Legislature(2017 - 2018)BARNES 124
04/01/2017 01:00 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB103 | |
| HB124 | |
| HB36 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 124 | TELECONFERENCED | |
| *+ | HB 36 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 103 | TELECONFERENCED | |
HB 124-BENEFIT CORPORATIONS
3:38:48 PM
CHAIR KITO announced that the next order of business would be
HOUSE BILL NO. 124, "An Act relating to corporations, including
benefit corporations, and other entities; and providing for an
effective date."
CHAIR KITO, sponsor, stated that his interest in introducing
this bill is to modify Alaska's corporate structure to allow for
the ability of a corporation to establish itself with a
charitable component as opposed to being fiducially responsible
to shareholders. A corporation would be able to use some of its
profits, earnings, or other assets to benefit other or
charitable or nonprofit organizations. This would allow many
corporations that would like to provide some type of support
outside their primary business mode, or even within their
business mode, that is not reflective of expending profits, and
allow them to do that without violating their fiduciary
responsibility.
CHAIR KITO drew attention to the sponsor statement and noted
that the first paragraph might need to be amended because it
appears to be a carryover from another bill.
3:40:20 PM
BIANCA CARPENETI, Staff, Representative Sam Kito, Alaska State
Legislature, explained the purpose of HB 124 on behalf of
Representative Kito, sponsor. She spoke as follows:
The purpose of HB 124 is to expand the options for
Alaskan entrepreneurs and investors by placing a new
type of corporate entity - Benefit Corporation or B
Corp - in Alaska statute. A benefit corporation is a
for-profit corporation that includes public benefits
and community improvements into their business
practices, no matter the principal services or
products provided.
Corporate law generally requires corporations to
consider the financial impact to their shareholders as
the top priority when making decisions. Maximizing
corporate returns can interfere with other corporate
goals, such as electing to do something beneficial for
the community by enhancing social benefit. Some of
the defining characteristics of a benefit corporation
include expanded purpose beyond maximizing share value
to explicitly include general and specific public
benefit. A benefit corporation also considers and
balances the impacts of their decisions not only on
shareholders but also on their stakeholders. ? Benefit
corporations must make available to the public a
regular benefit report that assesses their overall
social and environmental performance against a third-
party standard.
Three arguments in support of laws establishing public
benefit corporations are: First, it creates legal
requirements that regulate corporations claiming to
work toward social good. Becoming a benefit
corporation as a legal entity means a business that
says it is dedicated to the public good will have to
substantiate this claim, similar to how qualifying as
tax-exempt helps define non-profits as charitable.
Moreover, benefit corporations' reporting requirements
to shareholders, the state, and the public provide a
degree of transparency the corporations could
otherwise refuse to provide. Second, these laws
promote societal benefits by clarifying fiduciary
duty. Entrepreneurs are more likely to pursue lines
of business in a socially beneficial way when the law
ensures that the pursuit of profit does not need to be
the highest priority. Likewise, investors concerned
with the public good are given an alternative. Third,
this provides legal protection for companies that seek
purpose-driven partnerships. Benefit corporation
legislation allows them to undertake beneficial
partnerships that conventional corporations might shun
out of fear that shareholders would not see it as a
venture likely to be profitable.
3:43:33 PM
MS. CARPENETI turned to a discussion of the bill itself. She
said Section 1 amends Alaska Statute (AS) 10.06.633(a),
regarding how corporations may be dissolved, to include benefit
corporations.
MS. CARPENETI stated that Section 2 adds to AS 10, Alaska's
corporation code, a new chapter, Chapter 60, establishing
benefit corporations. Article 1, she continued, establishes how
a new business corporation or existing entity may become a
benefit corporation, and it also declares that an amendment of
an existing corporation must be adopted by at least the minimum
two-thirds vote. She said Article 2 establishes seven factors
that the board of directors and individual directors of a
benefit corporation shall consider while discharging their
duties. She pointed out that directors of the benefit
corporation are not required to give priority to any of these
listed factors unless the intention to prioritize them has been
identified in the benefit corporation's articles of
incorporation.
MS. CAPENETI continued to address Section 2 and said Article 3
allows the board to include a benefit director who is not
financially liable if acting in good faith. She explained that
Article 4 directs an officer of a benefit corporation to
consider the factors enumerated by the board of directors.
Article 4 also states that an officer of the benefit corporation
is not personally liable for monetary damages if the officer's
duties are performed in compliance with Alaska statute. She
said Article 5 identifies who may bring action or claims against
a benefit corporation for a failure to pursue general or
specific public benefit.
MS. CARPENETI stated that Article 6 of Section 2 requires a
benefit corporation to file a biennial benefit report in
addition to the biennial report, and it also provides details of
what must be in that report. She related that Article 7
establishes a status change for a merger or amendment for a
benefit corporation or a domestic entity other than a business
corporation, which must be approved by at least two-thirds the
vote of all shareholders entitled to vote. Article 7 also
establishes statutory guidelines for third-party standards used
as an assessment tool in the required benefit report to ensure
that the general or specific public benefits are being done.
She said Article 8 provides for general provisions, including
regulations, definitions, and applicability.
MS. CARPENETI advised that the remaining sections of the bill
deal with regulations and effective date.
3:45:47 PM
MS. CARPENETI added that it is important to note the following:
First, that benefit corporations are voluntarily formed.
Second, that benefit corporations have the same tax status as
for-profit corporations. Third, that benefit corporation is a
legal designation, not a marketing label. Fourth, this
legislation specifies the requirements for the biennial benefit
report, which does two things: 1) It provides accountability to
the shareholders who will be able to track and direct benefit,
and 2) it provides transparency to investors who will know what
the benefits are.
MS. CARPENETI concluded by stating that HB 124 establishes a
solid foundation for long-term mission alignment and value
creation. It protects mission through capital raises and
leadership changes and creates more flexibility when evaluating
potential sale and liquidity options. Further, she said, it
prepares businesses to lead a mission-driven life.
3:46:54 PM
REPRESENTATIVE JOSEPHSON brought attention to page 3 where the
types of benefits that could be provided are laid out. He asked
what would constrain the legislation from becoming politicized;
for example, a debate about what a public benefit was.
MS. CARPENETI replied that a benefit corporation is responsive
to its shareholders. She inquired whether the question is about
abuse of this system or what might happen in that event.
REPRESENTATIVE JOSEPHSON said he assumes shareholders would know
that if they have invested in Ben and Jerry's they are going to
get a certain benefit corporation investment, and if they
invested in Dow Chemical, they might get a different one.
MS. CARPENETI responded that that is the point of the benefit
report it outlines what the company is doing. In its articles
of incorporation, a corporation outlines any potential
priorities that it might have for the corporation. Those are
publically available, so as informed consumers [people] can
decide if that is the company they want to invest in. In terms
of holding the company accountable, she said she would point to
the biennial report as being the mechanism by which shareholders
would be able to track what the corporation is doing and if a
shareholder has concerns about the action, or concerns that the
corporation is not conforming to its previously stated benefits
or mission, then a shareholder would potentially have grounds
for bringing claim against the directors or the board.
3:48:45 PM
REPRESENTATIVE JOSEPHSON related that he once invested in
Calvert Investment Funds, an ethics fund that was supposed to
have a benign impact on the world, at least as perceived by
Calvert Investments. He said he is mentioning that because he
knew going in with his small investment that the return might be
6 percent instead of 10 percent. He inquired whether that is
something [benefit corporation] shareholders would understand.
MS. CARPENETI answered that the way it is set up it is often
called the double bottom line. So, instead of the board of
directors being responsible for only making decisions based on
the financial impact, the board could also base its decisions on
other factors, including social good.
3:49:52 PM
REPRESENTATIVE KNOPP asked whether public benefit corporations
exist today.
MS. CARPENETI replied that Alaska is not groundbreaking with
this legislation. Thirty-one other states have adopted similar
legislation and other states are considering it.
REPRESENTATIVE KNOPP requested Ms. Carpeneti to provide examples
of benefit corporations.
MS. CARPENETI responded by first clarifying that Ben and Jerry's
is not technically a benefit corporation, but rather a Certified
B Corp, which means the company has gone through third party
analysis that says the company provides this good. Examples of
current benefit corporations include Patagonia and King Arthur
Flour, the oldest flour producer in America.
REPRESENTATIVE KNOPP asked what public benefit services are
provided by the aforementioned corporations.
MS. CARPENETI answered that she would get back to the committee
with a list of all the public benefits that Patagonia provides,
but that Patagonia is dedicated to outdoor recreation.
REPRESENTATIVE KNOPP inquired whether this is talking about only
publicly traded corporations, given not all corporations are
publicly traded. He further inquired whether there is a tax
benefit to the corporation to do this. Lastly, he inquired why
any publicly traded corporation could not in its articles of
incorporation or in its prospectus to shareholders list itself
as public benefit.
MS. CARPENETI replied that corporate law says a corporation
could become liable if its shareholders disagree with doing this
and bring suit against the corporation for not deciding based on
the financial impact of its decisions in expanding to a public
benefit good. The bill would provide legal protection for the
corporation to include those benefits into its decision-making
process.
REPRESENTATIVE KNOPP reiterated his question about whether this
is talking only about publicly traded corporations that trade
stock on an exchange.
MS. CARPENETI offered her belief that the answer is yes.
CHAIR KITO interjected that he would get this clarified and
provide the information to the committee. He said it is in the
corporation statutes and offered his belief that any company
filing an incorporation notice with the state could become a
benefit corporation. The corporation would still be required to
file its articles of incorporation, but the articles of
incorporation may provide a public benefit as opposed to just a
fiduciary responsibility.
3:52:54 PM
REPRESENTATIVE BIRCH asked what the genesis is for the proposal
and whether someone requested that it be done.
CHAIR KITO replied it was a proposal put forth by Representative
Seaton in a past session. He said he thought the bill a great
idea and so took it forward with the idea that a Native for-
profit corporation might want to try doing something that
benefits heritage. Right now, many corporations have a for-
profit as well as a non-profit heritage group, which sometimes
share boards of directors. However, he continued, the for-
profit has to make its decisions in supporting some of those
other organizations based on what is a responsible fiduciary
manner as opposed to, say, what might be culturally desirable
for a Native corporation. Whether or not it gets used that way,
he said, he saw the opportunity to strongly link, or more
strongly link, the for-profit motive of a Native corporation or
any other corporation to the values of the shareholders and
allow a corporation to provide opportunities and benefits to a
cultural group or charity. It is a voluntary choice, he pointed
out, but if it is chosen then the corporation has to outline
everything it is going to be doing in its articles, which
thereby allows the corporation to not have to make all of its
goals fiduciary goals.
REPRESENTATIVE BIRCH reiterated his question as to whether
someone specifically came to Chair Kito.
CHAIR KITO answered that nobody came to him specifically. He
further offered his belief that nobody went to Representative
Seaton specifically.
REPRESENTATIVE BIRCH said he is familiar with non-profits that
are set up with public charitable purpose and while he is not
opposed to the bill, he doesn't fully understand the need for
it.
CHAIR KITO responded that the purpose is to get the information
out and discover who might be interested in utilizing it.
REPRESENTATIVE BIRCH stated he is more used to someone coming to
a legislator with a problem that needs solving, rather than
throwing something out there and asking whether anyone has a
problem with it.
MS. CARPENETI noted that there is correspondence accompanying
Representative Seaton's previous iteration of the bill from an
individual with the business Earth Friendly Coffees who had
expressed interest. Additionally, she advised, Stephen Trimble
of Anchorage will be testifying today that he is interested in
gaining benefit corporation status for his business.
3:56:27 PM
REPRESENTATIVE WOOL offered his understanding that the proposed
concept would allow a corporation to make a decision that isn't
totally financial as a benefit for something else, rather than
being required to give top priority to financial. He surmised
that this concept changes how a corporation would practice its
business as opposed to what it does with its profits.
MS. CARPENETI replied yes, this establishes a legal designation
for a corporation that wants to be recognized as a benefit
corporation. It doesn't change how traditional corporations
operate; it just sets up the standards for benefit corporations.
She added that it allows a great deal of latitude to the board
of directors of the company to decide what that balance is. It
doesn't provide any sort of table or schedule saying this is how
the company must allocate its profits or this is how the company
must act as a benefit corporation. It just allows the
flexibility for a corporation to decide how to operate as best
suits its mission and what it is trying to do.
REPRESENTATIVE WOOL offered his understanding that all Newman's
Own profits go to charity. He surmised this is what Newman's
Own does with its profit and is not necessarily how it operates
its business. He asked whether Newman's Own is a benefit
corporation or whether it is more a corporate decision as to
what Newman's Own does with its profits.
MS. CARPENETI responded that she would look at Newman's Own to
see whether it is established as a benefit corporation and will
get back to the committee with an answer.
CHAIR KITO pointed out that his intent is not to change the way
the corporation would operate, but just to allow the corporation
to have more flexibility with what it does with its profits.
3:58:50 PM
REPRESENTATIVE BIRCH inquired whether a traditional corporation
could transition to a benefit corporation and whether it would
take a shareholder vote.
MS. CARPENETI answered yes, a corporation can start as a regular
corporation and then if HB 124 became law the corporation could
opt to change through a two-thirds vote of its shareholders.
3:59:32 PM
REPRESENTATIVE KNOPP asked whether there is anything in the
Internal Revenue Service (IRS) code as far as tax structures, or
in states that have benefit corporations, that allow benefit.
For example, he asked, whether the benefits that are expended
are taxable benefits to the corporation.
MS. CARPENETI replied that benefit corporations do not enjoy any
special tax status, they are taxed the same as corporations.
4:00:16 PM
REPRESENTATIVE WOOL offered his understanding that a benefit
corporation would not get any special tax status. He observed
that next on the committee's calendar is a bill related to
taxing [non-C corporations]. He asked whether benefit
corporations could in theory avoid a tax given that they would
have a different designation than other types of corporations.
MS. CARPENETI responded she is hesitant to comment on
legislation she hasn't seen and how it would impact benefit
corporations. She deferred an answer to someone with legal
expertise and tax expertise.
REPRESENTATIVE WOOL surmised that if there are certain tax laws
that affect certain types of corporations and this is yet
another type of corporation, then he would expect that the law
would have to address that type of corporation, which hasn't yet
happened.
MS. CARPENETI replied that that is a reasonable expectation.
4:01:53 PM
CHAIR KITO opened public testimony on HB 124.
4:02:14 PM
STEPHEN TRIMBLE, Founder and Chief Executive Officer, Arctic
Solar Ventures, speaking on behalf of his company, testified in
support of HB 124, which would authorize the creation of benefit
corporations in Alaska law. He said Arctic Solar Ventures is a
residential and commercial solar design and installation company
that operates statewide. He noted that his company is the
second Certified B Corp in the history of Alaska.
MR. TRIMBLE explained that the difference between a Certified B
Corp and benefit corporation is that a certified B Corp is a
third-party global standardized certification that is sort of
like a fair-trade certification for coffee for businesses that
incorporate social and environmental benefit into their mission.
He said benefit corporation legislation is a compendium piece to
certified B Corp status that allows companies like his to be
able to also acknowledge that commitment to society and the
environment within the structure of state law.
MR. TRIMBLE advised that his company, a leading socially
responsible business in Alaska, plans on becoming Alaska's first
benefit corporation after the passage of HB 124 and has been
actively working on it. During the previous iteration of the
bill by Representative Seaton, he continued, he called and
expressed interest in the bill and urged it be passed. His
company has been following this for the past two to three years
and has been pressing for its adoption because the entire
company believes this is an incredibly valuable tool for Alaska
businesses to be able to differentiate themselves.
MR. TRIMBLE stated that this is uniquely critical to the "DNA"
of his business and it will also present many other businesses
the opportunity to codify their commitment to society and the
environment within their bylaws. Differentiating businesses
within their communities and within the global community at
large sends a clear message that Alaska is a leading place for
socially responsible businesses to form and thrive, he said.
Profit, societal benefit, and environmental stewardship can
powerfully coexist within business. He urged that the full
legislature support the enabling of Alaska businesses to fully
commit themselves to making the world a better place through
their practices and policies.
4:06:03 PM
REPRESENTATIVE KNOPP asked whether Mr. Trimble's company is
publicly traded on an exchange and whether it issues shares.
MR. TRIMBLE responded that his is a privately held corporation.
He advised it is not required that a benefit corporation be
publicly traded.
REPRESENTATIVE KNOPP inquired as to the number of board members
for Mr. Trimble's company.
MR. TRIMBLE replied that his corporation has five board members.
REPRESENTATIVE KNOPP asked why Mr. Trimble's corporation would
need to be a benefit corporation if the purpose is to
disseminate information about the purpose of the corporation and
the company only has board members and no shareholders.
MR. TRIMBLE answered that this legislation would enable his
corporation to consider, as a company, other aspects of societal
and environmental benefit as opposed to merely profit as its
predominant driver and measure of business success. This is an
incredibly powerful tool for businesses to be able to
differentiate themselves within the local community, he
reiterated, because making those commitments public and being
upheld to those commitments in the form of reporting is very
powerful. It goes far above and beyond just saying a company
does good the company has to actually show it does good. That
is also the reason why his corporation has already pursued the
extremely stringent third-party B Corp certification. It's
different than simply just being able to report to the company's
shareholders or board.
4:08:43 PM
REPRESENTATIVE BIRCH inquired as to what the distinction is that
[HB 124] would offer Mr. Trimble and his business aspirations
versus a conventional configuration.
MR. TRIMBLE replied that this would allow his corporation to
volunteer to a higher level of scrutiny and obligation to do
good in its business practices. It is a voluntary thing, but to
be able to offer yourself to be held up to the reporting
requirements to a broader mission beyond profit is something
that every Alaskan company should want to do because businesses
are here to make Alaska a better place. As founder of Arctic
Solar Ventures, he said, this is his company's DNA. To have the
state acknowledge that and join his company in its voluntary
reporting of that is hugely important.
4:10:28 PM
REPRESENTATIVE WOOL asked whether Mr. Trimble's business could
still operate the same way it does and make the same decisions
without the benefit corporation designation other than the
recognition of it.
MR. TRIMBLE responded that his business, through its internal
practices, does that now, but he can't guarantee that other
companies will do the same. If a company is volunteering to be
held to that standard and wanting to receive the public relation
benefits that are associated with being in a business that has
considerations above and outside of pure profit, he said, then
the company needs to be held to a standard. This structure has
been designed and implemented by other states so that businesses
can't claim societal benefit without a standard and proof under
the state's corporate structure.
MR. TRIMBLE addressed the committee's earlier discussion about
the use of profits and how that plays in. He pointed out that
there is no requirement under HB 124 that profits be donated to
a non-profit or used for a non-profit, which is the case for
benefit corporation structure anywhere. It has nothing to do
with how profits are dispersed or where they should go, he
advised, rather it has to do with internal practices and
policies of the business. For example, his company firmly
believes that one of its public benefits is that it deploys
clean energy and the deployment of clean energy has many
societal benefits. His company is creating local jobs and
stimulating the local economy, as well as reducing carbon
footprints of people and cleaning the air. It's not only about
being able to be acknowledged for being held to a higher
standard, he reiterated, but that the company is volunteering to
be held to that standard, and that is why HB 124 is important.
4:14:02 PM
REPRESENTATIVE WOOL offered his understanding that it is a
standard of corporate behavior that a company would be adhering
to, as well as the public recognition and benefit that the
company would get from being identified as that type of
corporation.
MR. TRIMBLE confirmed that that is a very fair assessment.
4:14:26 PM
REPRESENTATIVE KNOPP inquired whether B Corp Certification is a
federal certification.
MR. TRIMBLE answered that it is an international certification
with over 4,000 corporations now certified throughout the world,
and that this certification is administered by the organization,
B Lab, LLC. He explained that B Lab is the organization that
helped states develop the first benefit corporation legislation.
The idea behind B Corp Certification and the B Lab organization
was to create a global framework where businesses can volunteer
to be a part of this very rigorous assessment and to work with
states to then develop the benefit corporation designation
within their corporate state structure, so it completes the
puzzle. The benefit corporation piece is a U.S. specific piece,
he said, but the B Corp Certification is a global certification.
4:15:49 PM
CHAIR KITO held over HB 124.