Sustainability-oriented businesses based in California may soon be able to choose a corporate form that bakes their social and environmental commitments into their legal business structure.
AB 361, introduced by North Bay Assemblymember Jared Huffman, would establish benefit corporations as a legal corporate form. The bill is scheduled for a hearing August 15 in the state Senate Appropriations Committee—its last stop before a floor vote and, if all goes well, the governor’s desk.
The bill is sponsored by B Lab, the certifier of B Corporations. If it passes and Gov. Jerry Brown signs it, AB 361 will be a milestone in B Lab’s campaign to establish the benefit corporation as a recognized legal form in all 50 states. Several states have already passed benefit corporation legislation, but given California’s size and influence, a win here would be huge.
Some people wonder why this is necessary—can’t businesses just contribute to the public good as much as they want to? Not always. As they grow, businesses that pursue social and environmental results as well as profits often find themselves under pressure from investors to back off on elements of their mission, and if they go public, the fear of shareholder lawsuits may compel them to take actions that compromise their sustainability orientation, such as accepting a buyout offer from a suitor that doesn’t share their commitments. (See this New York Times piece for cautionary tales and more on B Corporations.)
AB 361 gives businesses a way to protect their mission. It provides legal recognition for businesses that adopt higher standards of corporate purpose, accountability, and transparency—and assures that the designation means something by requiring benefit corporations to publish an annual Benefit Report following recognized third-party standards for defining, reporting, and assessing social and environmental performance. It allows directors and officers to safely consider the nonfinancial interests of the workforce, community, and environment when making decisions. Overall, B Lab says, it creates “a platform for innovative entrepreneurs to build great companies that generate high-quality jobs and economic development for communities.”
Who wouldn’t want that?