What is a Public Benefit Corporation? And why we became one
We repeatedly stress that you should be very careful about your privacy: which companies you trust, and what (limited) personal data you should trust them with. But we also, paradoxically, need you to trust our company with some of that very same information, in order to be able to provide our services to you.
It’s not rare for corporations, even those that start out with ostensibly good intentions, to do morally and/or ethically dubious things in the name of profit margins – and then take cover behind the notion that corporations are legally mandated to maximize profits for shareholders. Sometimes a genuinely altruistic leadership team compromises its values to save a struggling company; sometimes a private equity fund comes in and ruins everything; sometimes, the do-gooder talk was all a cynical marketing ploy to begin with. But it all ends the same: with a company doing an about-face and abandoning ideals in favor of money.
Yorba’s goal is, genuinely, to make the Internet a slightly better place. We’ll hopefully figure out profits at some point, but right now we’re focusing on creating a useful and secure identity management product. We’re not some VC-powered endeavor out to snag some good will as a marketing tactic: we’re a self-funded company staffed by a handful of colleagues who wanted a tool to help get their data privacy under control and slim down the hundreds of online accounts we’ve accidentally accumulated over the years – and ultimately decided to build it ourselves.
To do so, we had to deal with an annoying conceptual problem. Across our app and website, we repeatedly stress that you should be very careful about your privacy: which companies you trust, and what (limited) personal data you should trust them with. But we also, kinda paradoxically, need you to trust our company – which you may just now be hearing about for the first time – with some of that very same information, in order to be able to provide our services to you.
So we incorporated as a Public Benefit Corporation. This blog post will cover what that means and why we did it – and how it should (hopefully) help you trust that not only is Yorba dedicated to doing the right thing now, but that profit motives won’t derail our mission in the future either.
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As we alluded to up top, corporations will often hide behind the notion of shareholder primacy when taking actions that sacrifice common decency in favor of maximizing profit margins. Consider the following opinion from Leo E. Strine, the Chief Justice of the Supreme Court of Delaware, where roughly 60% of Fortune 500 companies are incorporated:
“[A] clear-eyed look at the law of corporations in Delaware reveals that, within the limits of their discretion, directors must make stockholder welfare their sole end, and that other interests may be taken into consideration only as a means of promoting stockholder welfare.”
Essentially, courts have ruled that if a (conventional) corporation sacrifices shareholder profits in favor of doing the right thing, shareholders have a legal right to sue the company. In most states, including Delaware, company charters cannot conflict with the law. And since the law regarding conventional S-Corps and C-Corps is basically “C.R.E.A.M.,” that has meant that corporations – even the ‘good ones’ – have had no choice but to bend to the almighty dollar in the long run.
Enter the Public Benefit Corporation (PBC). A PBC is a for-profit incorporating structure, like a C or S Corp, available in 37 U.S. states, DC, and Puerto Rico. Most of those states explicitly require PBC’s to provide a “general public benefit” defined by “a material positive impact,” and to include these goals in their official governing documents. Simply put, Benefit Corporations are legally mandated to consider the greater good in all of their business decisions. This enables the company to also prioritize non-financial considerations – like the environment, and the well-being of the company’s community, employees, and customers – when making business decisions.
Benefit Corporations do not receive tax benefits, but they do receive protection: specifically, protection from being legally required to fixate on profit maximization above all else, and from being sued for caring about the welfare of the society we share. It has yet to be formally tested in court, but consider the words of Whole Foods CEO John Mackey, whose company was sold to Amazon after activist investors purchased an 8.3% share and forced a sale:
“I always thought B Corps were a good idea…but I really didn’t think it was necessary. You know, you have this stakeholder model, you take care of your stakeholders, what do you need this legal form for? We had activists come into our stock.…they wanted to force us into a sale. …Boy oh boy oh boy, did I wish we were a B Corp. …I would have loved to have tested the idea of shareholder activists versus the legal form of a Benefit Corporation.”
In essence: our governing documents legally enshrine our commitment to doing the right thing, and the PBC structure means that no outside entity – shady investors, private equity, Gordon Gekko types, etc. – can come in and derail our mission.
