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Steven Davidoff Solomon, a.k.a. the Deal Professor, is a professor at the U.C. Berkeley School of Law and the faculty co-director at the Berkeley Center for Law, Business and the Economy. Here, he considers who benefits from public benefit corporations.

Companies are rushing headlong to address social problems, and not just serve shareholders. Last week in a Times Op-Ed, Darren Walker, president of the Ford Foundation, called for companies to serve stakeholders more broadly and “give up their power and privilege.”

What does that mean?

Take Lemonade, the insurer that just filed for an I.P.O. as a public benefit corporation, or P.B.C. These companies have a for-profit motive, but also a social purpose serving other stakeholders. Lemonade would be the second P.B.C. to go public, after Laureate Education.

Lemonade says its social purpose is “to harness novel business models, technologies and private-nonprofit partnerships to deliver insurance products where charitable giving is a core feature, for the benefit of communities and their common causes.”

The company charges a flat fee for insurance. The rest goes to pay claims, with anything left over going to charity. Last year, Lemonade lost around $100 million, on $60 million in revenue, and gave $600,000 to charity.

A regular corporation can do similar things, but younger consumers love this explicit commitment to social causes. The concept also fits with Lemonade’s for-profit side, since its fixed-fee model means it has no incentive to deny claims.

I suspect that Lemonade may be the first of many P.B.C.s to go public. In a study of this issue, I found that venture capital firms have been investing steadily in these start-ups, including the trendy shoe brand Allbirds.



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