Kickstarter GC Talks Company's Public Benefit Status

Kickstarter released its first annual public benefit statement this month—a document that has been top of mind for general counsel Michal Rosenn since the fall of 2015.

Michal Rosenn, general counsel of Kickstarter. January 21, 2016. Photo by Annie Tritt. (FREELANCE - OK TO USE BY ALM) Annie Tritt (annie@annietritt.com)

Kickstarter released its first annual public benefit statement this month—a document that has been top of mind for general counsel Michal Rosenn since the fall of 2015.

That's when the Brooklyn, New York-based crowdfunding company announced it would operate as a public benefit corporation, or a PBC.

Whereas traditional businesses generally work from the mindset of trying to maximize profit, PBCs are a relatively new corporate structure that allows for-profit companies to blend the ideas of working for profit and working on behalf of social interests.

Kickstarter's first public benefit statement, released March 1, details the steps it has taken to become a PBC, including nonprofits that Kickstarter donated funds to this year. Kickstarter has committed to donating 5 percent of after-tax profits to arts education and to organizations fighting inequality.

The statement also demonstrates, according to Rosenn, how Kickstarter's operations follow its values.

For instance, it explained that Kickstarter CEO Yancey Strickler's total compensation was only 5.52 times the median compensation of all non-CEO employees, whereas a Glassdoor study found that the average CEO makes 204 times as much, on average.

The statement discusses how Kickstarter's terms of use and privacy policy "continue to be some of the simplest, clearest out there." It says that the company has "rejected the increasingly common move of forcing users to handle disputes through arbitration or including a class action waiver in our terms."

"With a PBC, you are always balancing that traditional profit duty with a general duty for the good of society," Rosenn says.

The first annual public benefit statement represents a milestone for Rosenn and the company. Delaware first passed a law in 2013 that gave for-profit companies the chance to operate as socially-conscious corporations that are by law required to work in a responsible and sustainable way.

In an interview last year, Rosenn said Kickstarter knew immediately after the Delaware law passed it was interested in becoming a PBC.

At the time, she also shared that there are ways this endeavor could go wrong: "When you incorporate these into your corporate charter, this isn't just saying, 'Oh, we'll do this if we feel like it,'" she said. "We have to do these things."

Rosenn explained that if Kickstarter didn't live up to the benefits it identified, shareholders could bring a derivative action the same way they could against a traditional company that isn't performing. "It's embedding a certain amount of responsibility and risk on the company," she said.

Some have pointed out drawbacks for companies becoming PBCs. Accounting firm CohnReznick identified disadvantages in a 2014 newsletter that include expanded reporting requirements and the fact that because "benefit corporations are fairly new legal entities, uncertainty lies in how courts will interpret mandates that seek to increase profit and the greater societal good."

Outerwear retailer Patagonia Inc. has also incorporated as a PBC, and Rosenn says Kickstarter has been in close communication with Patagonia's lawyers and executive team. Kickstarter sought their advice when it first incorporated in 2015 and more recently as it was compiling its first public benefit statement. "They have been a wonderful resource for us," Rosenn says.

Now that the company has its first year as a PBC out of the way, Rosenn is pleased with the process. She worked closely with Kickstarter founders Strickler and Perry Chen to identify benchmarks for the company and track progress each quarter throughout 2016.

Although it was understood the company would give to arts education and organizations fighting inequality, Kickstarter involved all of its employees when soliciting feedback for where specifically it would send donations.

Ultimately, in the weeks leading up to the publication of the statement, the company decided on DreamYard, Willie Mae Rock Camp for Girls, Coalition for Queens, the New York Civil Liberties Union, Brooklyn Community Bail Fund and Film Society Kids of Lincoln Center.

While the reporting duties for the company's benefit statement can be comparable to a corporate secretary's responsibilities for a public company in some ways, Rosenn says, "everyone views it as part of their individual mission to help uphold our stature as a PBC."

"The process is more internalized and something people around here believe in a little bit more—rather than some externally imposed reporting obligation," she said.

Originally published on Corporate Counsel. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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Stephanie Forshee

Stephanie Forshee is a writer for Inside Counsel magazine. Previously, she has worked for the Puget Sound Business Journal, the San Fernando Valley Business Journal and Auto...

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