Pursuing profit and purpose

Expert Panelists discuss AB361 and SB201 in San Francisco, CA. From left to right: Priya Haja, Donald Simon, Rob Wexler, Will Fitzpatrick, and Ben Thornley.

Last week a panel of legal experts and entrepreneurs gathered at the HUB in San Francisco to discuss the relevance of two new California State bills that could dramatically enhance the state’s ability to innovate in the social enterprise sector. The two bills being considered for business voluntary participation are State Assembly Bill 361 (AB-361), known as the Benefit Corporation Bill, and State Senate Bill 201 (SB-201), known as the Flexible Purpose Corporation Bill. Both seek to make it easier for entrepreneurs to pursue both purpose and profit under one roof, and both seek to engage business leaders to do well by doing good.  But how do they change the way business is already being conducted and what are the challenges with this new legislation?

The expert panelists included both proponents and antagonists of both bills, and the line-up included Will Fitzpatrick, General Counsel, Omidyar Network; Rob Wexler, Partner, Adler & Colvin; Priya Haji, Founder, SaveUp; and Donald Simon, Attorney, Wendel, Rosen, Black & Dean, LLP; moderated by Ben Thornley, Director, of InSight-Pacific Community Ventures. 

The room was packed with cross sector industry experts and entrepreneurs seeking insight on the challenges and opportunities the proposed new legislature brings. Some were heard debating the potential investment benefits of B-Corp legislation, compared to the voluntary restrictions.  Others objected to both bills on the premise that for-profit organizations seeking social entrepreneurship should not benefit from preferential treatment similar to the incentives available to non-profit organizations, thus taking profits away from non-profits when funding is already tight. 

A chronology of each bill’s progress to date can be found on contributing policy expert and lawyer R. Todd Johnson’s blog, called Business for Good. Particularly helpful are the FAQs, addressing questions such as ‘Why don’t institutional investors like LCCs?’ and ‘Why not use an LC3?’.

To date, Hawaii, Virginia, Maryland, Vermont, and New Jersey have successfully passed B-Corp legislation. Colorado, Michigan, New York, North Carolina, and Pennsylvania are following suit with similar B-Corp policies in the works. Like these states, California’s AB 361 is modeled after the coveted B-LAB third party certification, called B-Corp, introduced in 2006 to distinguish companies that are ‘doing good’ through social change, versus those with just good marketing. The primary difference between California's AB 361 B-Corp legislation and the B-Corp legislation recently passed in other states, is that California’s bill does not include language requiring third party certification and calls for a voluntary ‘self-audit’ process. 

This speaks to California’s arduous and conservative legal process relative to its market clout.  After all, California was the 46^th state to adopt the Limited Liability Corporation (LCC) in 1994, despite representing the 8^th largest economy in the world. Hence, the apparent need arose for a second, complementary bill, the Flexible Purpose Corporation Bill, which provides a lower entry point for corporations to tap into social entrepreneurship through a singular societal benefit, without fully addressing the triple bottom line. 

So what does all this mean for the state of California, and what can other states learn from this? First of all, options are good, albeit confusing at first, and we see any means of identifying corporations addressing real change on the environmental and social front to be a step in the right direction. Other states may want to follow the lead of the early adopter states mentioned above, and promote a full-on triple bottom line approach with third party B-Corp certification, or they may develop their own lower entry point legislation to engage corporations that would otherwise be unwilling to change.

We would love to hear from you and learn how this could affect your business and jurisdiction.