Corporations are “(…) o bligated to consider the impact of their decisions on society, not only shareholders ”. Finally, because of these obligations, “(…) positive impact on society becomes part of a Benefit Corporation’s legally defined goals ”. To sum up, it is interesting to acknowledge that Kickstarter considers in its 2017 Benefit Statement that after becoming a Public Benefit Corporation, they understood that governance was becoming more and more critical, as industry standards failed to consider much more than a company’s own self-interest. For that reason, it added several commitments to its charter related with Kickstarter’s terms of use, personal data and privacy policies, taxes transparency, and took steps to limit its environmental footprint. In 2017, formed an environmental impact working group to analyze how the 85 More than 100 shareholders, including current and former employees, as well as investors, voted to allow Kickstarter to convert to a PBC, giving up their right to legally compel the company to focus on maximizing profitability. For more information on Kickstarter as a Public Benefit Company, see CHEN, P. (2018), Kickstarter Is a PBC . Here’s What That Means and Why It Matters . Kickstarter. Retrieved from https://medium.com/kickstarter/kickstarter-is-a-pbcheres-what-that-means-and-why-it-matters-d90b2389ea6c (last time consulted: 14-01-2019) 86 For more information, see: Kickstarter. Retrieved from https://www.kickstarter.com/about?ref=global-footer (last time consulted: 28-05-2018) 87 For more information, see Kickstarter. Kickstarter PBC 2017 Benefit Statement. Retrieved from https://d3mlfyygrfdi2i.cloudfront.net/181119_PBC_Report_PDF_Master.pdf (last time consulted: 14-01-2019) 88 The last data available was retrieved in 30 May of 2018. For more information see: https://www.kickstarter.com/help/stats (last time consulted: 30-052018) 89 For more information, see: https://www.kickstarter.com/blog/kickstarter-is-now-a-benefit-corporation [Accessed on 04-07-2018] - 48 - company’s may be able to have more scalable impact given its position as an intermediary, with a plan to roll out new initiatives in that area before the end of 2018. - 49 - Chapter III The Public Benefit Model in Europe - 50 - 1. Public Benefit in Europe As we know, in the USA, Benefit Corporations are a recognized legal entity, working alongside traditional for-profits and non-profits companies. In Europe, while Certified B Corps are already present90 and already more than 500 companies in continental Europe and the United Kingdom are Certified B Corps, Benefit Company advocates are still working towards obtaining a legal status and ample recognition throughout the old continent. Related with this initiative, B Lab Europe91, which oversees the growth of the Benefit movement in Western Europe, and B Lab UK92 are two of the most important advocates for the Public Benefit Corporation movement, promoting and exchanging the social benefit concept throughout Europe. In fact, despite its great number of social projects headed for a sustainable social market economy, centralized in the Europe 2020 strategy93 and the Enterprise 2020 Movement94, the European Union has failed to integrate the Public Benefit Model on its current strategy. However, with the current relevance of non-profit organizations such as cooperatives, and especially social enterprises95 which also 90 As of April 2019, B Lab Europe (341) and B Lab UK (172) accounted for 513 of the 2801 Certified B Corps in the world, denoting the importance of Europe and European companies to this movement. For more information on B Lab Total Certified Corporations data, see B Lab Europe and Luís Amado Twitter on B Corps. Retrieved from https://bcorporation.eu/about-b-lab/country-partner/portugal (last time consulted: 15-04-2019) 91 Since B Corp Europe was launched in April 2015, it has been promoting and exchanging views and ideas with various companies. One of those companies is Mondora, in Italy, a company that aims to be a source of inspiration for its clients by spreading the knowledge of the company’s “(…) unique approach towards work and software development”. Mondora favours local and rural communities, and recruits team members primarily from these areas, granting its employees flexible working hours, telecommuting and job sharing. For more information about Mondora views on what it means to be a B Corporation, see RUFFONI, K. (2015), Mondora as a B Corporation - What it means and why we do it . Retrieved from https://mondora.com/#!/post/91f63b6f0bdac406e1d6c3e1eecf6cd5 (last time consulted: 03-04-2019) 92 Lab UK was founded in 2013 by two entrepreneurs, both of whom were founders of B Corps -Charmian Love, CEO of Volans and James Perry, Director and co-founder of COOK Food. 93 A 10-year economic strategy, Europe 2020, goal is to boost European economy and promote a smart, sustainable and inclusive growth, based on a greater coordination of national and European economic policy. The initiative aims to pave the way for the creation of new jobs and a better quality of life, setting a vision of Europe’s social market economy for the 21st century and putting forward three mutually reinforcing priorities: Smart growth: developing an economy based on knowledge and innovation; Sustainable growth: promoting a more resource efficient, greener and more competitive economy; Inclusive growth: fostering a high-employment economy delivering social and territorial cohesion. For more information regarding Europe 2020 strategy, see EFESME. Europe 2020: A strategy for smart, sustainable and inclusive growth. Retrieved from http://www.efesme.org/europe-2020-a-strategy-for-smart-sustainable-andinclusive-growth (last time consulted: 12-04-2019). See also European Commission. Europe 2020 strategy . Retrieved from https://ec.europa.eu/info/business-economy-euro/economic-and-fiscal-policy-coordination/eu-economic-governance-monitoring-preventioncorrection/european-semester/framework/europe-2020-strategy_en (last time consulted: 12-04-2019) 94 As we already approached this topic during the Thesis introduction, the Enterprise 2020 is a European movement for companies committed to developing innovative business practices and working together with their stakeholders to provide solutions to existing and emerging societal needs, addressing sustainability issues that question our current patterns of living, working, learning, communicating, consuming and sharing resources. 95 With similar goals to the Public Benefit Companies, Social Enterprises meant, as stated by the Social Business initiative of 2011, “(…) to achieve social impact rather than generating profit for owners and shareholders ”, using the surplus to achieve the enterprise stated social goals. Following up on those objectives, the Social enterprise is “(…) managed by social entrepreneurs in an accountable, transparent and innovative way, in particular by involving workers, customers and stakeholders affected by its business activity ”. As corroborated by Carlo Borzaga, Sara Depedri and Giulia Galera, the defining features of - 51 - aim to “(…) to effect social and economic transformation which contributes to the objectives of the Europe 2020 Strategy ” (The Social Business initiative, 2011, p.4), a question emerges. Does the European Union or the various European countries have a need for this new type of company model? The 2018 edition of Smarter, greener, more inclusive? — Indicators to support the Europe 2020 strategy96 validates the need to improve the efforts on employment97, showing that although “(…) substantial progress has been made in the areas of climate change and energy, as well as in education” , the “(…) targets on R&D investment, employment and poverty alleviation are still at a distance (…) ” (Executive Summary, p. 8). Indeed, despite being generally positive98, the publication identifies many issues such as poverty, social exclusion and education, particularly the acquisition of skills such as reading, math and science in which the “ (…) progress has taken a step backwards ” (Executive Summary, 2018, p. 95). As the publication notes, the success of the Europe 2020 strategy crucially depends on Member States coordinating their efforts, however, much of the eventual “effort” results from company’s actions and that is where the introduction of a Public Benefit Corporation Model could give a welcome assistance, potentially relieving to some extent these issues. This effort from companies should be focused on the small and medium-sized enterprises (SMEs) since, according to the European Commission, they represent “ (…) 99% of all businesses in the EU ”99. social enterprises are the goals pursued and the production modalities adopted, rather than simply the goods and services they produce. Consequently, a varied and increasing number of initiatives are defined as social enterprises, including those supplying social services, those promoting ethical financing, micro-credit and fair trade, and generally those producing goods and services with goals other than profit. For more information on the main features of Social Enterprises, see European Economic and Social Committee. (2012), Social Business Initiative , INT/606-EESC-2012-1292, COM (2011) 682 final. Retrieved from https://www.eesc.europa.eu/en/our-work/opinions-information-reports/opinions/social-business-initiative (last time consulted: 20-03-2019). See also BORZAGA, C.; DEPEDRI, S. and GALERA, G. (2012), Compreendendo negócios sociais. SsiELO. ISSN 0080-2107. Available on http://www.scielo.br/scielo.php?script=sci_abstract&pid=S0080-21072012000300005&lng=en&nrm=iso&tlng=pt (last time consulted: 26-02-2019) 96 The 2018 edition of Smarter, greener, more inclusive? — Indicators to support the Europe 2020 strategy monitors progress towards the targets and goals defined under the three mutually reinforcing priorities of smart, sustainable and inclusive growth. The data used comes mainly from official statistics produced by the European Statistical System and disseminated by Eurostat. It covers the period from 2002 or 2008 up to the most recent year for which data are available (2016 or 2017). For more information about this publication, see European Commission. (2018), Smarter, greener, more inclusive? — Indicators to support the Europe 2020 strategy — 2018 edition . Retrieved from https://ec.europa.eu/eurostat/web/products-statistical-books/-/KS-02-18-728 (last time consulted: 12-04-2019) 97 The Europe 2020 strategy has a set out target of increasing the employment rate of the population aged 20 to 64 to at least 75% by 2020. It has also has set the target of lifting at least 20 million people out of the risk of poverty or social exclusion by 2020 in comparison to the year 2008. For more information, see European Commission. (2014), Taking stock of the Europe 2020 strategy for smart, sustainable and inclusive growth , COM 130 final. 98 For instance, the publication reports an increase on employment rates and states that the EU is fulfilling some of the requirements for 2020, such as the greenhouse gas emission reduction target. Despite recognizing that the EU is lagging behind in education (reading, maths and science), it notes a clear and continuous decrease in early school leaving. 99 To see the definition, and what factors determine the distinction of a company as a SME, see European Commission. What is a SME? Retrieved from https://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition_en (last time consulted:13-04-2019) - 52 - We will now see more specifically what type of response has the United Kingdom given to the “social benefit trend” and in what way has the recent Italian experience brought some urgently needed responses about how the PBC Model could be implemented in Europe. Finally, we will try to understand in what manner can the PBC Model function in the Portuguese company’s legal framework, analyzing the existing Portuguese companies and, with the support of interviews with five distinct Portuguese companies, present a brief analysis over the matter. Thereby, this approach may well be an important element to further comprehend how the Delaware PBC Model could work in a national and European perspective. - 53 - 2. The United Kingdom Social Enterprises Not only is the United Kingdom one of the most important places of incorporation, especially for companies in Europe, its social economy is seen as one of the world’s most developed. In fact, according to the United Kingdom Department for International Trade, “(…) more companies locate their businesses in the UK than anywhere else in Europe ”100, and it appears that “ (…) both the UK Government and industry are keen to cement the UK’s position as a global center for the social economy ”101. As a result, it was most expected that the UK would introduce changes in its legal framework with respect to the general increase regarding concerns with the social and environmental issues. Certainly, within the past years, there have been several notable statutory developments in the UK that have sought to widening the amount of options that investors and consumers may consider when making business decisions. In fact, the United Kingdom jumped into the hybrid corporation area with the introduction of the Community Interest Company (CIC) in 2004, and has created incentives such as the Social investment tax relief (SITR)102 to encourage individuals to invest and support social enterprises. Moreover, the Social Enterprise UK (SEUK), a national membership body for social enterprises, has many ongoing programs that strive to support social enterprises, such as the Buy Social Corporate Challenge (BSCC)103, which looks for CICs that are able to supply products or services to SEUK corporate partners. 100 For more information, see: UK Department for International Trade. Retrieved from https://www.gov.uk/government/publications/why-overseas-companiesshould-set-up-in-the-uk/why-overseas-companies-should-set-up-in-the-uk (last time consulted: 08.09.2018) 101 For more information on the UK position about developing social economy, see HM Government. Social Investment: the UK as a global hub 2016 International strategy . p.6. Available on https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507060/6.1806_CO_HMG_International_strategy_ FINAL_web__3_.pdf 102 Social investment tax relief (SITR) is the government’s tax relief for social investment, which seeks to encourage individuals to support social enterprises and helps them access new sources of finance. For more information on how investors benefit from it, the requirements needed to be eligible and other information, see GOV.UK. (2016), Social investment tax relief . Retrieved from https://www.gov.uk/government/publications/social-investment-tax-relieffactsheet/social-investment-tax-relief (last time consulted: 08-09-2018) 103Launched in 2016 by Social Enterprise UK, the BSCC goals are to help large businesses go beyond their typical Corporate Social Responsibilities and diversity their core operations, while allowing social enterprise suppliers to grow their revenues and impact. For more information regarding the Buy Social Corporate Challenge, see DALY, A. (2019), CICs and their relationships with corporate partners , Blog Community Interest Companies, GOV.UK. Retrieved from https://communityinterestcompanies.blog.gov.uk/2019/04/11/cics-and-their-relationship-with-corporate-partners/ (last time consulted: 19-04-2019) - 54 - As a further matter, the Social Enterprise: Market Trends 2017 report104 key findings seem to be generally positive towards Social Enterprises (SEs)105 activities. The Government report accounts an estimated 471,000 UK social enterprises, made up of 99,000 social enterprises with employees and 371,000 social enterprises with no employees, employing approximately 1.44 million people (Social Enterprise: Market Trends 2017, p. 8). It identifies 22 per cent of the UK small business population (1.21 million enterprises) as socially oriented SMEs106, which have social/environmental goals but do not use surplus/profit chiefly to further these goals and that may be referred to as mission-led businesses. The most important aspect of the report is the expectation for growth over the next years and the fact that Social Enterprises are more likely to innovate than SME employers. Finally, while the report also considers the perceived obstacles for their success107, it seems to place SEs in a very good position regarding investment, and prospects for the future. On the other hand, although the UK includes companies that obtain external certification as B Corps as part of the “social sector organizations” 108 (Social Investment, 2016, p. 10), it does not have a 104 The report included 1300 businesses owners and managers as respondents, and was commissioned jointly by the UK Department for Digital, Culture, Media and Sport and the Department for Business, Energy and Industrial Strategy. While claiming that social enterprises “appear more vulnerable to changes in the public sector”, the report traces a positive image for social enterprises, especially when compared with small and medium-sized enterprises (SMEs). According to Alice Sharman, the report found that social enterprise employers tend to be more sustainable and more dynamic businesses in certain respects, with nearly all social enterprise employers having generated surplus/profits in 2016, compared to three quarters of small and medium-sized enterprises (SME) employers. It also revealed that social enterprise employers were more likely than SME employers to try and access information on day-to-day operations or strategic advice to help grow the business. In fact, 35 per cent social enterprises did this compared to 21 per cent SME employers. For more information, see SHARMAN, A. (2017), There are 471,000 social enterprises in the UK, government report finds . CIVILSOCIETY. Retrieved from https://www.civilsociety.co.uk/news/there-are-471-000-social-enterprises-in-the-uk-government-report-finds.html#sthash.AizPrVNI.dpuf (last time consulted: 12-04-2019) and the report in Department for Digital, Culture, Media and Sport; Department for Business, Energy and Industrial Strategy. (2017), Social Enterprise: Market Trends 2017 . Available on https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/644266/MarketTrends2017report_final_sept2017. pdf 105 The criteria used by the Report to identify Social Enterprises follows the aspects related with the (i) company’s income: Share of income from trading/commercial activities at least 50 per cent; (ii) Use of surpluses/profits: Rules/restrictions to use surpluses/profits chiefly to further social/environmental goals or past surpluses/profits are chiefly used to further social/environmental goals; (iii) Organization goals: Type of social or environmental goals that the organisation/business has and whether social/environmental goals are of greater or equal concern compared to financial goals; (iv) Charitable status & legal form: Using the standard SBS questions asking for charitable status and legal form. For more information, see the Annex D – Index Approach to Identifying Social Enterprises, on page 67 of the Report. 106 The report identifies SMEs as enterprises within the small business population that are neither traditional non-profits nor social enterprises. 107 Similar to SMEs (with a few exceptions), the report states that the top three reported obstacles for social enterprise employers are competition in the market (61 per cent), regulations/red tape (58 per cent), taxation (49 per cent) followed by recruitment/skills (39 per cent), workplace pensions (28 per cent) and the UK exit from the EU (28 per cent). Social Enterprise: Market Trends 2017. p.9. 108 As defined by the Social Investment: a force for social chance 2016 strategy, social sector organizations are a range of organization types that have a firm commitment to achieving and measuring their social impact. This includes organisations which have an external body that oversees that commitment (such as charities, community interest companies and community benefit societies) as well as businesses that make that commitment in other forms, such as through their governance, business model or external certification (public service mutual or B Corps). For more information, see HM Government. Social - 55 - Public Benefit Corporation Act or even seems to be considering adopting such a type of Model on the near future. In spite of that, the UK has two corporate forms, the Community Interest Company and the Company Limited by Guarantee, that, due to the features and limitations placed on them, are considered as the category of companies directed for socially minded investors that wish to incorporate in the UK. However, should they be considered as similar answers for companies as the American PBC Model who certifies companies that strive to promote a public benefit while operating in a responsible and sustainable manner? We shall now examine them to see the answer. Investment: a force for social chance 2016 strategy . Available on https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/507215/6.1804_SIFT_Strategy_260216_FINAL_w eb.pdf - 62 - As we can see, the Italian Società Benefit shares some common features with the American PBC Model, and in a general way, the Italian law has implemented the three fundamental characteristics of a regular American Public Benefit Company Model while diverging from the Delaware PBC Model. The Italian Stability Law of 2016 describes a Società Benefit as available to for-profit and lowprofit businesses (does not restrict it to traditional corporations). Registering as a Società Benefit entails the pursuit of economic activity through a blending of profit maximization with the realization of one or more common benefits. A common benefit is interpreted as a positive effect or the reduction of a negative effect on one or more of the following categories: people, communities, territories, the environment, cultural heritage, social activities, public or private organizations or associations and other stakeholders. In this way, the list seems to be non-exhaustive through the wording of “and other stakeholders.” A Società Benefit must also operate in a responsible, sustainable and transparent way. Additionally, the SB must alter the corporate purpose provision(s) of its constitution, to specifically include a list of the common benefits that will be pursued. Equally, its directors have an obligation to consider non-shareholder constituencies’ interests127. The Stability Law of 2016 also identifies relevant nonshareholder communities as employees, customers, suppliers, lenders, creditors, government and society. Like the requirements of the American PBC, a Società Benefit must draft an annual benefit report (still different than the Delaware PBC that only requires reporting to shareholders biennially and not to the public). 127 The item 381 of the Italian Stability Law mentions that the failure of achieving the company’s purposes (discussed on item 380) can make managers liable in the same way as directors are liable regarding their general responsibilities in "traditional" corporations: “ The breach of obligations under paragraph 380 above, may be deemed as a breach of the duties imposed by the applicable laws and the by-laws upon the directors of the company. In the event of breach of the obligations under paragraph 380 above, the relevant provisions of the Civil Code regarding directors’ liability shall apply ”. For more information, see the Italian benefit corporation legislation, Law 28 from December 2015, No. 208, article 1, paragraphs 376 to 384. Retrieved from https://www.sistemab.org/wp-content/uploads/2016/02/Italian-benefit-corporation-legislation-courtesy-translation.pdf (last time consulted: 02-15-2019) - 63 - 3.2. Differences between the American and Italian Approaches Despite the similarities between the two models, there are four major areas where the American and the Italian approaches significantly diverge. First, the Società Benefit must list in the statutes the specific benefit activities (in order to ensure that the social purpose is respected) and specify how the directors aim to achieve them. It is considered that this might better combat corporate greenwashing, since it forces Società Benefits to operate both in a responsible, sustainable and transparent way and pursue one or more explicit common benefits. Neither the US standard PBC Model nor the Delaware PBC Model require a benefit corporation to explicitly list a specific public benefit purpose in the articles of association. Secondly, contrary to the American approach, Italy has entrusted the Competition Authority (AGCM) with the competence of controlling the actual pursuit of the common benefits and the power to fine the Benefit companies that fail to accomplish it. This means that if a Società Benefit fails to pursue the stated common benefit(s), the company is subject to the provisions of the Italian Consumer Code rules on misleading advertising, which is policed by the Competition Authority. The American PBCs (including Delaware) do not contain any such enforcement mechanism, aside for shareholders’ power to bring a benefit enforcement proceeding. Regarding this issue, Liptrap claims that “(…) the available reporting data is clear that US benefit corporations’ pursuit of a specific public benefit purpose has thus far been unsatisfactory, and shareholders remain the only constituency with a right of action against the directors of a benefit corporation if they fail to do so”. For the researcher, this situation “(…) might suggest that, in the US, the social purpose aspect of a benefit corporation is still only secondary to profit maximization ”128. Third, directors’ responsibilities are, at least prima facie, considerably more onerous in a Società Benefit . The Model Benefit Corporation Legislation frees directors from personal liability for an act or a failure to act as it relates to the creation and realization of a general public benefit or specific public benefit. In a Società Benefit , directors must actively protect non-shareholder constituencies’ interests. A SB constitution must also identify an “impact director” responsible for the pursuit and realization of the common benefits. In the annual report, the impact director responsible must describe the specific objectives, methods and actions taken to pursue the common benefits, as well as any circumstances that 128 For more information, see VALSAN, R. (2017), The Legacy of B Lab: Italy’s Società Benefit . Retrieved from http://www.ecclblog.law.ed.ac.uk/2017/03/31/the-legacy-of-b-lab-italys-societa-benefit/ (last time consulted: 21-12-2018) - 64 - might have prevented completion. The annual report also requires the impact director responsible to identify how the specific objectives will be pursued in the following year. A contravention of any of these requirements would constitute a breach of fiduciary duty under the existing corporate law which otherwise governs traditional for-profit businesses in Italy. It would also make a director personally liable129 under the already discussed Italian Consumer Code penalties provided for misleading commercial advertising. Fourth, as it was stated above, the Stability Law 2016 allows for-profit and low-profit businesses to become a Società Benefit . In the US, only traditional for-profit corporations can register as a benefit corporation. Consequently, the US approach excludes hybrids and quasi-charitable businesses from becoming a benefit corporation. By virtue of this distinction, the required “SB” or “ Società Benefit ” designation next to a business’ name might be better understood as a creature of legal status, rather than an entirely different corporate form like its US counterpart. In fact, the scope of the law applies not only to for-profit companies, but also to limited-profit companies (co-operatives, limited companies and mutual companies pursuing common benefits with limited profit distribution). Overall, the Italian Società Benefit seems to be stricter on the enforcement of the PBCs stated missions, since, besides other requirements, they are obliged not only to report, but also to measure the impact generated by their activities using an external standard assessment, independent, credible and transparent, taking into account the areas related to corporate governance, employees, environment, etc. Additionally, the attachment 4 of the Italian Stability Law provides that the evaluation shall be carried out by an external and trustworthy entity and comprise the analysis of the company's governance, including its responsibility and transparency towards the social purposes, labor and environmental aspects, and the impact on other stakeholders, like suppliers and community. While it does not mention specific indicators for this assessment, in Pires opinion, it is likely that Società Benefits will use recognized standards, such as the Global Reporting Initiative (GRI) and B Lab international standard B Impact130. 3.3. The Società Benefit – Final Assessment 129 The Società Benefit must prepare annually a report (to be attached to the yearly financials) where it assesses the impact of its activities on the general public benefit. The report must be published on the SB’s website and must include: (i) a description of the ways and actions implemented by the directors to pursue general public benefit during the year and any circumstances that have hindered or delayed its creation; (ii) an assessment of the SB’s performance determined taking into account the standards outlined in the EAS; (iii) a section outlining the new goals that the SB wants to achieve in the following year. 130 For further reading regarding the differences between the American and Italian approaches on the Benefit Corporation Model, see PIRES, A. (2017), The fourth sector and the benefit companies: a comparative analysis between the American and the Italian models . University of Milan. SSRN - Social Science Research Network Available on https://www.clflegal.com/uploads/outros/publicacoes/2/4e90980560dc6687d75316cf1d3f0839.pdf (last time consulted: 12-04-2019) - 65 - Although the Società Benefit model shares a great amount of features with the American PBC Model, we cay say that the SB has chosen a path of its own, with stricter enforcement rules and more requirements for companies who become a SB than a typical Delaware PBC, and a larger accessibility for other company types. While the Italian Model has only been active in Italy since 2016 and is still very much in a period of infancy with very few empirical data to examine with regard to its market reception, the introduction of the SB model in Italy has already led to some positive changes in the Italian corporate environment. There is now an increased concern on the part of executives to demonstrate the aspects of sustainability in their governance. On the other hand, it has also opened an important precedent in the civil law that will pave the way for more conceptual approaches and discussions in relation with how Public Benefit Corporations should function. Additionally, this precedent could lead to more changes, especially in how other European countries see Public Benefit Companies capacity of addressing the same issues that the attempts of “imposing” CSR’s on companies131 and other types of companies like the Social Enterprise fails to solve, that is to put into effect companies addressing their inherent social responsibilities to their respective communities. The importance of this Model in Italy is understated, indeed, as it was mentioned above, if the Società Benefit Model continues to grow both in the number of Benefit companies and in relation to the public awareness of what is a Public Benefit, this new Italian law could very well inspire similar legislation in other European countries. 131 In the opinion of Stéphanie Ursula Looser, the scope, purpose, and legitimacy of assumed positive relationship between CSR activities and financial performance CSR is vague, under-researched, and subject to context. For more information on Looser work, see LOOSER, S. (2018), Intrinsic and Extrinsic Corporate Social Responsibility , Cambridge Scholars Publishing, Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK 978-1-5275-1374-7. - 66 - 3.4. Società Benetit as an attractive Model to Companies Following this model, there are two most important questions that need to be questioned. First, will the Società Benefit be an attractive vehicle to social entrepreneurs who are accustomed to the European cooperative model of social enterprise? Second, will more socially minded investors, not so worried about profit maximization, be interested in a blended value business model, which does not feature a profit distribution restriction? As of July 2018, around 200 companies had adopted this new Italian legal form, and according to Fior and Landini132, 52% of the Benefit companies came from business services (35,3%) and management consulting (16,8%) areas. This numbers reinforce the idea that Public Benefit Companies acquire an important competitive advantage in the market, especially in specific market sectors where the customers base their decisions on the expertise and corporate reputation. For these two authors, reporting that the company operates in a sustainable way and that it is concretely committed to maximizing the well-being for its employees and for the surrounding community can be an element of differentiation in the market and an element of attractiveness for new generations, who have a greater sensitivity to the intrinsic quality of work. The key differences between the Public Benefit Corporation and the Società Benefit are set forth below in Table 2, which was done by me with the facts collected during the research. 132 For more information, see FIOR, A.; LANDINI, A. (2018), Quante sono le Società Benefit in Italia? Fondazione CUOA. Retrieved from https://www.cuoaspace.it/2018/07/quante-sono-le-societa-benefit-in-italia.html (last time consulted: 10-02-2019) - 67 - Table 2: Comparison between the Public Benefit Corporation and the Italian Società Benefit Subject Benefit Corporations Società Benefit Legal Status A new corporate form available for other firms to incorporate as a PBC Not a corporate model per se but a legal status that allows companies to adopt and become a SB Impact Measurement Impose measurement as a legal requirement, but does not define the indicators to proceed with the measurement Impose measurement as a legal requirement, but does not define the indicators to proceed with the measurement Tax regime No additional tax benefits No additional tax benefits Directors Responsibilities Directors free from personal liability for an act or a failure to act as it relates to the creation and realization of a general public benefit or specific public benefit Directors personally liable under the Italian Consumer Code with penalties due to misleading commercial advertising Accountability Directors required to consider impact on all stakeholders. Some States require that benefit corporations elect a benefit director and a benefit officer (the benefit director may serve as the benefit officer) Required to identify an “impact director” responsible for the pursuit and enforcement of the common benefits. Must describe the specific objectives, methods and actions taken to pursue the common benefits, as well as any circumstances that might have prevented completion and identify how the specific objectives will be pursued in the following year - 68 - Transparency Must publish public annual (biannual in Delaware) benefit report. In some States it has to include an assessment of the company's overall assessed against a third party standard Must list in the statutes the specific benefit activities and specify how the directors aim to achieve them. Has to publish a public annual report of overall social and environmental performance assessed against a third party standard Third-Party authority Third party standard setters do not have the authority to revoke its benefit corporation status Third-party standard setters could revoke its Benefit status through a judicial process with a declaratory action for not obtaining the authorizing requirements, observing the principle of contradictory and ample defense. Performance Self-reported. In case of failure to perform its stated goals only the shareholders’ have the power to bring a benefit enforcement proceeding If it fails to pursue the stated common benefit(s), the company is subject to the Italian Consumer Code rules on misleading advertising Availability Available only to for-profit corporations in 33 U.S. states and the District of Columbia Available in Italy for low-profit and for-profit businesses, which includes cooperatives, limited companies and mutual companies with limited profit distribution - 69 - Cost State filing fees from $70-$200 A fee on registration – Unknown amount. 3.5. The AFAM - Municipal Pharmaceutical Company of Florence The Pharmacies Florentine Afam SpA (AFAM) is a very interesting case to look at because it was the first public-private joint-venture company to become a Public Benefit Company in Europe. The fact that this type of company with public participation has become a Benefit Corporation while expressing in its statute its mission to provide services to the people and promote the 'conscious health’ could - 70 - potentially suggest that in Italy the most suitable corporate model for the pursuit of public benefit, in particular in municipalized companies might be the Benefit Company. According to the Company home site, the Municipal Pharmacies of Florence changed its corporate form to confirm its social and health commitments, being in line with the new possibility in the Italian corporate system: the Benefit Company. In the words of Florence Mayor Nardella, having become a Benefit Corporation is a “ (…) small revolution ” because the Company “ (…) will no longer have to look only at the aspects of profit and turnover, which are still business objectives, but will have to look to the public benefit that the activity of pharmacy management leads throughout the territory ”133 . Therefore, the change in its statute134 expresses the company’s own mission of servicing the community and promoting conscious health, making the pharmacy paradigm evolve. AFAM included in its statute some specific impact areas of common benefit with which they intended to pursue together with the exercise of their business economic activity, such as (1) the Community, where it made available a range of services to protect people's health guaranteeing continuity, quality of service, and a good number of responsible services. (2) Search Support – The Company committed to integrate with other health institutions and institutions in order to encourage research activities in collaboration with universities, hospitals and other institutions through the facilitation and structuring of care and prevention pathways for the majority of the population. (3) Loose Categories - AFAM vowed to offer dedicated support services for therapies for the most fragile categories through social integration laboratories, voucher for the free dispensation of medicines to vulnerable groups, etc. (4) Sustainability – As their first demonstration of the action taken to improve sustainability, the Company donated two electric cars to Florence Municipality, etc.135 Most importantly, AFAM zero-year report from the international standard B Impact Assessment from B Lab (a summary evaluation referring to 2017) clearly demonstrates how the company has incorporated its social and environmental goals while accessing the overall impact since AFAM became a Società 133 For more information on AFAM decision to become a Public Benefit Company, see Farmacie Comunali Firenzi. Le Farmacie Comunali Firenze diventano Società Benefit: Una visione di bene comune che va oltre il profitto . Retrieved from http://www.farmaciecomunalifirenze.it/it/notizie/le-farmacie-comunalifirenze-diventano-societ%C3%A0-benefit-una-visione-di-bene-comune-che-va-oltre-il-profitto/ (last time consulted: 03-02-2019) 134 The article 4 from AFAM’s statute denotes the company’s commitment as a Società Benefit , “ As a Benefit Company, the company intends to pursue multiple purposes of common benefit and operate in a responsible, sustainable and transparent manner towards people, territory, environment and other stakeholders. The guiding principles in providing personal services are: equality, impartiality, continuity and participation ”. 135 This are just some of the examples provided. For the complete data, see Città di Firenze. (2018), Le farmacie comunali diventano società benefit, presentato il cambio di forma societaria di AFAM . City of Florence. Retrieved from https://www.comune.fi.it/comunicati-stampa/le-farmacie-comunali-diventano-societabenefit-presentato-il-cambio-di-forma (last time consulted: 03-02-2019) - 71 - Benefit . While the company’s impact could be higher (the company obtained from B Lab 85.7 points, from a total of 200 points), it is indeed a good prospect for a more responsible future136. 136 See the full report in Farmacie Comunali Firenzi. (2018), Impact Report Year Zero . Available on http://www.farmaciecomunalifirenze.it/it/societ%C3%A0trasparente#2943 (last time consulted: 03-02-2019) - 78 - companies to adopt for-benefit goals into their statutes and make their contributions permanent, as stopping would risk losing the Public Benefit seal and damage the company’s public image. This would then generate an increased concern/effort on the part of companies to demonstrate the aspects of sustainability in their governance while avoiding a complete and costly change on the company activities and traditional goals. This seal would require an annual evaluation by the Municipality and, as with Delaware PBCs, would have no other third-party evaluation as a requirement since that would oblige corporations to use the services of the few "established and recognized" providers of such services, with the most renowned and already present in Europe being B Lab. In fact, as B Lab certification fees ranges from $500 to $50,000, depending on the company’s size, a requirement for a third-party standard evaluation would essentially be an imposed tax on for-profit Benefit Corporations for a benefit assessment based on B Lab standards and not the requirements set by the Municipalities. The second path, and the one who seems most unlikely at the present moment, would be the creation of a Public Benefit statute by initiative of the Portuguese government, but still not as a new company model. I do not believe that an independent PBC Model such as in Delaware would work in Portugal since most companies would refrain from changing their statutes and would prefer to obtain the already referred PB seal, which has the potential to be easier to obtain and more general for all types of companies. This would require a concerted effort by the Portuguese government and would be dependent not only on the government capacity to draft such a statute but also on the existing political will. To conclude, as long as Portuguese companies measure their results in terms of positive impact on their community and on the environment with the same completeness and rigor adopted for demonstrating their economic and financial results, these two suggested adaptations to the PBC Model would have no issues working in Portugal. Still, the first option could perfectly function as a testing ground for the Portuguese government to see how local companies would perform with the adoption of this status and provide important data to support the initiative before being applied on a broader, preferentially, national scale. - 79 - Chapter IV Final Considerations and Recommendations - 80 - 1. Should a new European legal framework be the answer? It is a fact that Europe has already legal forms that address social issues such as the Social Enterprises and the European Cooperative Society155 that are already present and active in Europe with events to discuss these issues, such as the SME Forum156. Nevertheless, these legal forms do not have the general approach that a Public Benefit status can have, in the way that as long as the company adopts the requirements to be a Public Benefit Company, every company can become one without changing much of its structure and purpose. In fact, the aims of the Benefit Corporation Model are not as completely altruistic as the Social Enterprises, whose primary objective is to achieve social impact rather than generating profit for owners and shareholders. On the contrary, the Benefit Corporation purpose is complementing one that allows the traditional companies to pursue their traditional goals while producing a public benefit. As Michael A. Hacker states157, the Public Benefit Model “(…) is a necessary and progressive evolution in corporate law ”, and to recognize and support it as a legitimate model should be one of the European Union measures during its developments of European Company Law. Sadly, the EU already failed to take the lead in the PBC efforts in Europe when it allowed Italy to become the first country, besides the USA, to adopt a Public Benefit Model. However, for all intents and purposes, such a concept as the Delaware Public Benefit Corporation should be pursued by the EU and be followed with subsequent legislation, which would give a noticeable impetus to the Benefit Corporation initiative and be, indeed, a positive response for the future of the movement in Europe. 155 The European Cooperative Society (SCE) is an optional legal form of a cooperative that aims to facilitate cooperatives' cross-border and trans-national activities. The members of an SCE cannot all be based in one country. To see the main characteristics of the SCE, see the European Commission. The European Cooperative Society (SCE) , Cooperatives. Retrieved from https://ec.europa.eu/growth/sectors/social-economy/cooperatives/europeancooperative-society_en (last time consulted: 12-04-2019) 156 Created in 2010, the SME Forum is a platform for dialogue and understanding between SMEs, social enterprises and financial institutions, to discuss the problems they face and find ways in which they can work together for the future. 157 For more information regarding Michael A. Hacker writings, see HACKER, M. (2016), “ Profit, People, Planet” Perverted: Holding Benefit Corporations Accountable to Intended Beneficiaries , Boston College Law School. Rev. 1747. Retrieved from http://lawdigitalcommons.bc.edu/bclr/vol57/iss5/7 (last time consulted: 12-04-2019) - 81 - 2. Should the integration of the PBC Model be left to be gradually and individually introduced by the European Union Member-states? In my opinion, this would not be the ideal situation. Since the need for creating and testing a new theoretical framework that considers the way in which diverse enterprises pursue their goals, with diverse motivations and the different learning patterns and routines within organizations would probably be an integration that would take much more years than one promoted by a concerted effort of the European Union. It would still be a solution than would place the Public Benefit initiative in a better position than the current one, with each European country at liberty to adapt the Model to its own requirements and corporations’ types, as well as taking into considerations the country’s different values and cultural characteristics for companies. To fully achieve the goals of the Benefit Corporation legislation in Europe, Member-States should enhance the third-party standard setting requirements and allow for greater flexibility in enforcement, consequently reducing the risk of companies incorporating as benefit corporations simply as a deceptive marketing tactic. - 82 - 3. Conclusions As we have seen, due to Delaware dominant position on corporate law, the introduction of the Public Benefit Corporation Model in Delaware was considered a great success for the PBC initiative. Nevertheless, due to its features, such as no requirement for the biannual report to be released to the public, the lack of a third-party evaluation requirement and no requisite for companies to be specific about the public benefit they generate, it is clear that compared with the standard PBC Model legislation, the Delaware Model still favors the persecution of profit to the loss of a social mission. On the other hand, the continuity of the Public Benefit Corporation Model in Delaware already has a significantly positive effect for the increasing awareness of this type of companies and the goals they promote. Indeed, despite the fact that Delaware is one of the USA States with the lesser number of requirements regarding PBCs accountability, it is also the State with the largest number of PBCs incorporated. As the number of Delaware PBCs continues to increase, more companies will feel encouraged (in the long run they may even start to be pressured by the public and/or their consumers) to aim for more social benefits to their surrounding community and take further steps at their social responsibilities’ efforts. In Italy, the Società Benefit Model is already seen as a new revolutionary step with companies like AFAM Municipal Pharmaceutical Company that by changing its corporate form became the first public-private joint-venture company in Europe to become a Benefit Company158. Pelatan and Randazzo consider that the next step is to wait for the response of the market. We should thus hope that the Società Benefit will become a suitable vehicle for entrepreneurs that want to do business in a sustainable and inclusive way, while also being attractive to investors looking for business models capable of generating both economic gains and social benefits. Finally, if this model thrives in Italy, see if the Italian experience can generate a “domino” effect among other EU Member States. Concerning the Public Benefit Model, researchers such as Sabeti159 and Pires have called this new model a part of a new “fourth sector” due to the way it seeks to embrace profit seeking with a social drive. For these authors, Public Benefit Companies would be a welcome increment of the social missions 158 As mentioned previously, the AFAM Municipal Pharmaceutical Company ( Farmacie Comunali Firenze ), by changing its corporate form, became the first public-private joint-venture company in Europe, as well as the first network of pharmacies in the world, to become a Benefit Company. For more information see https://www.comune.fi.it/comunicati-stampa/le-farmacie-comunali-diventano-societa-benefit-presentato-il-cambio-di-forma (last time consulted: 21-072018) 159 Heerad Sabeti refers the growing number of innovators and socially concerned investors that have been pushing against the boundaries that separate forprofits, nonprofits, and governments as the “emergence of the fourth sector”. For more information, see SABETI, H. (2011), The For-Benefit Enterprise , Harvard Business Review. Retrieved from https://hbr.org/2011/11/the-for-benefit-enterprise (last time consulted: 12-04-2019) - 83 - drive in companies, with the new “fourth sector” framework suitable to interpret the emergence and role of nontraditional forms of companies that are not driven by the profit motive and are mainly recognized in the legal forms as cooperative firms, non-profit organizations and social enterprises. However, I disagree on the need to create an entire new sector to include these new types of companies that seek both a social mission and profit. Instead, we should concentrate efforts on increasing company’s emphasis on their social responsibilities and benefit purposes. As for the PBC impact on the traditional company models, according to Catarina Serra160, it is clear that the PBC Model could go further than the historical notion and traditional interpretations of the Latin jurisdictions (in which the Portuguese law conforms to) of only for-profit companies. However, the difficulty will be on how to assess the impact of the European Public Benefit Company and how its values/mission would be implemented. That will be indeed the most difficult aspect of a European PBC. For corporate society, this steady but solid growth of alternatives represents an emerging challenge to the historic dominance of the shareholder-centered incorporated entity and a necessity on the discussion of how to incorporate social value into traditional business operations. As the rise of B Corporations and Public Benefit Corporations demonstrates, corporations can be consistent with a core value of capitalism, generating more returns to investors through enhancing firm value and shareholder wealth with efforts to reform and evolve industry standards, which require changes to the fundamental purpose and legal form of an organization. Even when viewed outside of a short-term perspective, social interests and shareholder interests are often closely aligned. Obviously, corporations do not expect to succeed by consistently neglecting the expectations of their employees, customers, suppliers, creditors and local communities. As such, researchers like Palladino seem to prefer a change in corporate law so that all corporations would be obligated to create a general public benefit. Such measure could at minimum, allow some ability to challenge corporate externalities that have disastrous social consequences but would bring a new set of questions. For instance, how would all the corporations be accessed on the public benefit they create if all of them are supposed to be promoting one? Moreover, if the public only for-profit corporation is no longer the default organizational form for businesses, but rather one of many alternatives, how will managers be prepared to ensure long-term competitiveness? 160 Catarina Serra focus on this topic in her article “A aplicação do artigo 980.º do Código Civil às sociedades comerciais – Sobre a (remanescente) utilidade da definição de contrato de sociedade para a estabilização da categoria da sociedade comercial” in Nuno Manuel Pinto Oliveira / Agostinho Cardoso Guedes (coord.), O Código Civil 50 Anos Depois: Balanço e Perspectivas – I Colóquio de Direito Civil de Santo Tirso, Coimbra, Almedina, 2017, pp. 401 – 404. - 84 - Despite the general interest in introducing the PBC model in Europe, some issues still bring concerns about its application in Europe. Because even though Public Benefit Corporations are increasing in the USA, much uncertainty remains as to how the US Benefit Corporation Model will develop in Europe, besides Italy. Another issue will be how to clearly establish a differentiation between Benefit Corporations and other social enterprises in Europe that already follow a social mission and are able to seek profits161, as there is some overlap between Benefit Corporations and the European social entrepreneurship and social enterprises. Furthermore, a notable aspect of the EU’s “Europe 2020” strategy involves an increased focus on social entrepreneurship to further Single Market integration. Particularly, the European Commission (EC) has focused on the conceivable potential of social cooperatives to create more jobs. To this end, the EC has proposed the creation of both a harmonized regulatory regime and a network of regional investment funds to broaden the use of social cooperatives from the national level to the regional level. If these policy suggestions are implemented, will the Italian experience and the Delaware Public Benefit Model proliferate among other EU jurisdictions, and if so, will the European Union respond positively to this development by expanding its goals to account for Benefit Corporations, after the Europe 2020 strategy? If these questions are not positively answered, it might be the case that the Benefit Corporation initiative could be relegated to an inconsequential area of the economy (at least in Europe), and support Schmitt opinion, that PBCs “(…) only exist to force a discussion around how social considerations should fit into every business ”. Although I differ from his idea, I do consider that PBCs have brought an increase on that type of discussion, mostly due to their own merit for allowing typical for-profit companies to pursue something more than just profits. Lastly, even if not supported by the EU, PBCs will continue to be a viable and smart option for companies that wish to distinguish themselves from their competitors and ensure a commitment to a social mission while operating as a for-profit business. To conclude, I am bound to finish this thesis with the same supposition as Schmitt. That the business world needs to reach a point in which every business, nonprofit or for-profit, operates with social consciousness, and the fact that we are still fighting for these basic social considerations clearly shows how much more room for improvement our business system currently has. Although my considerations about the importance and the future role of Public Benefit Companies are different from Schmitt notions162, 161 Like the UK Social Enterprises or the Portuguese Cooperative, although the profit seeking is in a limited degree, they are generally compared due to the social mission requirement. 162 Schmitt writes that PBCs are not necessary as an entity type and will likely not stand on their own for long. SCHMITT, P. (2016), Public Benefit Corporations: Pushing the Social Venture Discussion . P. 27-28. - 85 - I do agree with him in regarding the PBCs as representing a very significant step for our society and complement it with the impression that not only are they important, they are also needed. - 86 - References Books/Doctrine/Reviews ALEXANDER, F. (2018), “ Benefit Corporation Law and Governance: Pursuing Profit with Purpose” , BerretKoehler Publishers, Inc. 1333 Broadway, Suite 1000, Oakland CA. BLACK, L. 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APPENDICES Appendix A: Interview One-Pager (sent out in advance) New to Europe - Public Benefit Corporations Created in the United States of America, the Public Benefit Corporation is a new corporate form that requires a business to declare, promote, and annually or biannually report an official social purpose, while also allowing the distribution of profit to its owners. Nowadays, there is the American PBC Model, with more emphasis on the Delaware Model, and since 2016, the Italian Società Benefit that did not actually create a new company form but a statute that is given to companies that follow the stipulated requirements to be a Benefit Company. Why are Public Benefit Corporations special? Public Benefit Corporations, which officially pursue a social purpose and a profit for its owners at the same time, are capable of meeting the goals of both charitable and for-profit investors. While investors with a more social benefit focus can be assured that their social goals will be continuously considered and promoted by the company, for-profit investors can be given ownership in the company and receive distributions from the company’s profits. - 100 - Appendix B: General results of the Interviews In order to have more insights on the current situation in Portugal regarding the Public Benefit initiative and how Portuguese companies perceive their social responsibilities, the dissertation author interviewed five companies. Concerning the companies’ characteristics, one is a microenterprise and the other are classified as small and medium sized enterprises. Four are limited liability companies with one of them being a Certified B company by B Lab. The other is a Portuguese cooperative. Their business areas range from public and private construction, machined components, intermediation services in the social investment market, textile materials and cultural projects. Their economic activities are centered in the secondary and tertiary sector. From the resulting interviews with the five Portuguese companies, it was clear that none of the companies had heard about the Public Benefit Concept, neither the American Model nor the Italian Model. Regarding the social benefit mission, two of the companies (both limited liability companies) considered that Portuguese Foundations are mostly used as ways to escape taxes by bigger companies and another one (also a limited liability company) considered that Cooperatives and Foundations do not provide sufficient response to the current social issues. Besides the Cooperative (which already pursues a social mission and benefits the surrounding community), two of companies actively help their community, supporting two or more charity organizations. About the implementation of a Public Benefit Company Model in Portugal, the certified B Company considered that all Certified B Companies in Portugal have interest in supporting this type of initiatives. The company said that the reason for becoming a B Corp was to get international recognition and to persecute the company’s social responsibility. Moreover, it pays €500 annually for receiving the B Certification from B Lab, and claims a lack of immediate benefits from being a B Corp. The company considers that every effort for the introduction of a Portuguese PBC Model should be promoted. When presented with the possibility of potential increase in the company’s bureaucracy costs, three of the companies said that they would still be interested in becoming a Public Benefit Company. For the other two, one is a cooperative that already follows a social mission, and the other considers that it would not be interested due to the possible costs, claiming that it should be something for bigger companies, with a more significant impact. Nevertheless, it should be noted that the company who replied to not be interested is currently recovering from the last economic crisis and is following a recovery plan - 101 - for the company, which places some pressures on the amount of money it can spend for reasons besides profit seeking.