Do nonprofit organizations live as much as their fame?

Greetings from New York, where the sailing Grand Prix in the town's harbor was the most popular event this weekend. Despite threatening thunderstorms, 10 catamarans from the skilled SailGP league whizzed past the spectators on Governor's Island.

In my lifetime, New York dumped its sewage directly into the rivers. Today, the harbor is a “green space” (or perhaps a blue space) that will be enjoyed similar to Central Park.

For today, I actually have something more earthly. The Public Benefit Corporation structure is a rarity within the American stock markets; there are currently fewer than two dozen public PBCs. But some firms that use artificial intelligence are using it, and one egg company has shown that the PBC model will be successful on the stock market.

Thank you for reading.

Non-profit organizations

Companies test PBC structure on the stock exchange, from eggs to AI

The sustainably produced eggs and butter products of Texas-based company Vital Farms don't exactly meet the stock market's insatiable demand for artificial intelligence. But they do have something in common with AI startups Anthropic and Elon Musk's x.AI.

Vital Farms, like its technologically advanced competitors above, is one in every of only a handful of publicly traded nonprofits within the U.S. The company's stock price rose nearly 220 percent over the past 12 months, outpacing the 200 percent gain of AI darling Nvidia. As a PBC, the corporate's board has a fiduciary obligation to its employees, communities and other stakeholders along with shareholders. (This legal structure is different from the B Corp initiative, a certification program run by the nonprofit network B Lab.)

The PBC model was particularly popular in 2020 and 2021, as equity markets performed strongly and there was a fantastic deal of enthusiasm for investing in environmental, social and governance (ESG) issues. Notable PBCs that went public this 12 months included shoe brand AllBirds and eyewear company Warby Parker. The share prices of those firms have plummeted within the years since, however the structure is once more becoming popular amongst AI startups. Despite fears about AI technologies, these firms have embraced the PBC model and the sustainability sheen that comes with it.

Vital Farms also struggled after its IPO in 2020. The company had doubts about whether it could thrive after the Covid-19 pandemic, when people began eating out again, Robert Moskow, managing director at TD Cowen, told me. But now it's on a roll, due to strong earnings growth.

Vital Farms' sales growth shows that it’s “greater than a pandemic-related growth story,” Moskow said. “They are simply doing a fantastic job of finding consumers who appreciate the standard of home-grown eggs.”

In an interview, Vital Farms CEO Russell Diez-Canseco said two of the corporate's early investors pushed for PBC status: SJF Ventures and Arborview Capital.

When Vital Farms launched its IPO, the corporate's bankers were intrigued by PBC status because “there have been huge amounts of capital waiting to be present in the correct ESG investment,” he said.

But the allure of ESG was short-lived. As with most publicly traded firms, ESG can change into a compliance issue. Large firms with quite a lot of money to spend can afford to keep up ESG scorecards that boost their rating in ESG funds, he said. Like other small firms, Vital Farms was forced to spend money on ESG compliance quite than investing in the corporate, Diez-Canseco said. The ESG market ignored Vital Farms' PBC status.

Nevertheless, Vital Farms also has to contend with ESG challenges. In the egg business, only chickens are precious. Male chicks are sometimes slaughtered immediately. The animal rights group People for Ethical Treatment of Animals sued Vital Farms. for mistreatment of chickensThe legal dispute is just not yet over.

“We are attempting to enhance the system,” Diez-Canseco told me. Killing male chicks “remains to be an area where there may be quite a lot of room for improvement.” Alternatives are being worked on, but they’re still of their infancy, he said. “It is unfortunately too early to expect the really exciting solutions which might be on the horizon.”

Vital Farms is a stock market success, at the least for now, drawing renewed attention to the PBC model. As AI firms proceed to grow, their PBC status will probably be critical in potential mergers and acquisitions over the following 12 to 18 months, Susan Mac Cormac, a partner at law firm Morrison Foerster, told me.

“At some point the query will arise: When a PBC is sold, the board can – and must – reject a better offer if it believes the client with the upper price is not going to maintain the upper utility,” she said. “One of those AI firms will probably be sold and that query will probably be under scrutiny. How do you assess whether your buyer will maintain the general public utility?”

Vital Farms has shown that PBC firms can survive and thrive within the highlight of the general public markets. But the model remains to be fraught with uncertainty, especially given the growing public concern concerning the threat posed to humanity by artificial intelligence.

Intelligent Reading

I like to recommend this shocking story by our colleague Harry Dempsey concerning the backlash against diversity, equity and inclusion within the mining industry – a so-called “Andrew Tate effect”.