BILL ANALYSIS                                                                                                                                                                                                    Ó






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                             Senator Juan Vargas, Chair


          SB 918 (Anderson)                       Hearing Date:  April 6, 
          2011  

          As Introduced: February 18, 2011
          Fiscal:             No
          Urgency:       No
          

           SUMMARY    Would authorize mutual water companies to elect 
          directors to serve staggered four-year terms, if authorized in 
          their articles of incorporation or bylaws.    
          
           DESCRIPTION
           
            1.  Would provide that, notwithstanding Section 301 of the 
              Corporations Code, a mutual water company organized under 
              provisions of the General Corporation Law may elect 
              directors to serve staggered four-year terms, if authorized 
              in the corporation's articles of incorporation or bylaws.

           2.  Would provide that, upon the initial election of directors 
              to staggered terms, the elected directors shall determine by 
              lot who among them shall serve initial two-year terms, and 
              who among them shall serve four-year terms.

           EXISTING LAW
           
           3.  Authorizes the formation of mutual water companies under 
              the General Corporation Law, as specified (Corporations Code 
              Section 100 et seq.), and under the Nonprofit  Mutual 
              Benefit Corporation Law, as specified (Corporations Code 
              Section 7110 et seq.).

           4.  Like other corporations organized under the General 
              Corporation Law, mutual water companies organized under the 
              General Corporation Law must elect their directors annually, 
              at their annual shareholder meeting, unless the company's 
              articles of incorporation specify a shorter term 
              (Corporations Code Section 301).  The General Corporation 
              Law also provides that each director shall hold office until 
              the expiration of the term for which he or she is elected, 
              and until a successor has been elected and qualified 




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              (Corporations Code Section 301).

           5.  Like other nonprofits authorized under the Nonprofit Mutual 
              Benefit Corporation Law, mutual water companies organized 
              under the Nonprofit Mutual Benefit Corporation Law are 
              required to elect their directors to terms not exceeding 
              four years, as specified in the corporation's articles of 
              incorporation or bylaws.  The articles or bylaws may provide 
              for staggering the terms by dividing the total number of 
              directors into groups of one or more directors (Corporations 
              Code Section 7220).  

           6.  Existing law regarding municipal water districts also 
              authorizes four-year terms for directors.  Water Code 
              Section 71000 et seq. authorizes the formation of municipal 
              water districts, and provides that each director of a 
              municipal water district shall hold office for a term of 
              four years (Water Code Section 71252).  The Water Code 
              establishes a procedure to be followed by municipal water 
              districts upon their formation, in which the elected 
              directors classify themselves by lot; two of them serve 
              until the next general district election, and three serve 
              until the second succeeding general district election (Water 
              Code Section 71251).   

           COMMENTS

          1.  Background and Discussion:    This bill is sponsored by the 
              Farm Mutual Water Company, and is intended to provide 
              administrative flexibility for private mutual water 
              companies that are organized under the General Corporation 
              Law.  Under existing law, any corporation formed under the 
              General Corporation Law must hold annual elections for their 
              boards of directors.  

          The Farm Mutual Water Company, sponsor of this bill, states that 
              compulsory annual elections have created confusion and 
              inconsistency among some mutual water companies.  Electing 
              all five members of their boards of directors at each annual 
              shareholder meeting has created high turnover and 
              instability among boards, staff, and shareholders.

          SB 918 would give California mutual water companies organized 
              under the General Corporation Law the flexibility to elect 
              the members of their boards of directors to staggered 
              four-year terms every two years, in lieu of the annual 




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              elections currently required of these companies.  The 
              sponsor states that the proposal for staggered four-year 
              terms is consistent with election practices for public water 
              agencies throughout California.  

           2.  Summary of Arguments in Support:   Farm Mutual Water Company 
              is sponsoring SB 918 for the reasons stated immediately 
              above.

           3.  Summary of Arguments in Opposition:    None received.
               
          4.  Amendments:  

               a.     This bill would provide that, upon the initial 
                 election of directors of a mutual water company to 
                 staggered terms, the elected directors shall determine by 
                 lot who among them shall serve initial two-year terms, 
                 and who among them shall serve four-year terms.

               Staff suggests an amendment requiring voters in a mutual 
                 water company election in which the term length of 
                 elected directors will be determined by lot to be 
                 informed of this fact prior to the election.  Absent this 
                 notification, voters could be misled into thinking they 
                 were voting an individual into office for four years, 
                 only to learn after the election that the individual 
                 would only be serving for two years.  This prior notice 
                 is unlikely to impact the results of any elections, but 
                 it would serve to better educate voters about the rules 
                 of the election.  

           LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          Farm Mutual Water Company (sponsor)
           
          Opposition
               
          None received

          Consultant: Eileen Newhall  (916) 651-4102








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