BILL ANALYSIS                                                                                                                                                                                                    






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                             Senator Juan Vargas, Chair


          AB 361 (Huffman)                        Hearing Date:  June 29, 
          2011  

          As Amended: May 19, 2011
          Fiscal:             Yes
          Urgency:       No
          

           SUMMARY    Would authorize the creation of a new corporate form 
          called a benefit corporation, and would provide for the rules 
          that must be followed by these types of entities, and by other 
          types of entities wishing to become benefit corporations.  
           
           DESCRIPTION
           
            1.  Would establish a new corporate form called a benefit 
              corporation, and would provide that one or more natural 
              persons, partnerships, associations, benefit corporations, 
              or corporations, domestic or foreign, may form a benefit 
              corporation under the California Corporations Code, by 
              executing and filing articles of incorporation with the 
              California Secretary of State.  Would state that the 
              provisions of the General Corporation Law (Division 1, 
              commencing with Section 100), apply to benefit corporations, 
              except where those provisions are in conflict with or 
              inconsistent with the benefit corporation provisions added 
              by the bill.  

           2.  Each benefit corporation would be required to have the 
              purpose of creating a general public benefit.  "General 
              public benefit" would be defined as a material positive 
              impact on society and the environment, taken as a whole, as 
              assessed against a third-party standard (see Number 4 
              below), from the business and operations of a benefit 
              corporation.  

           3.  In addition, in its articles of incorporation, each benefit 
              corporation could, but would not be required to, list one or 
              more specific public benefits, which would be additional 
              purposes of the corporation.  Specific public benefits are 
              defined in the bill as all of the following:  providing 
              low-income or underserved individuals or communities with 




                                               AB 361 (Huffman), Page 2




              beneficial products or services; promoting economic 
              opportunity for individuals or communities beyond the 
              creation of jobs in the ordinary course of business; 
              preserving the environment; improving public health; 
              promoting the arts, sciences, or advancement of knowledge; 
              increasing the flow of capital to entities with a public 
              benefit purpose; or the accomplishment of any other 
              particular benefit for society or the environment.

           4.  Would define a third-party standard, for purposes of the 
              bill, as a standard for defining, reporting, and assessing 
              overall corporate social and environmental performance, 
              which meets all of the following criteria:

               a.     The standard would have to provide a comprehensive 
                 assessment of the impact of the business and the 
                 business' operations on employees of the benefit 
                 corporation and its subsidiaries and suppliers, customers 
                 of the benefit corporation, the communities in which the 
                 benefit corporation and its subsidiaries and suppliers 
                 are located, society, and the local and global 
                 environments.  The impact of the business and the 
                 business' operations on shareholders would not have to be 
                 assessed by the third-party entity.  

               b.     The standard would have to be developed by an entity 
                 that has no material financial relationship with the 
                 benefit corporation or any of its subsidiaries, and that 
                 satisfies both of the following requirements:  i) No more 
                 than one-third of the members of the governing body of 
                 the organization could be representatives of associations 
                 of businesses whose members' performance is measured 
                 against the standard, of businesses operating in a 
                 specific industry, or of businesses whose performance is 
                 measured against the standard; and ii) the entity could 
                 not be materially financed by representatives of 
                 associations of businesses whose members' performance is 
                 measured against the standard, of businesses operating in 
                 a specific industry, or of businesses whose performance 
                 is measured against the standard.

               c.     The standard would have to be developed by an entity 
                 that accesses necessary and appropriate expertise to 
                 assess overall corporate social and environmental 
                 performance, and that uses a balanced, multi-stakeholder 
                 approach, including a public comment period of at least 




                                               AB 361 (Huffman), Page 3




                 30 days to develop the standard.

               d.     All of the following information about the standard 
                 would have to be made publicly available:

                    i.       The criteria considered when measuring the 
                     overall social and environmental performance of a 
                     business, and the relative weightings assigned to 
                     each criterion;

                    ii.      The identity of the directors, officers, any 
                     material owners, and the governing body of the entity 
                     that developed and controls revisions to the 
                     standard;

                    iii.     The process by which revisions to the 
                     standard and changes to the membership of the 
                     governing body are made;

                    iv.      An accounting of the sources of financial 
                     support for the entity, with sufficient detail to 
                     disclose any relationships that could reasonably be 
                     considered to present a potential conflict of 
                     interest.  

           5.  Each corporate entity wishing to become a benefit 
              corporation through conversion or reorganization would 
              require an affirmative vote of at least two-thirds of each 
              of its classes of shareholders, or a higher vote threshold, 
              if required in its articles of incorporation.  The same vote 
              threshold would be required to amend a benefit corporation's 
              articles of incorporation, or to create or dissolve a 
              benefit corporation through merger or acquisition.  

           6.  Shareholders of an existing corporation that decided to 
              convert to a benefit corporation would be entitled to 
              dissenter's rights, which are spelled out in existing law 
              (Corporations Code Section 1300).  Dissenters' rights 
              generally entitle dissenting shareholders to be cashed out 
              for their shares at the shares' fair market value, as of the 
              day before the first announcement of the terms of the 
              proposed reorganization or merger, adjusted for any stock 
              split, reverse stock split, or share dividend which becomes 
              effective after that date.  

           7.  The board of directors, committees of the board, and the 




                                               AB 361 (Huffman), Page 4




              individual directors of a benefit corporation would be 
              required to consider the impacts of any action or proposed 
              action upon all of the following:  the shareholders of the 
              benefit corporation; the employees and workforce of the 
              benefit corporation and its subsidiaries and suppliers; the 
              interests of customers of the benefit corporation as 
              beneficiaries of the general or specific public benefit 
              purposes of the benefit corporation; community and societal 
              considerations, as specified; the local and global 
              environment; the short- and long-term interest of the 
              benefit corporation, including benefits that could accrue to 
              the corporation from its long-term plans, and the 
              possibility that those interests could best be served by 
              retaining control of the corporation rather than selling or 
              transferring control to another entity; and the ability of 
              the benefit corporation to accomplish its general, and any 
              specific, public benefit purpose.

           8.  Would provide that a director of a benefit corporation is 
              not liable for monetary damages for any failure of the 
              benefit corporation to create a general or specific public 
              benefit.  Would further provide that a person who performs 
              the duties of a director in accordance with the provisions 
              of the bill is not liable for monetary damages for any 
              alleged failure to discharge the person's obligations as a 
              director.    
           
           9.  Would provide that a director of a benefit corporation does 
              not have a fiduciary duty to a person that is a beneficiary 
              of the general or specific public benefit purposes of a 
              benefit corporation.  Would further provide that a benefit 
              corporation is not liable for monetary damages for any 
              failure to create a general or specific public benefit.  

           10. Would prohibit any person from bringing an action or 
              asserting a claim against a benefit corporation or its 
              directors, except in a benefit enforcement proceeding, and 
              would provide that a benefit enforcement proceeding may only 
              be commenced or maintained by the corporation, a 
              shareholder, a director, a person or persons that hold 5% or 
              more of the equity interests in an entity of which the 
              benefit corporation is a subsidiary, or other persons 
              specified in the articles or bylaws of the benefit 
              corporation.

           11. Would require each benefit corporation to prepare an annual 




                                               AB 361 (Huffman), Page 5




              benefit report, which must be sent to its shareholders no 
              later than 120 days after the close of the benefit 
              corporation's fiscal year, or at the same time it delivers 
              any other annual report to its shareholders, and (with the 
              exception of proprietary or financial information) would 
              have to post the benefit report on its Internet web site.  
              The annual benefit report would have to include a narrative 
              description of all of the following:

               a.     The process and rationale for selecting the 
                 third-party standard used to prepare the benefit report.

               b.     The ways in which the benefit corporation pursued a 
                 general public benefit and one or more specific public 
                 benefits during the applicable year, and the extent to 
                 which those benefits were created.  

               c.     Any circumstances that hindered the creation of a 
                 general or specific public benefit by the benefit 
                 corporation.

               d.     An assessment of the overall social and 
                 environmental performance of the benefit corporation, 
                 prepared in accordance with a third-party standard 
                 applied consistently with any application of that 
                 standard in prior benefit reports or accompanied by an 
                 explanation of the reasons for any inconsistent 
                 application.  The assessment would not need to be audited 
                 or certified by a third party.

               e.     The name of each person or more that owns 5% or more 
                 of the outstanding shares of the corporation.

               f.     A statement from the board of directors indicating 
                 whether, in the opinion of the board of directors, the 
                 benefit corporation failed to pursue its general, and any 
                 specific, public benefit purpose in all material respects 
                 during the period covered by the report.  If, in the 
                 opinion of the board of directors, the benefit 
                 corporation failed to pursue its general, and any 
                 specific, public benefit purpose, this statement would 
                 have to include a description of the ways in which the 
                 benefit corporation failed to pursue that purpose/those 
                 purposes.

               g.     A statement of any connection between the entity 




                                               AB 361 (Huffman), Page 6




                 that established the third-party standard, or its 
                 directors, officers, or material owners, and the benefit 
                 corporation, or its directors, officers, and material 
                 owners, including any financial or governance 
                 relationship that might materially affect the credibility 
                 of the objective assessment of the third-party standard.

           EXISTING LAW  authorizes the creation of several corporate forms, 
          including corporations, partnerships, limited partnerships, 
          limited liability partnerships, and limited liability companies, 
          each with its own set of allowable and prohibited acts.

           COMMENTS

          1.  Background and Discussion:   This bill is sponsored by B Lab 
              (www.bcorporation.net), a nonprofit organization whose 
              stated mission involves using the power of business to solve 
              social and environmental problems.  According to the 
              company, B Lab drives systemic change through three 
              interrelated initiatives:  a) building a community of 
              Certified B Corporations to make it easier for people to 
              tell the difference between "good companies" and good 
              marketing; b) accelerating the growth of the impact 
              investing asset class through use of B Lab's GIIRS impact 
              rating system by institutional investors; and 3) promoting 
              supportive public policies, including creation of a new 
              corporate form and tax, procurement, and investment 
              incentives for sustainable business.  B Lab has successfully 
              sponsored benefit corporation legislation in four other 
              states (Maryland, Vermont, Virginia, and New Jersey).

          In background material provided to the Committee, the bill's 
              author states, "California leads the nation in innovation 
              and sustainability, but it does not have the statutory 
              framework to provide California businesses with the ability 
              to do both simultaneously.  There is tremendous demand from 
              the business community in California and nationally for 
              states to create this new kind of corporation.  These 
              visionary entrepreneurs and investors want to build 
              businesses with an eye toward the triple bottom line of 
              people, planet, and profit.  AB 361 creates a new corporate 
              form, which allows businesses to voluntarily elect an 
              alternative corporate structure with higher standards of 
              corporate purpose, accountability, and transparency."

           2.  How Does AB 361 Differ from SB 201?   In April 2011, this 




                                               AB 361 (Huffman), Page 7




              Committee heard and unanimously passed SB 201 (DeSaulnier), 
              a bill which would authorize the creation of a new, blended 
              corporate form called a flexible purpose corporation.  To 
              those who are not experts in corporate law or corporate 
              governance, AB 361 appears extremely similar to SB 201.  
              Both bills would allow for the creation of for-profit 
              companies with dual for-profit/social-environmental missions 
              written into their articles of incorporation.  Thus, both 
              types of corporations (flexible purpose and benefit) could 
              simultaneously pursue missions of public good and private 
              wealth, with the knowledge and support of their 
              shareholders.  

          Both bills require supermajority votes of the shareholders of 
              existing companies to enable the companies' transformation 
              into benefit/flexible purpose corporations, and both provide 
              dissenters' rights to shareholders of existing companies, 
              who decide they do not wish to own a part of the newly 
              formed benefit/flexible purpose corporation.  Both bills 
              also require the publication of annual reports, in which the 
              corporations' success in meeting their public benefits is 
              discussed.

          Yet, the supporters of both bills and many experienced corporate 
              attorneys assert that the two bills are very different.  
              Some interested parties assert that SB 201 and AB 361 can 
              both become law, that they are not duplicative or 
              overlapping, and that the intended users of the two 
              corporate models, and the needs of these users, are very 
              different.  Other interested parties have chosen sides, and 
              strongly prefer one bill to the other.

          The following are some of the key differences between the two 
              bills.  This analysis does not attempt to provide a detailed 
              comparison and contrast between the measures; such a 
              comparison is left to the corporate experts who will be 
              addressing the Committee during testimony on the measure.

               a.     SB 201 requires each flexible purpose corporation to 
                 identify one or more specific public benefits in its 
                 bylaws or articles of incorporation, but does not require 
                 the use of any specific metric to evaluate the ability of 
                 that corporation to achieve its benefit(s), and does not 
                 require review of the corporation's actions by a third 
                 party.  Instead, it provides a safe harbor for 
                 corporations that utilize best practices to report on 




                                               AB 361 (Huffman), Page 8




                 their progress toward achieving their special purpose 
                 benefit(s).  SB 201 also requires a very comprehensive 
                 annual report, in which the flexible purpose corporation 
                 is required to list material actions it took during the 
                 fiscal year to achieve its special purpose objectives, 
                 and the impact of those actions; and in which the 
                 corporation is required to cite which metrics it used to 
                 evaluate its performance, and why those metrics were 
                 selected.  Furthermore, any flexible purpose corporation 
                 that incurs an expense related to the achievement of its 
                 special purpose, which is expected to have a material 
                 adverse impact on its shareholders, is required to 
                 prepare a special report describing that expenditure, for 
                 submission to its shareholders, within 45 days of the 
                 expenditure.

               b.     AB 361 requires each benefit corporation to create a 
                 general public benefit; the identification and 
                 achievement of specific benefits is optional.  The board 
                 of directors of a benefit corporation is responsible for 
                 considering the impact of its actions and proposed 
                 actions on seven different entities (shareholders, 
                 employees, customers, the community and society, the 
                 environment, the interests of the corporation, and the 
                 ability of the corporation to accomplish its general and 
                 any specific public purpose).  The directors of a benefit 
                 corporation are not required to give priority to any 
                 particular factor or group among the seven listed above. 
                 The creation of general and specific public benefits is 
                 deemed to be in the best interests of the benefit 
                 corporation.  

               Annually, each benefit corporation is supposed to assess 
                 its own corporate social and environmental performance, 
                 using a third party standard selected by the corporation, 
                 and include a discussion of its performance in an annual 
                 report.  An external audit or certification of the 
                 corporation's findings is not required.  

           3.  What Third Party Standards Exist, and How Will They Be Used 
              by Benefit Corporations?   B Lab, the sponsor of this bill, 
              has developed a third party standard that could be used by 
              benefit corporations to assess their social and 
              environmental performance.  They assert that their standard 
              is one of many available to companies that might become 
              benefit corporations.  Other third party standards cited by 




                                               AB 361 (Huffman), Page 9




              B Lab include Green Seal (  www.greenseal.org  ), the Global 
              Rating Initiative (  www.globalreporrting.org  ), the Global 
              Impact Investment Rating System (GIIRS), the International 
              Standards Organization 
              (  www.iso.org/iso/social_responsibility  ), and Underwriters 
              Laboratories (  www.ul.com/global/eng/pages/  ).  Some 
              developers of third party standards charge for the use of 
              these standards; others offer their standards free of 
              charge.  Some standards return a numerical grade; others 
              return a letter grade; others return different types of 
              assessments, such as gold/silver/bronze or pass/fail; still 
              others return more qualitative assessments.

          Proponents of this bill argue that the market will allow the 
              best standards and systems for measuring benefits to rise to 
              the top.  Opponents argue that companies can cherry-pick the 
              standard that will allow them to report on their performance 
              in the best possible light.  

           4.  Summary of Arguments in Support:   

               a.     The American Sustainable Business Council (of which 
                 B Lab is a member) describes itself as a growing 
                 coalition of business networks and businesses committed 
                 to advancing a new vision, framework, and policies that 
                 support a vibrant, equitable, and sustainable economy.  
                 To date, the organizations that have joined the Council 
                 represent over 65,000 businesses, many of which are in 
                 California.  The Council believes that businesses need to 
                 have missions that are broader than simply maximizing 
                 profit, and that business leaders and investors need to 
                 be able to run their businesses in ways that focus on 
                 more stakeholders.  They observe that traditional 
                 corporate law defines the fiduciary duty of corporate 
                 officers and directors narrowly, making it difficult for 
                 businesses with a social mission to make the kinds of 
                 complicated decisions they face every day.  AB 361 
                 provides the business model needed by these entities.

               b.     The Social Venture Network includes over 500 
                 members, including many of the pioneers of socially 
                 responsible business.  Social Venture Network observes 
                 that in a traditional corporation, fiduciary duty focuses 
                 on increasing shareholder profits.  In the case of 
                 benefit corporations, fiduciary duty is redefined by 
                 stating that the creation of public benefit is in the 




                                               AB 361 (Huffman), Page 10




                 best interests of the benefit corporation.  This allows 
                 corporate officers to define other goals beyond making a 
                 profit alone, and gives investors the power to require 
                 those officers to make decisions that reflect those 
                 goals.

               c.     Green Seal identifies itself as the oldest 
                 environmental standard-setting and certification 
                 organization in the United States.  Its certification 
                 process requires on-site audits of manufacturing and 
                                            service facilities.  There are currently over 3,500 
                 products and services certified to Green Seal standards.  
                 Green Seal supports the bill for all of the reasons 
                 identified by the Social Venture Network and American 
                 Sustainable Business Council.  "Increasingly, smart 
                 corporations are realizing that operations and practices 
                 that consider corporate social responsibility and 
                 sustainability are the way of the future and represent 
                 best business practices...but current law and corporate 
                 statutes constrain consideration of other than the narrow 
                 goal of maximizing profit."

               d.     The law firm of Wendel Rosen Black & Dean writes in 
                 support of the bill, and disputes the assertion (see 
                 opposition arguments below) that the bill diminishes 
                 shareholder rights.  The bill's requirement that a 
                 decision to become a benefit corporation be supported by 
                 at least a 2/3rds vote among shareholders is among its 
                 shareholder protections, as is its provision granting 
                 dissenter's rights to shareholders.  The bill also 
                 increases transparency by requiring benefit corporations 
                 to provide shareholders with an annual benefit report.  
                 If the benefit corporation fails to make good on its 
                 commitments, shareholders can file suit to compel 
                 compliance.  Shareholders of traditional corporations 
                 have no right to receive information about the company's 
                 social or environmental performance, and they have no 
                 right to sue the company for behaving irresponsibly on 
                 such matters.  AB 361 provides shareholders control of 
                 the company's decision to become a benefit corporation, 
                 together with the tools to evaluate and enforce the 
                 company's corporate social and environmental 
                 responsibility.  

               e.     The United States Green Building Council California 
                 Advocacy Committee believes that AB 361 contains the 




                                               AB 361 (Huffman), Page 11




                 general public benefit provisions which ensure that 
                 consumers, investors, and policymakers can clearly 
                 distinguish these companies from those that are doing 
                 something for short-term marketing purposes.  The Green 
                 Building Council supports the provision of AB 361 that 
                 redefines the fiduciary duty of directors, requiring them 
                 to consider the impact of their decisions on the 
                 long-term interests of society, not just the short-term 
                 interests of shareholders, even when considering a sale 
                 of the business.  Benefit corporations are also required 
                 to assess their overall social and environmental 
                 performance against an independent, credible, 
                 transparent, and comparable third party standard.  
                 Markets thrive on clarity and transparency, and these 
                 third party standards create a level playing field, 
                 encourage a more efficient and effective marketplace, and 
                 build public trust.

               f.     Myriad other organizations, all listed below, sent 
                 letters echoing the sentiments expressed above.

           5.  Summary of Arguments in Opposition:    

               a.     The Corporations Committee of the Business Law 
                 Section of the California State Bar (Corporations 
                 Committee) is concerned that AB 361 will enact a 
                 fundamental change to the fiduciary duties of corporate 
                 directors and will pose a consequent risk to shareholder 
                 protections.  The Corporations Committee is concerned 
                 that the bill will create a framework in which directors 
                 are no longer accountable to their shareholders.

               Under the bill, directors are wholly in control of the 
                 nature of their fiduciary duties, because they have the 
                 ability to select the third party standard by which their 
                 conduct will be measured, with no input from 
                 shareholders, and because there are only vague 
                 substantive requirements in the bill regarding the third 
                 party standard.  This presents the possibility that 
                 directors will be able to shop for third party standards 
                 that suit their purposes to the detriment of 
                 shareholders.  The Corporations Committee is concerned 
                 that, over time, varying third party standards will 
                 develop, which will allow directors great discretion to 
                 choose not just how stringent or lenient their duties 
                 will be, but also the very substance of the duties 




                                               AB 361 (Huffman), Page 12




                 themselves.

               The Corporations Committee also asserts that the bill 
                 provides almost no protection to shareholders.  Section 
                 14620(a) (the portion of the bill which spells out the 
                 fiduciary duties of the directors of benefit 
                 corporations) tracks the traditional fiduciary duties 
                 found in Section 309 of the General Corporations Code, 
                 but eliminates any references to shareholders, 
                 essentially eliminating any duty of care or loyalty to 
                 shareholders.  Furthermore, because the bill lists so 
                 many topics that directors are allowed to consider when 
                 making actions, the bill will allow them to briefly 
                 consider, and then dismiss, shareholder interests.  
                
                b.     The Nonprofit and Unincorporated Organizations 
                 Committee of the Business Law Section of the State Bar 
                 (the Nonprofit Committee) opposes AB 361, for somewhat 
                 different reasons.  The Nonprofit Committee asserts that 
                 the bill introduces a corporate form with purposes 
                 similar to those of nonprofit corporations, but does not 
                 enact oversight and accountability provisions similar to 
                 those applicable to nonprofit corporations.  The 
                 Nonprofit Committee is also concerned that the entity 
                 behind the bill (B Lab) has sought tax preferences for 
                 benefit corporations in other states, and could do so 
                 here, if AB 361 is enacted.  Enacting tax preferences for 
                 benefit corporations could incentivize the creation of 
                 benefit corporations over nonprofit corporations.

               The Nonprofit Committee is also concerned that the bill 
                 limits the liability of benefit corporations and their 
                 directors, through express limitations on liability and 
                 through the mechanism of the benefit enforcement hearing. 
                  The bill expressly disclaims any director fiduciary duty 
                 to the beneficiaries of the very public benefits for 
                 which the corporation is supposedly formed.

               Finally, the Nonprofit Committee expresses concerns about 
                 the general public benefit definition in the bill.  
                 Introducing concepts of general public and specific 
                 public benefit into the Corporations Code creates a 
                 potential for confusion with the already existing public 
                 benefit corporation statute, which allows a nonprofit 
                 corporation to be formed for any public or charitable 
                 purpose.  Finally, the Nonprofit Committee notes, 




                                               AB 361 (Huffman), Page 13




                 virtually all corporations provide some kind of general 
                 public benefit, if one measures them against the vague 
                 standard contained in the bill.  
                
                c.     Two experienced corporate lawyers, Steven Hazen and 
                 Keith Bishop, wrote individual letters of opposition, in 
                 which they supported the arguments made by the 
                 Corporations Committee and the Nonprofit Committee.  

               In addition to supporting the comments of the two State Bar 
                 committees, Mr. Bishop asserted that AB 361 is being 
                 promoted by an out-of-state entity, which would directly 
                 benefit through enactment of the bill.  

               Mr. Hazen enumerated three key points of opposition:  1) 
                 The modified fiduciary duty standard provided in the bill 
                 comes at the expense of reduced protections for 
                 shareholders;  2) The increased breadth of matters that a 
                 board of directors may consider when making decisions 
                 about the best interests of the corporation increases the 
                 opportunity for entrenchment by directors, at the expense 
                 of shareholders;  3) The purported social benefits which 
                 are asserted to have been achieved by benefit 
                 corporations will not be open to verification, because 
                 the bill rejects public reporting procedures that would 
                 enable doing so.

               Mr. Hazen does not believe that AB 361 and SB 201 should 
                 both become law (he strongly prefers SB 201).  He 
                 believes that enacting both bills would pose a 
                 significant risk of confusion among shareholders, 
                 prospective investors, lenders, and the public.  He 
                 believes that everything the supporters of AB 361 say 
                 they want corporations to be able to do could also be 
                 done under SB 201.  
                
                d.     The California Association of Nonprofits (CAN) and 
                 California Society of Association Executives (CalSAE, 
                 whose membership is comprised of nonprofit association 
                 executives among its membership) both encourage the 
                 author of AB 361 to make the bill a two-year bill, to 
                 accommodate the need for additional input and 
                 perspectives on the measure's impact.  

               CAN's primary argument in opposition is based upon the 
                 concern that benefit corporations will siphon money away 




                                               AB 361 (Huffman), Page 14




                 from nonprofits.  Fundamentally, CAN does not believe 
                 that new corporate forms are needed.  It encourages the 
                 Legislature to convene one or more informational hearings 
                 to evaluate the potential impact of bills like AB 361 and 
                 SB 201, before moving either bill to the Governor.  If 
                 the Legislature chooses to enact new corporate forms 
                 allowing for-profit companies to specify public benefits 
                 among their primary purposes, CAN believes that the 
                 legislation should contain sufficient specificity and 
                 accountability, two things CAN sees as lacking in AB 361. 
                  

               CalSAE is concerned that the bill places benefit 
                 corporations in the same arena as current non-profit 
                 organizations, which may cause both legal and public 
                 confusion between benefit corporations and nonprofits.  
                 The organization is also dismayed at the lack of 
                 oversight the bill requires and is perplexed at the lack 
                 of outreach to the nonprofit community.  CalSAE is 
                 concerned that the limitation on the ability of 
                 interested parties to bring benefit enforcement 
                 proceedings limits the external accountability of benefit 
                 corporations, and is similarly concerned that the bill 
                 eliminates any monetary liability for directors who fail 
                 to perform their duties, and for benefit corporations 
                 that fail to produce a public benefit.  CalSAE recommends 
                 that benefit corporations should be encouraged to partner 
                 with existing nonprofits to pursue public benefits as 
                 part of the benefit corporation's mission.  

          6.  Questions:  

               a.     Are AB 361 and SB 201 both necessary?  Would one 
                 hybrid bill, which included the best provisions from both 
                 individual pieces of legislation, make more sense?  

               b.     At what point does the concept of a "general public 
                 benefit" (such as the one promoted by AB 361) become so 
                 vague as to become meaningless?  Don't all entities 
                 produce some public benefit?  
        
          7.  Prior and Related Legislation:   

               a.     SB 201 (DeSaulnier):  Would authorize the creation 
                 of flexible purpose corporations.  Pending in the 
                 Assembly Judiciary Committee.




                                               AB 361 (Huffman), Page 15





               b.     SB 1463 (DeSaulnier), 2009-10 Legislative Session:  
                 Substantially similar to SB 201.  Never taken up by the 
                 author.

               c.     AB 2944 (Leno), 2007-08 Legislative Session:  Until 
                 January 1, 2015, would have specified that, in 
                 considering the best interests of a corporation and its 
                 shareholders, a corporation's board of directors and 
                 other specified individuals with responsibility for 
                 running a corporation could, in considering the best 
                 interests of the corporation and its shareholders, 
                 consider the effect of the corporation's actions on the 
                 state and national economy, and on the environment, and 
                 could incorporate community and societal considerations, 
                 among other factors, into its evaluation.  Vetoed by the 
                 Governor.
                
          LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          B Lab (sponsor)
          AGSJ
          Alliance of Chief Executives
          American Sustainable Business Council
          Bay Area Council
          Beckwith Associates
          Bruce Klafter
          Build It Green
          California Association for Micro Enterprise Opportunity
          Center for Dynamic Governance
          Chris Mann
          Clean Fund LLC
          Direct Dental
          Drummond Lawson
          Friends Committee on Legislation of California
          Great Place to Work Institute
          green age 360
          Green America
          Green Business Networking
          Green Chamber of Commerce
          Green Seal
          Hanson Bridget LLP
          KINeSYS
          Mark Liebowitz




                                               AB 361 (Huffman), Page 16




          Mindful Investors
          Minerva Consulting
          New Harvest Capital
          New Voice of Business
          Presidio Graduate School
          Public Works, LLC
          Quantum Intech
          Raymond Katz
          Silicon Valley Leadership Group
          Small Business California
          Social Venture Network
          Steve Levin
          The Rosebud Agency
          The Vianova Group, LLC
          United States Green Building Council California Advocacy 
          Committee
          Wendel Rosen Black & Dean LLP
          WorkLore
           
          Opposition
               
          California Association of Nonprofits
          California Society of Association Management Executives
          Corporations Committee of the Business Law Section of the 
          California State Bar
          Keith Bishop
          Nonprofit and Unincorporated Organizations Committee of the 
          Business Law Section of
              the California State Bar
          Steven Hazen

          Consultant:  Eileen Newhall  (916) 651-4102