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California Can Lead on Socially-Conscious Businesses

California Can Lead on Socially-Conscious Businesses

Written by Assembly Member Jared Huffman

We are at the cusp of major positive change in corporate governance and corporate responsibility in California.

Behind us is the old way, the only way corporations in California and most other states have operated: Start a business and try to maximize profits for shareholders. Under this model, any notion of broad corporate social responsibility is subordinated – and legally trumped – by a fiduciary duty to make as much money as possible.

In front of us is a new way: Start a business and do more than just maximize profits. Make positive contributions to the community, improve the environment and show a commitment to your employees and customers.

In states that provide legal support for this new model of corporate governance, corporate social responsibility actually means something – and companies who choose to embrace it will be able to do good and do well. Socially minded entrepreneurs and business leaders will have a corporate form that reflects their values. Socially responsible investors and consumers will know when they put their money behind these companies that they are backing something real and will have legal remedies to hold these companies to their broader corporate mission. That is the foundation of my bill, AB 361, which will create a new type of corporate entity in California called the Benefit Corporation.

Unlike existing corporate structures in California that must focus on maximizing profits at the exclusion of other socially advantageous and desirable benefits, this new class of corporation will be required to create a material positive impact on society and the environment, and in so doing, will need to meet higher standards of accountability and transparency.

California will be lucky number seven. Hawaii, Maryland, New Jersey, New York, Vermont and Virginia passed or are in the process of passing benefit corporation laws. More states, including Michigan, Pennsylvania and North Carolina, are considering similar legislation.

Although California may not be first with benefit corporation legislation, we have the opportunity to lead the nation. Already, 214 California businesses are voluntarily – and at some legal risk – meeting the standards of a benefit corporation. Even with the current restrictive corporate governance laws, California leads the nation in clean technology investment and businesses creating green jobs. It is reasonable to expect that hundreds – perhaps thousands – of California companies will choose to adopt this new corporate form, putting our state on the leading edge of corporate social responsibility.

What companies and investors am I talking about?  Check out RSF Capital (rsfsocialfinance.org), a major investment firm looking for investments designed not only to pay off but to pay it forward. The company is built on the premise that its work is a “spirited conversation about the role our monetary system should play in the development of humanity.”  The company supports AB 361 because Benefit Corporation status in California will provide the knowledge and confidence its investors need to identify companies and ideas worth supporting.

Look, too, at Method Products (methodproducts.com).  Its cleaning products are everywhere, from Target to Whole Foods. Here is how the company describes itself: “We’re here to make products that work, for you and for the planet.” Method Products supports AB 361 and has pledged that when the bill passes, it will ask its directors to reincorporate out of Delaware and into California as a Benefit Corporation.

AB 361 does not cost the state any money and does not mandate anything. It is a voluntary choice to become a Benefit Corporation. But the legislation will make a difference.  At a time of great economic challenges, when many complain about businesses leaving our state, AB 361 rolls out the welcome mat for businesses and investors ready to create jobs in California and make economic and social contributions to our state for years to come.

If you’re wondering what you can do to support AB 361, there’s plenty!  You can sign on here to the Care2 petition. You can contact members of the California Senate and urge them to do what the Assembly already has done – pass AB 361 on a bipartisan basis. And once AB 361 becomes law, you can shop for goods, services and investments by using Benefit Corporation status as the gold standard for corporate social responsibility.

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Photo credit: via Flickr by LWY

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18 comments

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3:40PM PDT on Aug 25, 2011

Since coming to California three months ago, I have been consistently impressed with it's "green" ways and civil ways of addressing concerns of it's citizens. Anything that helps further it sounds great. Thanks for the article and I'll definitely sign the petition.

5:32AM PDT on Aug 17, 2011

Thanks for the article.

6:57PM PDT on Aug 8, 2011

Yes We Can!

10:29AM PDT on Aug 8, 2011

thanks.

4:27AM PDT on Aug 8, 2011

I'd love to know how it's working out in the other states. Putting ethics in front of profit sounds wonderful.

6:21AM PDT on Aug 7, 2011

ty

1:20AM PDT on Aug 6, 2011

Interesting

2:09PM PDT on Aug 5, 2011

Good news, some members of my family are starting B Corp and we would love to go home to California and make that our headquarters.

9:33AM PDT on Aug 5, 2011

MY GOD! People, wake up! Read Atlas Shrugged. Yes it's a big book but you're all big boys and girls so I think you can handle it. This "voluntary" legislation may not be as rampant as whats in the book but it's very close to that step.

5:25AM PDT on Aug 5, 2011

Monica speaks my mind - if we really want to encourage businesses that do good, they should get more than just a pat on the back. There should be tax or other advantages.

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