Open Journal Systems

Although the major goal of traditional corporations is to maximize shareholder value, laws allow the establishment of specific types of corporations to pursue (additional) public benefits. In the United States, 37 states and the District of Columbia have passed legislation authorizing the incorporation of “public benefit corporations” (“PBCs”), also known as “benefit corporations.”[1][2] For example, under the Delaware General Corporate Law (“DGCL”), companies can be incorporated as PBCs. Despite being a for-profit corporation, a PBC is required to take into account the best interests of those materially affected by the corporation’s operation, and the public benefit(s) identified in its certificate of incorporation, in addition to the pecuniary interests of shareholders (DGCL 362). As a result, its directors are required to discharge their duties through balancing the interests of shareholders, other stakeholders, and the public (DGCL 362).

Although the United States PBCs have counterparts around the world, there are significant differences among them in terms of organization and governance issues. For example, in Japan PBCs include public interest associations and public interest foundations, whose establishment requires governmental approval. They mainly carry out government-sanctioned public interest projects overseen by corresponding governmental departments or agencies, enjoying certain preferential tax treatment.[3] The United Kingdom has the community interest company, a form of limited liability company serving the public good. The surplus of a community interest company is mainly reinvested to fulfill important social objectives of the business or the community.[4] This encompasses diverse forms including community enterprises, social forms, and cooperatives.[5] In China, there is no specific corporate form corresponding to PBCs. Nevertheless, state-owned or government-controlled companies might undertake similar functions of using business strategies and resources to serve public interests.

By the foregoing rough comparisons, it seems that PBCs in the United States are more similar to general private companies in terms of ownership and governance structure, while there are more public or governmental elements involved in the operations of PBCs (or their counterparts) in other countries as mentioned above. This leads us to ask some interesting questions: whether the United States type of PBC is more effective at addressing public interests, and what special roles private investors can undertake in promoting public good as compared with governments and other public players.

There might be no straightforward answers to these questions, but taking a look into some practices of technology companies may offer some insights. The concept of “public-interest technology” has been put forward and discussed recently, and it reflects the idea that since technology currently permeates all aspects of human society, it needs to be part of public policy promoting social justice and the common good, and technologists need to combine their expertise with a public-interest focus.[6] Examples of technology without such public interest commitment are provided by the class action lawsuits by tech users concerning Apple’s release of iOS updates that slowed down older iPhones, Facebook’s violation of biometric privacy law with its facial recognition technology,[7] and Yahoo’s act of data security intrusion,[8] which cause public distrust of the technology industry. Although it is hard to ascertain the extent to which value maximization for shareholders would result in detriment to public interest, it is certain that managers of private technological companies are restricted by their fiduciary duties from taking into account the interests of vast numbers of technology users when making business decisions. Such practices are not necessarily illegal, but their accumulated effects will nevertheless be harmful to the public.

Legislation might not be able to fully address the negative effects of the self-interest of technology companies, most of which might be subtle. Government might try to control through shareholding or oversight, but its funds and human resources are limited.

Rapid technological developments still depend on active market participation by numerous private players. Against this backdrop, PBCs can offer a viable solution by providing an alternative private for-profit incorporation mechanism to ensure the feasibility and enforceability of safeguarding the interest of public technology users. By choosing to incorporate as a PBC, a technology company can have more flexibility to promote the openness and accessibility of technologies. For example, FrontlineSMS is an award-winning technological PBC that provides professional open-source messaging software services.[9] To address data security and privacy issues, the management of a PBC can put more weight on the negative impact on customers by the company’s aggressive cookie policy. 

For PBCs to be fully viable and effective solutions, the governance and accountability issues in the face of multiple constituents still need to be further addressed.[10] Nevertheless, it is valuable to realize the potential benefits of PBCs.

Footnotes

[1] https://benefitcorp.net/policymakers/state-by-state-status

[2] https://www.gibsondunn.com/a-corporate-paradigm-shift-public-benefit-corporations/

[3] https://www.jnpoc.ne.jp/en/nonprofits-in-japan/legal-framework/

[4] https://en.wikipedia.org/wiki/Community_interest_company

[5] https://en.wikipedia.org/wiki/Community_interest_company

[6] https://public-interest-tech.com/

[7] https://builtin.com/edtech/public-interest-technology

[8] https://www.theverge.com/2020/2/4/21122493/yahoo-class-action-settlement-data-breaches

[9] https://www.weforum.org/people/sean-mcdonald; https://www.frontlinesms.com/

[10] https://www.jstor.org/stable/23238440?seq=1