California's new B Corp law eyes social, environmental interplay
California businesses soon will be able to set up shop as so-called Benefit Corporations, or B Corps, under a new law signed Sunday by Gov. Jerry Brown. AB 361 enables businesses to pursue a "material positive impact on the environment and community in addition to maximizing profits," according to a statement from California Assemblyman Jared Huffman (D-San Rafael), who authored the bill.
Incorporating under AB 361 allows companies greater access to social impact and venture capital investments; legal protection for directors and officers as they consider non-financial social and environmental goals; and validation of their social and environmental responsibility claims since their annual benefit report must assess their performance against a third-party standard.
"Corporations, particularly in California, don't have legal protection to consider non-financial factors when making decisions, particularly in liquidity or sale scenarios, like when the company's up for sale," said Jay Coen Gilbert, a B Corporation advocate and co-founderof B Lab in Philadelphia. "That's one fundamental constraint on sustainable businesses: They're doing that at significant legal exposure. [AB 361] helps to provide them with legal protection to pursue what some people perceive as a triple bottom line -- creating financial profit as well as social and environmental impact."
Before AB 361, Gilbert added, "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."
AB 361 goes into effect Jan. 1. Similar Benefit Corporation laws exist in Hawaii, Maryland, New Jersey, Vermont and Virginia. Benefit Corporation legislation is awaiting approval in New York and is moving forward in North Carolina, Pennyslvania and Michigan.
-- Susan Carpenter
Image: B Corporation logo. Credit: www.bcorporation.net