Anthropic's structure as a public benefit corporation (PBC) raises critical questions for investors ahead of the AI lab's blockbuster IPO.
Anthropic aims to go public at a valuation of $1.5 trillion or more, making it the first major frontier lab to test public markets' appetite for AI – at a potentially rich valuation. The PBC wrapper adds another wrinkle, requiring Anthropic to balance a mandate for public benefit with standard fiduciary responsibilities as a publicly traded corporation.
Anthropic's goal, according to its S-1 filing, is "to responsibly develop and maintain advanced AI for the long-term benefit of humanity."
Other companies operate as PBCs or under similar structures. Warby Parker is a PBC. Privately held Patagonia is registered as similar Benefit Corp. in California. When Google went public in 2004, its informal motto was "don't be evil," which it included in its IPO prospectus and corporate code of conduct, though Google is not a PBC.
Anthropic has long pitched itself as the responsible AI firm and has taken measures to police its own conduct. In 2023, Anthropic set up a "long-term benefit trust" to oversee its business practices. The company also established a "public benefit fund" with about 847 million shares of Class N stock, or roughly 5% of its fully diluted shares as of June 30.
Seven co-founders, including Dario Amodei, have special voting power through a single Class F share equal to 50.1% of total voting power over matters brought to a shareholder vote. Anthropic said in its filing that it believes those seven are "distinctly equipped to be stewards of our mission."
Anthropic gave itself a long leash to act as it sees fit. Operating as a PBC "gives our board of directors the necessary latitude to balance the pecuniary interests of our stockholders, the best interests of those materially affected by our conduct, and the specific public benefit purpose that we promote," the company said in its S-1.
'Good luck'
Legal experts say that Anthropic's PBC structure could create tension in how it operates.
"The obligation of directors is to balance achievement of [public] purpose with achievement of profit, and if you ask me what that means – 'to balance' – I would say, 'Good luck,'" said Lawrence Hamermesh, a Delaware corporate law attorney with decades of experience in PBC law.
PBC law is ambiguous on a key word, "balance," he adds, pointing out that there's no fundamental criterion to distinguish when one interest takes precedence over the other.
"It's hard enough in the ordinary case to win a damages claim against directors for having screwed up and having cost the company some money," he said. "It's doubly hard to do so in a public benefit corporation where you also have this defense that, 'Hey, I was doing it to promote our stated public benefit.'"
How Anthropic handles AI safety is a key risk. Anthropic has been at the forefront in sounding alarms about rapidly advancing AI, outlining legions of risks in its S-1. The company has restricted access to some models it deems too dangerous to be released widely in public. That practice could continue, even if it comes at a cost to revenue and profit growth.
Anthropic will also have to balance its PBC mandates with shareholder interests as it continues to raise capital. The company has multiple share classes with varying degrees of control, shareholder, and voting rights. Investors typically charge more for capital in situations that dilute their control from one-share/one vote, points out John Coates, professor of law and economics at Harvard Law School.
"If the company needs to continue to raise capital over the foreseeable future, as seems to be true of Anthropic, the company will know they need to pay attention to investors' interests for much of that future," he said in an email to CNBC. The PBC structure "adds another dimension of uncertainty about how this investment may play out."
Wall Street's take
Analysts say investors shouldn't gloss over the PBC structure.
"It's interesting to read it right up front in an S-1," Gil Luria, head of technology research at DA Davidson, said. "There's a quote about [how the] goal is for the stock not to trade at higher than the value of the company. Then they talk about things that they do that are not profit-maximizing, like promising never to have ads in Claude … So they led with this, and it's important."
Evercore ISI analyst Mark Mahaney said in a Monday note that Anthropic's PBC status will also limit shareholders' power over the operations of the company.
"Governance limits shareholder influence: as a public benefit corporation, the board must weigh its mission alongside returns, an independent trust elects a majority of directors, and the co-founders hold 50.1% of the vote," he said.
Granted, Anthropic could alter or scrap its PBC status, and there's precedent for doing so. Shoe-maker-turned-AI-company Allbirds, for instance, dropped its PBC designation as part of a restructuring in June.
The industrial structure of the AI sector is not settled, moreover, so investors should be prepared for further changes as the technology progresses. Large-scale mergers and innovative public-private partnerships have been floated by some of the industry's top executives, and U.S. authorities are considering ways to audit the technology and implement development standards.
"We are dealing with this issue today," Director of National Intelligence Jay Clayton told CNBC last week. "This is an issue of the moment."