Legislature(2013 - 2014)BARNES 124

04/11/2014 03:15 PM LABOR & COMMERCE

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 346(L&C) Out of Committee
<Bill Hearing Canceled>
Moved Out of Committee
Moved HCS SB 159(L&C) Out of Committee
Moved Out of Committee
Moved Out of Committee
+ Bills Previously Heard/Scheduled 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                                                               
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                                                               

Document Name Date/Time Subjects
HB346 ver N.pdf HL&C 4/11/2014 3:15:00 PM
HB 346
HB346 Sponsor Statement.pdf HL&C 4/11/2014 3:15:00 PM
HB 346
HB346 Draft Proposed Blank CS ver O.pdf HL&C 4/11/2014 3:15:00 PM
HB 346
HB346 Sectional Analysis ver O.pdf HL&C 4/11/2014 3:15:00 PM
HB 346
HB346 Supporting Documents-Sampling of Benefit Corporations.pdf HL&C 4/11/2014 3:15:00 PM
HB 346
HB346 Supporting Documents-States with Benefit Corporations.pdf HL&C 4/11/2014 3:15:00 PM
HB 346
HB346 Supporting Document- Legal FAQS benefitscorp.net.pdf HL&C 4/11/2014 3:15:00 PM
HB 346
SB58 ver N.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Sponsor Statement.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Fiscal Note-DCCED-DOI-01-21-14.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Supporting Documents-Written Testimony-NAMIC-4-07-2014.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Supporting Documents-Email Babcock 2-20-2013.PDF HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Supporting Documents-Letter NAMIC 2-21-2013.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Supporting Documents-Handout State Farm 1-31-2014.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Supporting Documents-Letter Brine 4-04-2013.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB58 Supporting Documents-Letter Winters 2-21-2013.pdf HL&C 4/11/2014 3:15:00 PM
SB 58
SB129 Ver P.pdf HL&C 4/11/2014 3:15:00 PM
SB 129
SB129 Sponsor Statement.pdf HL&C 4/11/2014 3:15:00 PM
SB 129
SB129 Sectional Analysis.pdf HL&C 4/11/2014 3:15:00 PM
SB 129
SB129 Fiscal Note-DCCED-CBPL-03-05-14.pdf HL&C 4/11/2014 3:15:00 PM
SB 129
SB129 Supporting Documents-Letter AK Chamber.pdf HL&C 4/11/2014 3:15:00 PM
SB 129
SB129 Supporting Documents-DCCED BCREA Audit 2013.pdf HL&C 4/11/2014 3:15:00 PM
SB 129
SB129 Supporting Documents-Summary of Changes.pdf HL&C 4/11/2014 3:15:00 PM
SB 129
SB145 ver A.PDF HL&C 4/11/2014 3:15:00 PM
SB 145
SB145 Sectional Analysis.pdf HL&C 4/11/2014 3:15:00 PM
SB 145
SB145 Fiscal Note-DCCED-DED-01-17-14.pdf HL&C 4/11/2014 3:15:00 PM
SB 145
SB145 Fiscal Note-DOA-DRB-01-20-14.pdf HL&C 4/11/2014 3:15:00 PM
SB 145
SB145 Fiscal Note-DOR-AHFC-01-21-14.pdf HL&C 4/11/2014 3:15:00 PM
SB 145
SB145 Fiscal Note-DOA-DOP-01-20-14.pdf HL&C 4/11/2014 3:15:00 PM
SB 145
SB145 Supporting Documents-Transmittal Letter 1-28-2014.pdf HL&C 4/11/2014 3:15:00 PM
SB 145
SB145 Supporting Documents-TalkingPointsExt.pdf HL&C 4/11/2014 3:15:00 PM
SB 145
SB159 Draft Proposed Amendment ver N.1.pdf HL&C 4/11/2014 3:15:00 PM
SB 159
SB159 Supporting Documents-Letter AK Trollers Assoc 3-17-2014.pdf HL&C 4/11/2014 3:15:00 PM
SB 159
SB159 Supporting Documents-Letter United Fishermen of AK 3-13-2014.pdf HL&C 4/11/2014 3:15:00 PM
SB 159
SB159 ver N.pdf HL&C 4/11/2014 3:15:00 PM
SB 159
SB159 Sponsor Statement.pdf HL&C 4/11/2014 3:15:00 PM
SB 159
SB159 Sectional Analysis.pdf HL&C 4/11/2014 3:15:00 PM
SB 159
SB159 Fiscal Note-DCCED-DOI-2-10-14.pdf HL&C 4/11/2014 3:15:00 PM
SB 159