Veeva Systems: Case Study in Converting to a Public Benefit Corporation

This video provides an in-depth exploration of Veeva Systems' groundbreaking conversion to a Public Benefit Corporation (PBC) in January 2021, making it the first public company to do so with 99% shareholder support. The content serves as an accompaniment to a Berkeley Law Executive Education case study, delving behind the scenes of this significant corporate governance shift. The discussion features insights from Veeva's founder, who shares personal anecdotes and the philosophical underpinnings of the decision, alongside expert commentary on the legal and economic implications of the PBC structure.

The core of the video centers on the evolution of corporate responsibility from traditional shareholder primacy to a more expansive stakeholder-centric model. Veeva's founder recounts his early experiences in a small family business, where taking care of customers and the community was paramount due to the lack of an external safety net, contrasting this with the overly simplistic "make money for shareholders and don't do anything illegal" mandate of traditional corporate charters. The concept of a PBC is introduced as an innovative legal framework that allows a company's board to explicitly balance the interests of various stakeholders—including employees, customers, the community, and the environment—with those of shareholders, even when trade-offs are involved.

The video emphasizes that formalizing a company's social purpose and values in its articles of incorporation, as a PBC does, serves multiple critical functions. It provides a clearer communication mechanism for a growing workforce and customer base, sets a legal obligation for future leadership, and ensures the company's ethos remains consistent over decades. The conversion process at Veeva involved extensive internal discussions, including a pivotal hike with the chairman of the board, and careful communication with investors. Surprisingly, investors were not skeptical once the rationale was thoroughly explained, recognizing the long-term benefits of a company that is clear about its social purpose and committed to ethical governance.

The benefits of this shift, as articulated in the video, extend beyond mere ethical considerations to tangible business advantages. Companies with a clear social purpose are better equipped to manage stakeholder expectations, align business strategy with corporate purpose, secure a durable social license to operate, communicate more authentically, and proactively flag risks. For Veeva, the PBC status has already yielded positives such as attracting employees aligned with its values, deepening customer relationships, and significantly increasing the source of innovative ideas by prompting consideration of value-aligned initiatives alongside business growth. The video concludes by highlighting that while a PBC is a powerful mechanism, the fundamental principle is clear social purpose, accountability, and reporting, which can also be pursued within traditional corporate forms, especially as shareholders increasingly advocate for stakeholder focus.

Key Takeaways:

• Pioneering Corporate Governance: Veeva Systems became the first public company to convert to a Public Benefit Corporation (PBC) in January 2021, with overwhelming support (99%) from its voting shareholders, setting a precedent for publicly traded entities.
• Redefining Corporate Purpose: A PBC legally mandates that a company's board of directors can balance the interests of all stakeholders (employees, customers, community, environment) with those of shareholders, moving beyond the sole focus on shareholder primacy inherent in traditional corporate structures.
• Formalizing Values for Longevity: Converting to a PBC allows a company to formalize its values and social purpose within its articles of incorporation, ensuring that these principles are legally binding and communicated clearly to employees, customers, and future leadership, fostering long-term consistency.
• Strategic Communication and Risk Management: Companies with a clear social purpose, like PBCs, are better positioned to manage stakeholder expectations, align business strategies, build a strong social license to operate, communicate authentically, and effectively identify and mitigate risks.
• Shareholder Alignment with Stakeholder Focus: Counter-intuitively, many investors are not skeptical of the PBC model; when properly explained, they recognize that a strong commitment to social purpose and stakeholder well-being can lead to long-term economic sustainability and reduced risk.
• Enhanced Attractiveness for Talent and Customers: Veeva experienced tangible benefits, including attracting employees who are aligned with the company's values and deepening relationships with customers, which are crucial for sustained growth and market leadership.
• Innovation Through Values: The PBC framework has broadened Veeva's source of ideas, encouraging the pursuit of initiatives aligned with its values, which are then cross-referenced with business objectives, fostering a more holistic approach to innovation.
• Complexity of Balancing Interests: While beneficial, balancing the diverse interests of multiple stakeholders presents new and unprecedented challenges for management and boards compared to the simpler focus on shareholder primacy, requiring more information gathering and trust-building.
• Internal Ethos is Crucial: For a PBC to be effective, its charter must genuinely align with the company's internal ethos and way of working; imposing a charter externally without internal buy-in can lead to operational issues.
• Formalized Stakeholder Communication: The PBC structure formalizes communication channels with stakeholders, breaking down corporate silos and providing boards with a wider array of viewpoints and information essential for making informed decisions.
• Accountable Reporting: PBCs are required to report on their pursuit of their public benefit purpose, emphasizing accountability over mere positive optics, with the understanding that this will be an iterative process requiring shareholder feedback.
• Broader Definition of Social Purpose: The video expands the definition of "social purpose" beyond merely avoiding negative externalities (like pollution or discrimination) to include a company's broader obligations to society, such as protecting democracy.
• Economic Sense for Diversified Shareholders: From the perspective of a diversified shareholder, investing in companies that manage stakeholders well and do not externalize costs makes economic sense, as such externalizations can negatively impact other companies within their portfolio.

Key Concepts:

• Public Benefit Corporation (PBC): A legal corporate structure that requires a company to balance the financial interests of its shareholders with the best interests of its stakeholders (employees, customers, community, environment) and a specific public benefit purpose.
• Shareholder Primacy: The traditional corporate governance theory that a company's primary responsibility is to maximize profits for its shareholders.
• Stakeholder Capitalism: An economic system in which companies are oriented to serve the interests of all their stakeholders, not just shareholders.
• Social Purpose: The idea that companies should serve a purpose beyond profit generation, contributing positively to society and the environment.
• Corporate Governance: The system of rules, practices, and processes by which a firm is directed and controlled, encompassing the relationship between management, its board of directors, shareholders, and other stakeholders.
• Externalities: Costs or benefits incurred by a third party who is not directly involved in a transaction or activity (e.g., pollution affecting local communities).

Examples/Case Studies:

• Veeva Systems' PBC Conversion: The entire video serves as a case study of Veeva Systems' journey to becoming the first public company to convert to a Public Benefit Corporation, detailing the motivations, process, and initial outcomes.