Delaware Benefit Corporation Statute Signed Into Law

Today was an important day for Benefit Corporations: Governor Markell signed a Delaware Benefit Corporation Statute into law. I had the pleasure of presenting an investor perspective at the signing. Here is roughly what I said:

Our problem as society is no longer how to make more stuff. Cars, clothes, computers are all becoming better and cheaper. A trend that will only accelerate with new technologies and increased globalization. Purely shareholder value driven companies have done a good job with this technological innovation. 

Our biggest remaining problems, however, require social innovation: how to distribute the benefits of progress more widely, how to live in better harmony with the environment and how to provide affordable access to education and healthcare for all. A new wave of mission driven companies can and will play an important role in addressing these problems. At Union Square Ventures we are seeing more and more entrepreneurs and startup employees who are motivated as much by making the world a better place as they are by making money. 

Until now though as investors we faced a challenge: founders who want to protect their company’s social mission through supervoting shares and/or by controlling the board of directors. These and similar approaches extend the power of founders far beyond pursuing the stated mission and result in poor corporate governance. Historically that has been bad for investors and ultimately also for the mission itself. The Benefit Corporation solves this problem much more elegantly by allowing companies to put social objectives right upfront and empowering investors to hold founders and management accountable for pursuing these.

The Benefit Corporation statute passed by Delaware legislators and about to be signed into law by Governor Markell will thus provide the legal foundation for aligning investors and entrepreneurs around social missions. This is crucial both for the venture funding process and when these companies eventually go public.  Add to that the Internet which provides a mechanism for efficiently disclosing and monitoring not just financial performance but also mission metrics on a timely basis. Together with the statute this increased transparency will help create a new financing market in which social innovation can be funded as effectively as technological innovation has been in the existing one. As investors we are excited about participating in that new market.

Posted: 17th July 2013Comments
Tags:  Benefit Corporation

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