New Calif. bill aims to allow double-bottom line

A quiet piece of California legislation that passed the state assembly today and heads to the state senate next month could have a dramatic effect on "green" business in the state. Proposed by Assemblyman Mark Leno (D-San Francisco), AB 2944 is an amendment to Section 309 of the Corporations Code that would allow CEOs to consider factors other than shareholder profits when making business decisions.

As the law currently stands, CEOs that consider factors other than profits, such as social or environmental responsibility, could be sued by the company's shareholders. The law is particularly important in the context of mergers and acquisitions, when it can be invoked to force CEOs to sell to the highest bidder without consideration of the company's mission or values.

While the amendment only states that CEOs have the option to consider other factors, opponents of the bill, which include the California Chamber of Commerce and the California Manufacturers and Technology Association, have voiced concern that the amendment opens the door for legislation that would require CEOs to consider such factors as community and environmental impact when making business decisions. Opponents also maintain that the amendment is irrelevant because the problem has not yet come up in court.

"No one has tried to sue for the right to consider other factors because everyone knows that you can't," says Jonathan Storper, an attorney with San Francisco firm Hansen Bridgett and proponent of the legislation. "Some lawyers are saying that they haven't heard of any clients bringing up these concerns either, but that just tells me that they're clearly not dealing with mission-driven companies."

Storper, who says he deals with several mission-driven companies, has had a handful of clients decide to incorporate and even locate in states other than California, such as Oregon or Nevada, where laws provide more explicit protection for socially and environmentally conscious directors. "One venture-backed company I've talked with started up in California but chose to incorporate in another state because California doesn’t provide that comfort," says Storper. "The fact that they're venture-backed is significant, because it means that venture capital is looking at this issue too, and if they’re going to invest, they want that protection."

Although 31 other states have similar laws in place, Storper notes that the California amendment is the first to explicitly include environmental concerns, which means the state could leapfrog into a leadership position on the issue should the bill pass the state senate. "The fact that this is the first bill to explicitly mention the environment could really send a message to the rest of the country and drive 'green' businesses to come here if they want to be part of the new economy," Storper says.