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Mission control: Drug developers test the 'benefit corporation' business model

Nature Medicine volume 23, pages 1117–1118 (2017)Cite this article

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Part of the problem is the theory of shareholder primacy, which holds that the interests of shareholders in a company take priority over those of all other corporate stakeholders, such as staff, consumers or the community. Legal precedent has established that shareholders can intercede in the decisions that corporations make, including using litigation (and threats of it) to pressure company directors to pursue strategies that shareholders think will bring in the highest monetary returns. Companies fearful of lawsuits from dissatisfied shareholders may replace directors who fail to please this contingency. But a new business structure has emerged in the US—one whose proponents say can offer some protection against overeager shareholders.

Since 2010, 33 states in the US have passed legislation making it possible for companies to incorporate as 'public benefit corporations.' This status requires a company to write its mission statement into the company's official charter. Whether that mission is to make products or to serve a community, its inclusion, in theory, provides a degree of legal protection against shareholder primacy; because a company's goals are clearly stated for investors to read before they buy its shares, it could make it harder for shareholders to sue the company for making good on its stated long-term aims at the expense of short-term profit. All other policies, such as employment law and tax rates, are exactly the same as for a regular corporation.

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  1. Arran Frood is a freelance science writer and journalist based in Bristol, UK.

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Frood, A. Mission control: Drug developers test the 'benefit corporation' business model. Nat Med 23, 1117–1118 (2017). https://doi.org/10.1038/nm1017-1117

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