A medical technology company that serves the pharmaceutical industry through data organization and hosting is the country’s first corporation to convert to a public benefit corporation (PBC).
Veeva Systems Inc., founded in 2007 and based in California, is a publicly traded cloud software company that serves more than 600 life science companies. In early February, after earning nearly all the voting shareholders’ support, the NYSE-listed company converted to a PBC, a designation that makes consideration of all stakeholders a binding fiduciary duty.
Many companies pledge to support stakeholders, and some have a benefit corporation designation from the nonprofit B Lab, but B Lab’s designation does not have an effect on the corporate charter.
Veeva did not seek a B Corp designation before making the conversion, but its process is something Holly Ensign-Barstow, B Lab’s CEO, has watched closely. She says there are several other companies now waiting in the wings to follow in Veeva’s footsteps.
Josh Faddis, Veeva’s senior vice president and general counsel, says the company’s board of directors discussed the conversion for quite some time before taking the proposal to its largest investors. While Delaware legislation creating public benefit corporations was signed into law in 2013, no company had applied to make such a convesion, and few companies have freshly incorporated as a PBC. Veeva, which is incorporate in Delaware is breaking new ground.
“We thought that making the legal commitment was more meaningful for the company and more meaningful to our customers — and also more lasting,” Faddis says. “We also knew that we were going to do it in a way that was consistent with our business and what our impact could be.”
Now that Veeva is a PBC, its board must consider the impact of its decisions on all stakeholders. Veeva is still a for-profit public company, but shareholders’ interests will not be paramount. While this potentially could turn some investors off, 99% of Veeva’s voting shareholders were in favor of the conversion.
Institutional investors, including BlackRock, State Street and ISS, were among the supporters of the move.
Patrick McGurn, special counsel and the head of strategic research and analysis for ISS, notes that while Veeva’s CEO and founder, Peter Gassner, controls the company through a dual-class stock structure that is due to sunset in 2023, “there was clearly no significant groundswell of opposition within the shareholder base.”
“We believe that shareholders saw the potential for long-term value creation — the company stock is trading at an all-time high — and minimal risks in supporting the proposal. Notably, the company did outreach prior to floating its proposal.”
In a letter to shareholders, Gassner shared the reasons Veeva wanted to make the move. They included:
- The specific public benefits to be promoted by the corporation 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.
- The corporation shall be a public benefit corporation … and is to be managed in a manner that balances our stockholders’ 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 this certificate of incorporation. We believe this corporate structure reflects our guiding principle, “Do the right thing.”
PBC conversion better aligns our legal responsibilities to our core values — do the right thing, customer success, employee success and speed — and our approach to decision making. More specifically, we believe that becoming a PBC is valuable for our customers and employees, does not diminish the rights of our investors, may benefit our relationships with other key groups and can be beneficial to our long-term financial performance. We believe that these factors accrue to shareholder value creation. We will start with our customers.
Converting to a PBC can also protect a company from activist shareholders who want higher returns in the short term, since it locks in the corporation’s mission to benefit society at large, says Chris Marquis, the Samuel C. Johnson Professor in Sustainable Global Enterprise at the SC Johnson College of Business at Cornell University.
“The benefit corporation law says, ‘OK, if you’re going to have this, it needs to be a mission of the company, and the underlying governance of the company should be aligned to that mission,’” Marquis says.
Ensign-Barstow says while the PBC charter is not a “full inoculation” against shareholders demanding short-term benefits, the company’s mission is now backed with legal documentation.
“If the company falls down on the mission because of activist shareholders, long-term shareholders can sue to support the mission,” she says.
The charter amendment also provides continuity in succession, Marquis says. The next board or CEO of Veeva won’t be able to wipe the slate clean and change direction. The charter would have to be amended again and approved by shareholders.
Company operations at Veeva will not change in any way, Faddis says. Company leadership sees the conversion as giving them more flexibility to address “big issues” in terms of long-term success.
He cites a pre-PBC example. When COVID lockdowns began, clinical trials for pharmaceutical companies were disrupted. Many clinical trial sites are small with a very limited number of patients and did not have “a good technology footprint.” Veeva rolled out “SiteVault Free” so trials could be monitored remotely and could be run more efficiently.
“We’re not making money off of those sites, but we’re helping the industry overall be more effective,” Faddis says. “It’s good for our customers and good for the industry. In the long term, it’ll be good for our shareholders.
“That’s an example of something we could do in response to a crisis. And that’s the kind of thing we will be more able to do as a PBC.”
As for measuring the company’s performance under the new charter, Faddis says Veeva is required to file biannual compliance reports, but has pledged to report annually.
“Our public benefit purpose is to make the industries we serve more effective and create high-quality employment opportunities, so you’ll see us report on how we did that uniquely to our business,” Faddis says. “We’ll then report on two things: How we met some societal gap by helping the pharmaceutical industry be more productive, and how we help employees by creating new employment opportunities.
The report will also disclose the company’s general sustainability and will be released at the end of Veeva’s fiscal year in February 2022.