I have blogged a few times on TheCorporateCounsel.net about Veeva Systems – and taped a 19-minute podcast with their Assistant GC & Assistant Corporate Secretary right after the company converted to a PBC. Here’s something that my colleague Mike Melbinger blogged more recently on CompensationStandards.com:
Recently, I posted on Developments in the “Public Benefit Corporation” Space, discussing education tech company Coursera’s IPO as a Public Benefit Corporation (“PBC”) and I promised to follow-up with more information on PBCs. This posts endeavors to cover some basics, as well as one specific recent situation.
In January 2021, shareholders of Veeva Systems Inc., approved its conversion to a PBC, effective February 1, 2021. Veeva Systems Inc. is New York Stock Exchange traded medical technology company based in California, that serves the pharmaceutical industry through data organization and hosting. It is the first publicly traded company and the largest company to date to convert to a PBC. Veeva reported that ninety-nine percent of the voting shareholders approved the conversion.
Delaware Public Benefit Corporation Basics: The Special Meeting Proxy explained that a Delaware PBC is a for-profit company operating Delaware General Corporation Law (the “DGCL”). The primary distinction between a PBC and a traditional Delaware for-profit corporation is that, in making decisions, the directors of a PBC have a fiduciary duty to manage in a manner that balances:
- shareholders’ pecuniary (financial) interests,
- the best interests of those materially affected by the corporation’s conduct (including customers, employees, partners, and the communities in which we operate), and
- the public benefits identified in the company’s certificate of incorporation.
As I noted in my last post, a PBC must adopt a public benefit purpose in its certificate of incorporation, which is intended to have positive effects on a category of persons, entities, or communities other than shareholder financial interest.
Veeva’s Public Benefit Purpose: The specific public benefits to be promoted by Veeva “are to provide products and services that are intended to help make the industries we serve more productive, and to create high-quality employment opportunities in the communities in which we operate.”
We are also asking for your support to amend our certificate of incorporation to become a Delaware Public Benefit Corporation (PBC). This means we would formally adopt a public benefit purpose and be legally responsible to balance the interests of multiple stakeholders—including our shareholders, customers, employees, partners, and the communities in which we operate—rather than considering only the financial interests of our shareholders.
Effect on Investors: According to the Special Meeting Proxy Statement, upon conversion to a PBC, Veeva’s shareholders will continue to have all the protections and governance rights that shareholders of traditional companies have, including rights to elect the Board, file shareholder proposals, pursue fiduciary duty litigation, and vote on major corporate transactions like charter amendments and mergers, as well as to tender their shares in connection with a hostile takeover structured as a tender offer.
The Special Meeting Proxy Statement also indicates that: “We do not expect conversion to a PBC to impact any of our existing financial targets, and our Board believes that a PBC conversion has the potential to be beneficial to our long-term financial results.” In fact, Veeva expects that the combination of the reputational benefits of converting to a PBC, the increasing number of large investors that are focused on corporate sustainability, and “doing the right thing for our customers, employees, partners, and communities” will allow it “to deliver the best results for shareholders.”
Applicable Law:The most significant difference in the provisions of the DGCL that apply to a PBC is the requirement that PBC directors balance the financial interests of shareholders, the best interests of those materially affected by the corporation’s conduct, and the specific public benefits identified in the PBC’s certificate of incorporation when making decisions. In its explanation to shareholders, Veeva concedes that there is limited case law involving PBCs, but states that the DGCL’s longstanding “business judgment rule” should apply to the balancing determinations required of PBC directors so long as directors remain informed and free of conflicts of interests.
Issues for Compensation Professionals: Veeva’s Special Meeting Proxy Statement does not suggest any impact on its executive compensation programs. However, one would expect that its incentive compensation targets would be broadened to include progress toward the best interests of customers, employees, partners, and the communities in which it operates. As noted above, Veeva is the first publicly traded company and the largest company to date to convert to a PBC. And Veeva has not yet filed its compensation information for 2020 and 2021. Therefore, it may be too soon to fully evaluate this aspect of the conversion.
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On April 14, 1988, representatives of the USSR, Afghanistan, the United States, and Pakistan signed an agreement calling for the withdrawal of Soviet forces from Afghanistan. In exchange, the United States agreed to end its significant arms support for the Afghan anti-Soviet factions (see, Charlie Wilson’s War, by George Crile III), and Afghanistan and Pakistan agreed not to interfere in each other’s affairs. The Soviet’s experience in Afghanistan was much worse than ours.