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Now it’s the Judiciary Committee’s Turn

california state capitolAs you may recall, last week AB 361— the California bill that would create a new corporate form called a benefit corporation— was presented by sponsor Assemblymember Jared Huffman and witnesses (including certified B corporations, attorneys, and investors) at the California State Senate Committee on Banking and Financial Institutions. It marched forward from there with a resounding vote of 5-1.

The next stop was the Senate Judiciary Committee which heard arguments for AB 361 on July 5th 2011.

How did it go?

With many many more bills on the docket this time around, Senator Noreen Evans— Moderator for the Judiciary Committee– warned early on that argument and testimony for all bills would be kept brief.  When AB 361 was presented, Assemblymember Huffman once again introduced the legislation and outlined his three-prong argument for the bill.

Attorney Donald Simon testified to the legal structure and rationale behind AB 361, emphasizing the reaching effect it could have by creating a unique reason for entrepreneurs and founders to opt to incorporate in California instead of other states, in order to be able to be registered as a benefit corporation. He also provided counter-arguments to opposing concerns—emphasizing the complementary relationship that b corporations have already demonstrated to have with non-profit sector.

A number of certified B corporations and supporters (Innov8Social included!) also provided ‘me too’ testimony.

Opposition to AB 361 also voiced their concerns that California may not yet be ready for a new corporate form for socially responsible business and/or availability of other hybrid structures and potential opposition from California non-profit organizations.


How did the Judiciary Committee vote?

In a vote of 3-0 the bill was dubbed ‘on call’ — to be forwarded to Senate Committee members who were absent at the time of the vote.

By the following day, the final vote was in: 4-0 with one abstaining vote. AB 361 moves forward.

Is there video of the hearing?

Calchannel.com streams State Assembly and Committee hearing sessions online. You can find the Judiciary Committee testimony here: http://www.calchannel.com/channel/viewvideo/2810.

Keep a lookout around 1:30 for the beginning of AB 361 argument.


What’s next for AB 361?

Next is the Senate Appropriations Committee in August after the summer recess, followed by the Floor of the State Senate, then back to Assembly, and then to Governor Brown’s desk. That is the path that AB 361 will have to successfully follow to become California Law.

    How can social innovators and supporters understand the legislative process better? 

    Simple, get involved.
    That’s what Innov8Social did this past week when we joined a number of social enterprises, state legislators, and policy makers at the State Capitol in Sacramento to observe and testify in support of AB 361 in a Senate Committee hearing.  AB 361 is the California bill that would establish a new corporate form in California. Businesses that elect to incorporate in this new form (i.e. as benefit corporations) would do so with the purpose of creating a general public benefit with their business.
    What is a general public benefit?
    The legislation outlines a general public benefit as a “material positive impact on society and the environment“—taken as a whole and assessed under a 3rd party standard.

    AB 361 at CA Senate Committee on Banking and Financial Institutions

    The June 29, 2011 hearing for AB 361.AB 361’s sponsor, Assemblyman Jared Huffman delivered the first remarks to the California State Senate Committee on Banking and Financial Institutions, chaired by Juan Vargas.

    He outlined key points of the legislation, which was submitted by a number of his constituents.  A few key points he noted:

    • incorporating as a benefit corporation would be completely voluntary
    • benefit corporations would be required to show material positive impact
    • benefit corporations would be required to meet higher standards of accountability and transparency
    • benefit corporations would create a way for consumers to contribute to social impact through their patronage
    • the concept of stakeholders (including the environment, community) would expand on the fiduciary relationship that exists currently between corporations and shareholders to maximize profit.
    • a version of the benefit corporation bill has already been passed in 6 states
    Several witnesses then delivered testimony on the basis of their support of AB 361. These supporters included:
    • Ryan Williams of Method — a scientist at Method–a company that aims to do more than business as usual spoke about Method’s aim to improve the world we work in through supporting infrastructure changes such as AB 361.
    • Don Shaffer — an investor and President & CEO of RSF Social Finance attested to the hundreds of millions of dollars that have been invested in B corporations and underlined the interest of investors in funding social enterprises.
    • Donald Simon — an attorney and partner at Wendel Rosen Black & Dean and Co-Chair of the Legal Working Group & Founder of 2 environmental non-profit organizations pointed out the social entrepreneurial roots already tied to California and the need to update the arcane view of fiduciary duty in the state.
    • John Montgomery — an attorney and Co-Founder of Montgomery & Hansen and Co-Chair of the Legal Working Group behind the bill noted that AB 361 would make California a leader in social enterprise.
    • William Clark — attorney and partner in Drinker Giddle and Reath LLP who has been integral in formulating the model benefit corporation legislation that has been passed in 6 states.  He mentioned that he and B Lab (the organization co-sponsoring the bill) have been working on California’s legislation for the past 2 years.
    A number of other witnesses provided brief testimonial support for AB 361 including leaders from: svt group, green age 360, One World Futbol, inNative, Worklore, Innov8Social, and others.
    Was there opposition?

    There were speakers who voiced opposition to AB 361. This included members from the California Association of Non-profits who were concerned about the impact AB 361 could have on state non-profit organizations seeking funding, noting a potential competition for resources.Attorney Steven Hazen also voiced concerns about the impact of any modification to fiduciary duty standards and the impact on shareholders. He also noted his support of AB 201, a bill proposing the creation of a blended corporate form called a flexible purpose corporation.

    Did AB 361 pass?

    After about an hour of testimony and answering of questions from Committee members, AB 361 went to vote. It was passed by the Senate Committee on Banking and Financial Institutions 5 (in favor) – 1 (against) – 1 (abstained).

    It passed through the Committee.

    What’s next for AB 361?

    It is due in the California State Judiciary Committee next week where it will face a similar process of presentation, witness testimony, and questioning from Committee members.

    While in social innovation exploration mode, last month I reported back from an interesting conference on sustainable enterprise, in which we learned a few key buzzwords in the field.  One was the “Green MBA“—with special focus on triple bottom line accounting.

    Which makes me wonder, is there a parallel “social innovation” LL.M course of study?
    An LL.M is a postgraduate law degree (a Masters in Law) that is typically a one-year, full-time program. It is often pursued to specialize in an area of law. For example there are LL.M programs in taxation, environmental law, international law, and intellectual property.
    With legislative innovations such as the benefit corporation and B corporation gaining traction, it seems that it would be useful and helpful to have attorneys who specialize in this emerging field.  Four pioneering states have already passed benefit corporation legislation. In California, the benefit corporation bill (AB 361) passed a vote in the state assembly 58 to 17, and New York’s benefit corporation legislation (A4692-A/Silver) is heading to the governor’s desk…With the connection between social innovation and law becoming a little more foreseeable than Mrs. Helen Palsgraf and harm caused by an ill-fated newspaper-wrapped package, it is food for thought to consider what tools and methods law students and attorneys have to study this subject further.

    It would be great to hear feedback on any programs you know of, you can also find Innov8Social on Facebook and connect on this topic there.

     

    If you are exploring signs of responsible business, you will likely come across the terms “B corporation” and “benefit corporation”…and while they may sound like synonymous buzzwords in social innovation, they are actually distinct concepts.

    Here are 3 key differences to help keep them straight:

    1. B Corporation is a voluntary certification.  B corporation certification recognizes companies that are purpose-driven and which create benefit for the community, the environment, and employees–as well as for shareholders. B corporation status is conferred on companies that apply with a passing score on the B Rating System and that agree to take steps to legally expand the fiduciary duty beneficiaries beyond shareholders.  The certification is granted by an advisory committee from B Lab–a non-profit organization dedication to B Corporation certification.
    2. Benefit Corporation is a legal corporate structure.  You’ve likely heard of corporate structures such as a C corp or an S corp, similarly, benefit corporation is a new class of corporation that serves society and the environment, as well as shareholders. As of June 2011, four states have passed benefit corporation legislation (Maryland, Vermont, New Jersey, Virgina).
    3. Becoming a Certified B Corporation is one way to meet statutory requirements for Benefit Corporation status. This is true for states that have passed benefit corporation legislation.