Huffman bill would reclassify companies that pursue social, environmental goals

A bill that would allow companies to incorporate in a way that demonstrates their commitment to social and environmental goals is close to passage in the Legislature.

The bill, AB 361 by Assemblyman Jared Huffman, D-San Rafael, would create a new class of companies called "Benefit Corporations." Companies under the umbrella could focus on implementing social and environmental ideals, in addition to generating a profit.

Each company would be required to create an annual report on its positive impacts on society and the environment.

"Many companies want to do more for social responsibility, for the environment, but they don't want to get sued for their decisions," Huffman said.

Under current law, California companies exist to conduct business in a manner that maximizes shareholder value. Companies that make decisions to prioritize environmental or social values over profit are at risk of lawsuits from shareholders.

The bill was passed by the Assembly and Senate, and it needs final approval of amendments in the Assembly before it goes to the governor's desk.

Opponents fear the new class of corporations could be less accountable to the public, and say there should be more dialogue about the proposal.

"We're creating, frankly, massive change to the corporate structure in California, and part of what we're not seeing are proper oversights for these new corporations," said Jim Anderson, president of the California Society of Association Executives, a group with 1,300 members that hail from trade and professional associations. Anderson said the bill includes limits on why and by whom a company can be sued.

Nonprofit organizations were not really a part of the crafting of the law, said Ken Larsen, director of public policy for the California Association of Nonprofits. Larsen worries the new benefit corporations may seek tax advantages, a perk that nonprofits are losing.

"Right now the tax benefits for nonprofits are under great pressure," Larsen said.

The bill was sponsored by B Lab, a nonprofit organization that certifies companies as "B Corporations." That certification is similar to organic or fair-trade, but evaluates how a company conducts its business practices as a whole.

The bill would not require companies to attain such certification. Instead, companies would select a set of environmentally and socially conscious standards developed by a third party such as B Lab, and then evaluate its own performance on those standards.

"The transparency requirements are the heart of the legislation," said Jay Coen Gilbert, co-founder of B Lab. He said shareholders will have expanded powers to hold companies accountable for adhering to those standards, including legal action.

The bill was modeled after similar legislation in Hawaii, Maryland, New Jersey, New York, Vermont and Virginia. Many businesses have signed on to support the proposal, such as Solar Works in Sebastopol.

"It's the right thing to do for our business, and it's the right thing to do for our planet," said Laura Goldman, vice president of Solar Works.