Page 30 - Delaware Lawyer - Fall 2022

FEATURE | PEACEFUL COEXISTENCE?
address the full panoply of ESG initiatives.
Delaware’s PBC statute is among the
most flexible: it promotes the concept of
private ordering that characterizes many
Delaware entity statutes.34 Directors of
Delaware PBCs owe no fiduciary duties
to non-stockholder stakeholders and,
with respect to the statutory balancing
requirement, the directors benefit from
a codified business judgment rule.35 Al-
though a PBC must give its stockholders
a biennial written statement regarding the
corporation’s promotion of its chosen
public benefits, it is not required to ob-
tain third-party certification of such per-
36
formance. Finally, only the stockholders
may file suit to enforce the statutory bal-
ancing requirement, and then only if they
37 have sufficient “skin in the game.”
Benefit corporations give investors who pursue an ESG strategy an oppor- tunity to earn financial wealth and to satisfy their non-financial investment ob- jectives.38 The number of publicly traded PBCs to date is small, given the admin- istrative difficulties that corporations face in defining a suitable mission.39 However, that number is increasing: currently, there are at least 30 publicly traded benefit cor- porations in global markets.40 To the ex- tent benefit corporations continue to go public, the outcome could be a win-win: directors would feel comfortable framing their companies’ business models around ESG objectives with reduced litigation risk, and like-minded investors will be able to achieve both financial and non- financial returns.
Kurt Heyman of Heyman Enerio Gattuso & Hirzel LLP poses with a portrait of himself with the author.
Conclusion
The ESG “movement” has gained momentum in recent years, particularly among institutional investors. The real question is how to satisfy investors’ pro- social and environmental goals, and their desire for enhanced stock values, within the Delaware corporate law framework. The General Assembly has done its part by enacting the stockholder-oriented pub- lic benefit corporation statute. As for the Delaware common law, which has only begun to address ESG concepts, cases like McRitchie may provide further guidance to directors of regular business corporations on the extent to which the shareholder pri- macy model can accommodate investors’ interest in coupling wealth maximization with other goals.
NOTES
1. Martin P. Thomas & Mark W. McElroy, The Multi-Capital Scorecard: Rethinking Organiza- tional Performance 1 (2016).
2. Colin Myers & Jason Czarnezki, Sustainable Business Law? The Key Role of Corporate Gover- nance and Finance, 51 Environmental Law 991, 996, 998 (2021).
3. Thomas & McElroy, supra note 1, at 32.
4. Celeste Polley, “ESG vs. CSR: What’s the Difference?” https://thesustainableagency.com/ blog/esg-vs-csr (Feb. 10, 2022).
5. Myers & Czarnezki, supra note 2, at 998.
6. Dorothy S. Lund & Elizabeth Pollman, The Corporate Governance Machine, 121 Colum. L. Rev. 2563, 2566 (2021).
7. https://www.unpri.org/about-us.
8. https://www.unglobalcompact.org.
9. Sanjai Bhagat, “An Inconvenient Truth About ESG Investing,” https://hbr.org/2022/03/an- inconvenient-truth-about-esg-investing (Mar. 31, 2022).
10.Michael Iachini, “How Well Has Environ- mental, Social, and Governance Investing Per- formed?” https://www.schwab.com/learn/sto- ry/how-well-has-environmental-social-and-gov- ernance-investing-performed (Sept. 10, 2021). 11. Bhagat, supra note 9 (emphasis in original). 12.Tensie Whelan, Ulrich Atz, Tracy Van Holt & Casey Clark, CFA, “ESG and Financial Per- formance: Uncovering the Relationship by Ag- gregating Evidence from 1,000 Plus Studies Pub- lished between 2015-2020,” https://www. stern. nyu.edu/sites/default/files/assets/ (2021)(white paper).
13. Leo E. Strine Jr., The Dangers of Denial: The Need for a Clear-Eyed Understanding of the Power and Accountability Structure Established by the Delaware General Corporation Law, 50 Wake Forest L. Rev. 761 (2015).
14. 493 A.2d. 946, 955 (Del. 1985).
15. 506 A.2d 173, 182 (Del. 1986).
16. Larry Hamermesh, Bart Houlahan, Rick Al- exander & Dan Osusky, A Conversation with B Lab, 40 Seattle U. L. Rev. 321, 327 (2017).
17. 930 A.2d 92 (Del. 2007).
18. 73 A.3d 17 (Del. Ch. 2013).
19. 73 A.3d at 37.
20. 16 A.3d 1 (Del. Ch. 2010).
21. 16 A.3d at 34.
22. 2021 Del. Ch. LEXIS 34, 2021 WL 754593 (Del. Ch. Feb. 26, 2021).
23. 2021 Del. Ch. LEXIS 34 at *63.
24. 2021 Del. Ch. LEXIS 34 at *64.
25. Del. Ch., C.A. No. 2022-0890-VCL.
26. Id. Compl., ¶12.
27. Id. Compl., ¶¶ 3-7.
28. Id. Compl., ¶¶ 32-33, 40-41, 65.
29. Frederick Alexander, “Lawsuit Against Meta Invokes Modern Portfolio Theory to Protect Diversified Shareholders,” https://corpgov.law. harvard.edu/2022/11/04/lawsuit-against-me- ta-invokes-modern-portfolio-theory-to-protect- diversified-shareholders (Nov. 4, 2022).
30. See, e.g., Hawkins v. Daniel, 273 A.3d 792, 808-09 (Del. Ch. 2022): “Under the Delaware model, stockholders are presumed to vote in their economic interest. The outcome of a [disinterest- ed] stockholder vote therefor aligns with the cor- porate goal of maximizing stockholder welfare. The maximizing of stockholder welfare in turn leads to the maximization of social welfare.”
31. 8 Del. C. §§ 361-368.
32. 8 Del. C. §§ 362(a), 365(a).
33. 8 Del. C. § 362(b).
34. See generally Frederick Alexander, Benefit Corporation Law and Governance: Pursuing Profit with Purpose (2017).
35. 8 Del. C. § 365(b).
36. 8 Del. C. §§ 366(b), (c)(3).
37. Generally, a 2% ownership interest or, for pub- lic PBCs, the lesser of a 2% interest or $2 million in market value. 8 Del. C. § 367.
38. Jacob E. Hasler, Note, Contracting for Good: How Benefit Corporations Empower Investors and Redefine Shareholder Value, 100 Va. L. Rev. 1279, 1306, 1311 (2014).
39. Hasler, supra note 38, at 1309-10.
40. https://seekingalpha.com/article/4520583- the-rise-of-investable-public-benefit-corpora-
tions; https://bcorporation.eu/news_article/b- corp-month-2022-behindtheb.
28 DELAWARE LAWYER FALL 2022