By Sven Eberlein, Debra Baida Feb 09, 2012
With the passage of AB 361 on October 9th, 2011, California became the sixth state to adopt legislation allowing the formation of “benefit corporations”—corporations whose purpose is not just to make money but to make the world a better place.
Sponsored by California Assemblymember Jared Huffman, the new law will allow corporations to voluntarily register as Benefit Corps rather than the more traditional LLCs or C corporations. Registered Benefit Corps broaden their goals to include serving non-financial interests, verified by an independent third party.
For example, they may provide low-income communities with beneficial products or services, promote economic opportunity for individuals or communities beyond the creation of jobs in the ordinary course of business, preserve the environment, or improve human health. Perhaps even more significantly, the new Benefit Corp status relieves a corporation from its obligation to maximize shareholder profit and be sold to the highest bidder.
California, though following in the footsteps of Hawaii, Virginia, Maryland, Vermont, and New Jersey, now has the most far-reaching benefit corporation legislation to date, especially in the areas of transparency and shareholder protection. According to John Montgomery, one of the attorneys instrumental in passing the bill, AB 361 not only strengthens the definition of a “third party standard” (against which a benefit corporation must assess its social and environmental performance), but it protects shareholders of an existing corporation wishing to become a benefit corporation; as well as shareholders of a benefit corporation wishing to change its status.
I first heard about benefit corporations from my partner, green business owner and photographer Debra Baida. We traveled to Sacramento to witness the historic inaugural filing by leading California sustainable businesses on January 3rd.
As soon as we arrived, we realized that this was more than a corporate boardroom affair. From the lawyers and lawmakers who had fought so hard to legalize the triple bottom line, to the business pioneers and representatives from nonprofit certifier B Lab, which paved the way for this legislation, the electric atmosphere was like a schoolyard on the morning of a field trip—only with suits and ties.
After chatting with a host of business owners about their commitment to environmental stewardship, social responsibility, and community building, we marched across the street to the Secretary of State’s office, where some of the driving forces behind this movement were giving a pep talk.
B Lab founder Jay Coen Gilbert said AB361 would redefine the meaning of business—from competing to be the best in the world to be the best for the world. Assemblymember Huffman talked about the law’s promise to give consumers new choices and investors a way to put their money to work for a better future. Patagonia founder Yvon Chouinard expressed his hope that years from now we’d look back on this day and say, “This was the start of a revolution, because the existing paradigm isn’t working anymore.”
Next we headed for the Corporate Filing Office on the third floor, where our congregation could hardly fit into the filing clerk’s office. Yvon Chouinard was the first one to step up to the counter, and with the stroke of a pen Patagonia became California’s first benefit corporation.
Over the next 30 minutes, 11 more company owners completed their paperwork to great applause in the room.
“Before this, if I wanted to sell my company, I was obligated to take the highest price and that was the end of the discussion,” said Timothy Yee, co-founder of Green Retirement Plans, Inc., whose business is built upon environmental stewardship, social responsibility, and community commitment. “But now I will consider all my stakeholders and not only stockholders. Any action I take will be done in light of this, and I have legal ground.”
This symbolic day was really just the beginning. In the coming weeks and months many more California corporations are expected to file for Benefit Corp status, and other states are poised to adopt benefit corporations into law. New York’s legislation goes into effect on February 10th, and similar policies in North Carolina, Colorado, Pennsylvania, and Michigan are pending.
The creation of benefit corporations signifies a huge part of the solution that everyone seems to be clamoring for. While it’s voluntary—Goldman Sachs and BP are unlikely to file any time soon—it’s a way for many companies to show that a different way of doing business is not only possible, but better for the earth, its people, and ultimately, for business.
Sven Eberlein wrote this article for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas with practical actions for a just and sustainable world. Sven is a freelance writer and journalist covering issues of social and ecological significance. He ruminates from the spaces between soil and soul on his blog, svenworld.com.
Debra Baida is a San Francisco-based sustainable living advocate and the founder of Liberated Spaces, a life organizing and coaching firm. She blogs about the intersections of community, environment, simple living, and creativity, at liberatedspaces.wordpress.com.
- 9 Strategies to End Corporate Rule, the Spring 2012 issue of YES! Magazine.
- Benefit Corps, a New Kind of Company
Corporations committed to both profits and people could change the mindset of the business world.
- What We Could Lose Unless We Change: Remembering Ray Anderson
“Reimagining the world was a responsibility for Ray, a gift to a future that is begging for selflessness and vision.” Paul Hawken honors the life of a green business pioneer.