Legislature(2013 - 2014)BARNES 124
04/11/2014 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB346 | |
| SB129 | |
| SB159 | |
| SB145 | |
| SB58 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 346 | TELECONFERENCED | |
| + | SB 138 | TELECONFERENCED | |
| + | SB 129 | TELECONFERENCED | |
| += | SB 159 | TELECONFERENCED | |
| + | SB 145 | TELECONFERENCED | |
| + | SB 58 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 346-PUBLIC BENEFIT CORPORATION
3:21:33 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 346, "An Act relating to corporations, including
public benefit corporations; and providing for an effective
date."
3:22:21 PM
REPRESENTATIVE REINBOLD moved to adopt the proposed committee
substitute (CS) for HB 346, labeled 28-LS1433\O, Bannister,
3/19/14, as the working document.
CHAIR OLSON objected for the purpose of discussion.
3:22:32 PM
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, stated
that HB 346 expands the options for Alaskan entrepreneurs and
investors by placing a new type of corporate entity, the benefit
corporations also known as B-Corps, in Alaska statute. The
existing corporate structures in Alaska, the C-corporations,
provide numerous benefits and jobs; however, the benefit
corporation is a for-profit corporation which incorporates
public benefits and community improvement into its business
practices, no matter the principal service or product provided.
REPRESENTATIVE SEATON stated that current corporate law
generally requires a corporation to consider the financial
impact to their shareholders as the top priority when making
decisions. He summarized the ruling in a Michigan court
decision, Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919), as
indicating that a business corporation is organized and carried
on primarily for the profit of the stockholders. The powers of
the directors are to be employed to that end. The discretion of
directors is exercised in the choice of the means to attain that
end and does not extend to change in the end itself, to the
reduction of profits, or to the non-distribution of profits
among stockholders in order to devote them to other purposes.
REPRESENTATIVE SEATON explained that the goal of C-corporations
is exclusively to make money for shareholders. While there is
nothing wrong with that goal an instance may arise in which a
corporation chooses to have other goals. Thus these
corporations may be legally liable to shareholder lawsuits since
the community involvement must have some nexus to corporate
profit. Under the benefit corporate structure, owners and
boards have the freedom to take actions which positively impact
their communities without fear of violating a fiduciary duty.
3:26:59 PM
REPRESENTATIVE SEATON explained HB 346 will give these
corporations more flexibility in deciding how to run the
businesses and will bring Alaska a slice of the $3.7 trillion
invested nationwide in socially-responsible funds. Benefit
corporations are formed voluntarily and have the same tax status
of any other for-profit corporation. Thus the corporation
wouldn't gain any tax advantage in electing a "B-Corp" status.
The benefit corporations can participate in tax credits but only
to the extent that other corporations can elect to do so.
REPRESENTATIVE SEATON reported that 23 other states have passed
benefit corporation legislation with West Virginia, Utah, and
Nebraska just this year. He acknowledged this bill is not based
on model legislation, but he did pull information from several
other states since similarity in statutes make it easier for
investors to attract investment in Alaska. Over 550 benefit
corporations have incorporated in the U.S., including Ben &
Jerry's, Patagonia, Rasmussen College, Epic Coffee, and King
Arthur Flour Company - America's oldest flour company. Each of
these companies works to benefit the public and their
communities in the way that matters most to them.
REPRESENTATIVE SEATON related that HB 346 also includes measures
to ensure accountability and transparency so a benefit
corporation will additionally create and publish an annual
benefit report describing how the company has pursued the
general public benefit. This report allows shareholders,
investors, and the public to confidently invest in benefit
corporations that share their values. He summarized that the
goal of HB 346 is to give businesses more flexibility and
control over their decisions and to provide private investors
with a clear social investment option.
3:27:50 PM
REPRESENTATIVE JOSEPHSON related he has invested in a company
and the investors knew that the returns may be less than other
investments. He asked whether that is how shareholders
approached this and if they anticipated earning less while doing
something good.
REPRESENTATIVE SEATON answered yes; the shareholders know what
the specific benefit the board of directors has voted on so
people investing in the B-Corps generally share the same kind of
philosophy, that it isn't just about maximizing dollars, but
sharing the public benefit goal, whether it is education or
research or some other specified goal.
3:29:00 PM
REPRESENTATIVE JOSEPHSON asked whether any discussion of the
treatment of workers in third world countries has been
considered. He recalled a big debate about Old Navy, Gap, and
other stores. He further recalled an explanation after a fire
about why the U.S. pays so little for its clothing.
REPRESENTATIVE SEATON answered that there can be, depending on
what public benefit is selected by the corporation, such as
whether it is more local farm jobs instead of cheaper grocery
costs. That would be a benefit adopted in a particular
corporation and people could invest in that corporation since
they want to promote local foods and jobs although it would be
cheaper to buy and have them shipped in. It's more difficult in
a typical "C corporation" structure since it is not a fiduciary
choice and the board of director's goal is to maximize profits.
The "B Corp" structure allows those types of benefits to be
selected as one of the criteria being use.
3:31:07 PM
TANEEKA HANSEN, Staff, Representative Paul Seaton, Alaska State
Legislature, added that there are two parts to the benefit
corporations, the general public benefit purpose and the
specific purpose. She referred to page 4 of HB 346, which lists
the things the board of directors must consider, one of which is
the community and societal factors including the interests of
each community in which the offices or facilities of the benefit
corporations, subsidiaries, or suppliers are located. She said
that the specifics mentioned are considered by the benefit
corporations and the third party standards used for the annual
report will have questions relating to the purposes.
3:32:12 PM
REPRESENTATIVE SADDLER asked whether the benefit corporation
structure is aimed at existing corporations or if new
corporations would take this form.
REPRESENTATIVE SEATON said that it could be either. He noted a
number of businesses exist that may want to do something locally
but don't want to violate their primary duty of maximizing
shareholder profits. This would allow the corporation, by a
two-thirds vote, to become a benefit corporation and establish
specific benefits, which is publicized. People can invest based
on that but it also allows the flexibility for new corporations
as well, including small tour companies that hire locals that
give flavor to the ethnic tours.
3:33:32 PM
REPRESENTATIVE SADDLER asked whether this is primarily focused
at publically traded companies. He asked how many businesses in
Alaska are publically traded. He further asked if this is
related to smaller corporations, as well.
REPRESENTATIVE SEATON answered that it could be smaller
corporations and the Division of Corporations, Business &
Professional Licensing could address the number of corporations.
CHAIR OLSON removed his objection. [Version O was before the
committee as the working document].
3:34:33 PM
GORDON BLUE, Executive Director, Alaska Sustainable Fisheries
Trust (ASFT), testified in support of HB 346. He explained that
the ASFT's mission is to increase the retention of benefits of
the fisheries in the Gulf of Alaska community. He reported
three projects. First, this project is modeled on community-
supported agriculture called Alaskan Zone. It is a community-
supported fishery project in which local fishermen and
processors produce product subsequently sold to local consumers.
He explained that it is primarily an educational venture, but it
also produces small net proceeds shared back to a second
project, which is a community fisheries conservation network.
The network is a collaboration of scientists and fishermen who
work to solve some of the fishery problems, including reduction
of unwanted bycatch. Third, the ASFT is working to launch
another project: the Local Fish Fund. The Local Fish Fund was
designed to try to increase the retention of the fishery quota
in the halibut/sablefish fisheries in the Gulf of Alaska
communities. There have been several attempts in financing
mechanisms and this is a further articulation on that to try to
bring some success to it since quota is being lost to the
outside. He related the essence is that the aforementioned fund
will provide a vehicle for fishermen who are about to retire
from the fishery to make an inter-generational transfer of quota
to a new fisherman who has made a commitment to stay in the
community. This process is complicated by the halibut/sablefish
regulations so the ASFT has worked with attorneys to construct
an arrangement to accomplish this. The ASFT has created a
subsidiary of a nonprofit, Local Fish LLC. The LLC's agreement
allows the ASFT to balance the interest of participants, which
include fisherman about to retire who would like to sign their
quota over on a time contract and those fishermen who would like
to purchase the quota. It would provide financing to pay the
taxes generated by that transaction.
3:37:54 PM
MR. BLUE related that the agreement works legally, but it is
very complicated; however, over time if it increases the size of
business it will provide improvements to the social benefits.
He explained that it has become difficult to administer the LLC
membership interests and to describe accurately and identify the
specific interests. Thus the benefits corporation would suit
the ASFT admirably and would allow the organization to use the
corporate stock structure to keep a clear statement of the
interests of the participants that is easy to transfer and
understand, yet would allow them to continue the public
benefits. He referred to the addendum in the final part of the
bill. The savings would benefit the corporation and the entire
community. He expressed strong support for HB 346.
3:39:31 PM
ERIK TROJIAN, Director of Policy, B-Lab Benefit Corporation,
lauded the sponsor's description of the benefit corporations.
He stated that 23 states have passed bills in the past few
years, and currently 550 benefit corporations have been formed.
The key thing to consider is that the purpose of a benefit
corporation is to deregulate the purpose of a corporation. He
reiterated Representative Seaton's comparison between a "C
corporation" and a benefit corporation or "B Corporation." He
explained that if a corporation can only do one thing it
inhibits the free market from truly acting as a free market.
Opening this up will allow entrepreneurs to discover new and
innovative ways of running a company. This can lead to new ways
of thinking about how a company is run. He referred to Mr.
Blue's testimony, with respect to the LLCs, who raised a good
point. An LLC is based on contract law, which is not a good
vessel for multiple shareholders. If a corporation chooses to
go public - although none of the B corps are - and has a social
mission the corporation must deviate from that mission to bring
in investors or growth will become stagnant. There are $3.7
trillion of social impact investment funds in the marketplace
that is being targeted towards companies like this. He offered
his belief that by opening this up it sets the stage for
investors and entrepreneurs to operate. Not only is it a great
way to protect directors, but it is a great vehicle to protect
shareholders. He related a scenario in which an individual
would invest in a company that has a social mission, but the
corporation can deviate from the mission since there isn't a
legally binding document. In fact, the purpose of the
corporation is to maximize profit, as previously stated, except
that his understanding was that the company would do something
else. This bill would fill that gap. He pointed out one other
key element is that this bill stays fairly consistent with the
model legislation, with each state having its particular
nuances; however, the general concept is very consistent so it
will attract investors.
3:43:42 PM
MR. TROJIAN related that lastly the younger generation, and 80
percent of college graduates want to work for companies with a
mission that provides a means to be connected to society and not
just having a job. He offered his belief this is another way to
keep the younger population in the state by expanding
opportunities for them to come up with new innovative ideas. He
acknowledged that there is no tax benefit. In fact, some states
such as South Carolina have seen this as a great opportunity for
businesses tying to alleviate problems in our society since tax
monies cannot solve all the problems so why not harness the
power of the free market to try to solve problems.
MR. TROJIAN further stated that this bill does not dictate what
is good for society, but it is left up to the free market. For
example, it allows companies to bestow conservative or liberal
values in the companies, as determined by the marketplace and
the entrepreneur. He offered his belief that if they have a
good idea it will attract investors and consumers, but it is not
government dictating what is good for society and this bill
would provide the stage for them to operate.
3:45:52 PM
REPRESENTATIVE HERRON asked for an example of how the state
would enforce these rights under the bill.
MR. TROJIAN answered that the benefits corporations would be
enforced in the same manner as traditional corporations enforce
its duties to maximize profits. He said it is enforced through
the shareholders and not government. The same principles are
taken here, which really allow a contractual agreement theatre
statute that the shareholders and board can entertain, enforced
through benefit enforcement proceeding in which the shareholders
are the only ones with a private right of action. For example,
if a corporation wanted to consider a particular aspect of the
community that the people in community cannot sue them for not
meeting the goal, but the shareholder can do so or could elect
to add outside interests with a two-thirds vote to the private
right of action; however, it would be up to the company.
3:47:44 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 346.
REPRESENTATIVE JOSEPHSON remarked that this is good bill. He
offered his belief that the bill is well considered, plus he
liked the concept of deregulating corporations. He said he
hopes the committee will move today.
3:48:27 PM
REPRESENTATIVE HERRON moved to report the proposed committee
substitute (CS) for HB 346, labeled 28-LS1433\O, Bannister,
3/19/14, out of committee with individual recommendations and
the accompanying fiscal notes. There being no objection, CSHB
346(L&C) was reported from the House Labor and Commerce Standing
Committee.