Lenny's Podcast: Product | Career | Growth
00:56:56 · Eric Ries
I mentioned before that most founders have never read their own corporate charter, which if you're a founder and you're listening to this and you've never read your own corporate charter, you have a company that is operating, it is your homework. You have to do this. You have to know what it says. This is so common that the HBO show Silicon Valley makes a joke about it where one of the investors is upgrading the founder to be like, "You don't know how your own effing company works?" Because he loses control of it. So they did their homework. This really does happen. But if you do read your charter, you probably will be more confused than you are now because you will read a sentence like this. It will say: "The Acme Corporation is hereby incorporated to pursue any lawful act or activity." And you read that and you're like, "That sounds pretty open-ended." Wrong. It sounds open-ended, but it's not. Unfortunately, we live in the era of what's called shareholder primacy, meaning that according to this theory, which is the governing theory of our lives, we live under this law today, right now. This says that an organization is not a vital, beautiful, living thing. Rather, it is a financial instrument designed to enrich shareholders and nothing else. And therefore, any lawful act or activity today means maximize shareholder returns under the law. People have been raised... Now we're old enough. This idea is old enough that we now have a generation of people who've been raised as if this was a natural law. This is how capitalism has always been, but that's wrong. For the vast majority of the time, for hundreds of years, we have had joint stock corporations. Only the last 40 have we had this idea. Before the '80s, it was considered obvious. Our grandparents thought it was obvious. Our great-grandparents thought it was obvious. Adam Smith thought it was obvious. Everyone before thought it was obvious that corporations existed to pursue a specific thing, what's called a beneficial purpose in the law. So in the 19th century, for example, if you wanted to make a company, you had to make a declaration to your state legislature that this thing you wanted to make would do something that is publicly beneficial.
00:58:54 · Eric Ries
You'd be like, "I want to make a railroad." They'd be like, "Why?" You had to say it would be beneficial to the public to have a canal between this place and that place. And just to get a sense of how different our best practices are than the historical norms in the 19th century, let's say you were the richest person in America and you're like, "I want to buy this company and change what it does because I can." First of all, the board would be authorized to fight you to the death. They didn't have to say yes. They would do crazy stuff in the night. These battles were legendary. Some of them are hilarious what would go on between these people. But the second thing, let's say you succeeded anyway. You took the company over and you said, "I'm going to change its purpose from make a railroad to maximize shareholder value." That would have been a crime. The courts would void your charter. You would earn the corporate death penalty for having exceeded the authority of your corporation. So this is a new idea that we live under. We think it's natural, but it's very new. So if you don't want that, and that's what doomed Vectura and all these companies, if you don't want that, you can change it. The good news for you listening right now in the year 2026 is that a band of corporate governance rebels have spent the last 15 or 20 years fighting this and building alternative structures that are available to you. One of them is called the Public Benefit Corporation or PBC. A lot of confusion about this out there because people have seen the little B with a circle on it at their farmer's market. It's not that. It's confusing because the same people invented that who also invented this and the word B, the letter B is in both. So I get it's confusing. But no, Public Benefit Corp is the easiest thing I will tell you to do on this whole podcast. It could not be easier. It is a two-page legal filing that you just submit. Your lawyers can submit it for you in Delaware tomorrow. You just say, "This is the purpose of this company, not any lawful act or purpose." And said, "No, this is a company designed to advance human flourishing by creating safe and responsible AI systems. We advance human flourishing by creating high quality products and selling them, whatever." Whatever you do, just write it down. It couldn't be any easier.
01:00:58 · Eric Ries
And most of the best companies today are using this structure, like all the major AI labs are incorporated as PBCs, Anthropic most famously of all. It doesn't guarantee that you're the good guys. Okay? Just writing it down doesn't do that much, but it does solve one very specific problem, which is if someone one day sues you saying you breached your fiduciary duty to investors, you could say, "Nope, investors agreed that this is our purpose to do this thing." Why has Anthropic been able to resist all this pressure? This is one of several of the interlocking components of the armor that protects Anthropic from outside pressure. If you don't do this, I can't help you, man. This is the very minimum. You got to do at least this. Now, if you're not at the founder, you probably are wondering, have we done this at my company? This is going to sound so dumb, I know, but you can just ask. Even if you're in a job interview, I remember someone once came to me and asked me for advice. They wanted to advocate for these ideas, but they were like, "I need a job. I don't even work anywhere yet." And they were like, "Caveat." I was about to give them some advice and before you give me your advice, you need to know that I'm not courageous. So I can't do anything scary. I'm not willing to be an activist. I just need a job, man, but I am willing to do something. But I felt like they'd asked me for a no bake cookie recipe. It's like a no courage. What can I do? And I was like, "Okay." And you can do this if you're in a job interview or just ask your boss either way. Then at the end of your interview, we're going to ask you, do you have any other questions? You can say, "Is this a mission driven company?" They're going to say yes. Okay, but how do you know? What kind of things do we do that are mission driven? They'd be, "Oh, we have free beer on Fridays and we clean up the local park on Saturday." I don't know what they're going to say. Maybe something great, maybe something... But whatever they say, just nod and be like, "Great." And just ask. Cool. Is that the legal mission also? Is that in the charter? Almost certainly the person you're asking this question to is not going to know the answer to your question, but it's a legitimate question because if you're working in a company that doesn't have this in the charter, you're going to be betrayed eventually.
01:03:04 · Eric Ries, Lenny Rachitsky
You deserve to know. But more importantly, just by asking, you've now forced them to get the answer. I mean, you've been part of hiring processes. Every hiring process at a well-run company, it's somebody's job to make sure every question a candidate might ask, there's a frequently asked questions document with the answer. So she's going to have to ask her boss, who's going to have to ask her boss and her boss. I've been in boardrooms where this kind of thing comes up, where someone's like, "We're getting this really irritating question from candidates and we don't know how to answer it." Now, maybe just by asking the CEO also listens to Lenny, because everyone listens to Lenny. The CEO's also been thinking about doing it too, but he was like, "I don't know if I have the support of the board. I'm not really that courageous to bring it up." Now you've created an excuse. A, we got to do it because I mean, it's the thing that everyone's doing it. Employees are even starting to ask about it." If you read these postmortems of some of these crazy things that are going on in the AI wars, a surprising percentage of the motivation of leadership is like, we want to keep our employees happy. So be an unhappy employee who wants to know what's our mission. Is it the real thing? So of course, that's not the only thing you can do, but that is the beginning, the easiest one on the integrity side. And again, a company that hasn't done it is very much at risk of eventually being betrayed. [01:04:24] S1: Are there any downsides to filing this charter?
01:04:27 · Eric Ries
[01:04:27] S0: No. This is the one thing that has no trade, truly no trade-offs at all. I mean, maybe you'll meet an investor who's suspicious about or doesn't like it. But again, the only situation that would ever become relevant is if the investor is trying to force you to sell the company and you don't want to. So you could just tell them, "Are you telling me that in that situation you believe you should get to decide instead of me?" Is that what you're saying? And then you can ask yourself, "Is this really the right partner for you?" Someone who would say yes to that, "What are we doing here?" All these feces are like, "I'm founder friendly. I believe in your vision." Do you? Do you? Or what's going on here? So that's really important. The other downside, the main downside of almost every technique in this book is that people will waste your time trying to talk you out of it. You have to be ready for that. The book actually has a whole section called how to talk to your investors and a whole separate section about how to talk to your lawyers, detailed exactly what to say, what are the questions you're likely to get because in the years I've been... I worked in the book for years. I have been writing down all the objections I've heard from all the companies I've helped. I always tell me, if someone objects, please call me and tell me what they said. I just wrote them all down. So all the answers are there. But if you talk to your lawyers, they'll say something like, "Well, you might want to just keep your options open. You don't want to prematurely commit to your purpose." And I remember if I hear that, I'm like, "Really? Keep my options open? That's how you get maximum value? What about the option to convert my customers into Soylent Green and eat them? Do I have to keep that option open?" You ask your lawyers this question, they will say something like, "You never know what you might need to do." And then we're like, "Why does nobody trust me?" Well, because you won't even take that off the table. Come on, man. No, if this one has no downside, absolutely, absolute no-brainer.
01:06:08 · Lenny Rachitsky
[01:06:08] S1: This sounds like a great single takeaway. If there's anything you take away with this conversation, you should do this. The fact that Anthropic did this is such a huge deal because I think a criticism of all of this that people probably hear is this is going to limit our growth, this is going to hurt our potential. We want to be this touchy-feely business. Capitalism has worked in creating a lot of very successful companies and value and innovation. Capitalism has worked in many ways. Why would we need to do this? And Anthropic being the fastest growing company of all time, just like absurd, breaking all records is a Public Benefits Corporation should make you feel okay about doing this.