In recent years we’ve seen a new type of corporations, known as Public Benefit Corporations, or “B” Corporations. These new B corporations are private corporations which, like any other corporation, owe a duty to their shareholders.
Historically, private corporations had a general duty to maximize shareholders’ value. In contrast, B corporations are not required to give priority to shareholders. The board of directors of a B corporation may instead consider the impact of its decisions on constituencies other than shareholders, such as the company’s employees, the community, or the environment. It is up to the board to decide what weight should be given to each. What does this mean to ERISA plans that want to invest in B Corporations?
The Department of Labor (“Department”) has previously issued guidance involving plan investments in “economically targeted investments” or “ETIs,” which are investments selected for economic benefits they create apart from their investment return to the plan. In that guidance the Department reminds us “ERISA requires that a fiduciary act solely in the interest of the plan's participants and beneficiaries and for the exclusive purpose of providing benefits to their participants and beneficiaries.” 29 C.F.R. § 2509.2015-1 (emphasis added). The Department interprets this requirement to mean ERISA prohibits plan fiduciaries “from subordinating the interests of participants and beneficiaries to unrelated objectives.” Id.
This guidance would prohibit a plan fiduciary from deciding to invest in a B corporation with higher risk and lower returns because the fiduciary believes the B corporation’s social justice objectives should be given priority. However, the fact that a B corporation may incidentally benefit society will not automatically disqualify the B corporation as a permissible plan investment. If the fiduciary follows ERISA’s standard of prudence, nothing would prohibit the fiduciary from selecting a B corporation as a proper investment for the plan.
