The Future or Fancy? An Empirical Study of Public Benefit Corporations

The public benefit corporation (“PBC”) is one of the most hyped developments in corporate law, due to the PBC’s unique social purpose. Unlike the traditional corporation, directors of PBCs are required under their fiduciary duties to consider the impact of their decisions on a range of stakeholders and communities. This new form is hailed by many as a framework for a reformed capitalism. Critics, on the other hand, have assailed PBCs as unworkable—at best allowing corporations to “greenwash,” providing a thin disguise for ordinary corporate profit-seeking behavior. What has been lacking in this debate is evidence about whether and how the new form is being adopted. We fill this gap with an empirical study of early-stage investment in PBCs. Earlystage investment, consisting of venture capital and similar funds, presents an interesting test case for PBC funding, because these investors have profit-maximizing incentives and fiduciary duties of their own. Using our novel dataset, we can discern whether for-profit investment is occurring in PBCs, and if so, whether it is different in kind from ordinary early stage investment. We find that PBCs are receiving investment at significant rates, and that funding is coming from typical sources of venture capital—including traditional, profit-seeking VC firms. We also find that VC firms are investing in more consumer-facing industries, as well as investing smaller amounts than traditional investments at the same stage, raising concerns about greenwashing. While the ultimate arc of the PBC remains uncertain, our results show that it is gaining acceptance as an investment that can earn an acceptable rate of return—though, as we argue, the PBC status itself may be a secondary factor in VCs’ decisions. We use these results to develop a theory of future PBC development, which asserts that in the medium term, investment in PBCs is likely to remain siloed in smaller, newly formed firms. We conclude that widespread adoption of the form will take time, as network effects build and experience with the form becomes embedded within the entrepreneurial and legal ecosystem. The PBC is not a failure. But it is in its infancy, and any full embrace will take a significant period of time.