New law gives firms do-gooder status
By Dale Kasler
The Sacramento Bee
Published: Tuesday, Jan. 3, 2012 - 12:00 am | Page 5B
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California has a new law officially designating corporate do-gooders.
Starting today, California businesses can incorporate as "benefit corporations," which allows them to work for the public good as well as their shareholders.
Current law generally requires California companies to put shareholder interests first. Companies that incorporate under the new law, AB 361, can look at a broader set of criteria when making financial decisions.
The effect is a kind of "safe harbor" for management. A company that wants to spend additional dollars on, say, environmental safeguards, would be given legal protection against lawsuits or other moves by angry shareholders.
"It gives some legal status to the (company's) social mission," said Mike Hannigan, president and co-owner of Give Something Back Office Supplies in Oakland, one of the companies changing its corporation status today. "It's not just some idea."
California is the sixth state to pass a benefit corporation law. A host of companies, led by Ventura travel-apparel maker Patagonia, are expected to appear at the secretary of state's office in Sacramento today to fill out the paperwork.
Benefit corporations aren't merely allowed to weigh social or environmental considerations when making financial decisions – they're required to. The companies will have to file an annual report with the secretary of state detailing the work they did for the public good.
"With this new law, we are attracting new socially conscious companies, investors and consumers," said Assemblyman Jared Huffman, D- San Rafael, author of AB 361.
"We're sending a strong message that California is open for this emerging form of business," he said in a news release.
Incorporating under the new law doesn't change a company's for-profit status.
Heather Van Dusen, an expert on benefit corporations, said the law will probably make itself felt when company founders sell the business or take on new investors. Those new owners are effectively committed to carrying out the founders' wishes for doing social good.
The founders "will be able to hold their companies accountable, to continue the mission," said Van Dusen, the head of certification and community development for B Lab. A nonprofit based in Pennsylvania, B Lab certifies companies as socially responsible.