Sunday marked a real milestone for sustainable business: California Governor Jerry Brown signed AB 361, making benefit corporations a legal form in the nation’s largest economy.

Rather than repeating my previous post, I’ll give the bill’s author, Assemblymember Jared Huffman (D-San Rafael), the floor.

Under AB 361, he noted in announcing the signing, “businesses can choose to incorporate as benefit corporations and enjoy these significant advantages:

• Greater access to social impact and venture capital investments;
• Legal protection for directors and officers in their more broadly defined fiduciary roles of maximizing profits as well as ensuring social and environmental considerations; and
• Marketing opportunities that will allow consumers to distinguish, in a very real and ascertainable fashion, between a business that claims to be socially responsible, and one that is responsible.”

What’s not to like? And there’s another aspect of this that doesn’t get enough attention: As B Lab co-founder Jay Coen Gilbert told the Los Angeles Times, traditional corporations “have one fiduciary duty: to maximize value to shareholders even if that comes at the expense of workers or the community or the environment. It’s a system that’s set up to externalize costs to society.” In other words, when corporate decisions cause environmental and social harms, the rest of us are on the hook to clean up the mess. Benefit corporations, though voluntary, are one important step toward changing all that.

Thinkshift was thrilled to support this bill, in our own name and through our work with the Green Chamber of Commerce.

The California benefit corporation bill, AB 361, has passed through both houses of the state Legislature and is now on Governor Jerry Brown’s desk. He has 12 days to sign or veto it.

As I said in my previous post on this groundbreaking bill, AB 361 is important because as sustainable businesses grow, they 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. AB 361 has three key components that address this issue:

• Businesses that choose to incorporate as benefit corporations must include as part of their mission creating a material positive impact on society and the environment.
• The fiduciary duty for benefit corporations includes considering public benefits when making decisions.
• Benefit corporations must report annually on their overall social and environmental performance using recognized third-party standards.

What would that mean, ultimately? Assemblymember Jared Huffman (D-San Rafael), who introduced the bill, put it this way:

“Socially responsible businesses, investors and consumers all over California are calling for this type of legislation. They believe this bill is the start of something transformational, that it embodies their forward thinking and entrepreneurship. But most importantly, this bill sends a message to socially minded companies and entrepreneurs that California is open for this emerging form of business.”

Thinkshift has written to the governor urging him to sign the bill. Want to send a message yourself? Get contact info and a sample letter on the Green Chamber of Commerce website.

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?

Express your support to Assemblymember Huffman. Read the bill and track its progress here (bonus: you’ll get a time-machine view of the web as it was in the beginning).