Legislature(2017 - 2018)BARNES 124

04/10/2017 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 3:45 PM --
Moved CSHB 38(L&C) Out of Committee
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 9(L&C) Out of Committee
-- Public Testimony --
Moved CSHB 124(L&C) Out of Committee
-- Public Testimony --
                  HB 124-BENEFIT CORPORATIONS                                                                               
4:38:41 PM                                                                                                                    
CHAIR KITO  announced that the  final 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."                                                                                                                
4:38:46 PM                                                                                                                    
REPRESENTATIVE  WOOL  moved  to   adopt  the  proposed  committee                                                               
substitute for  HB 124, Version 30-LS  0348\D, Bannister, 4/4/17,                                                               
as the working document.                                                                                                        
4:39:00 PM                                                                                                                    
CHAIR KITO objected for purposes of discussion.                                                                                 
[Chair Kito passed the gavel to Vice Chair Wool.]                                                                               
4:39:26 PM                                                                                                                    
CHAIR KITO,  prime sponsor of  HB 124, stated that  the committee                                                               
heard the  bill previously  and there are  some changes,  most of                                                               
which are technical.                                                                                                            
4:39:56 PM                                                                                                                    
BIANCA CARPENETI,  Staff, Representative  Sam Kito,  Alaska State                                                               
Legislature, on  behalf of Representative Kito,  prime sponsor of                                                               
HB 124,  reviewed the five  changes in Version  D.  She  said the                                                               
first  change is  to standardize  the  use of  the term  "general                                                               
public benefit".   Since this term  is a unitary concept  it does                                                               
not take  an indefinite  article, she  explained, and  there were                                                               
some inconsistencies  in the [original]  bill where there  was an                                                               
indefinite article.   This  change is  seen on  page 5,  line 29;                                                               
page 9,  lines 7 and 24;  page 10, line  7; and page 11,  line 2.                                                               
The second change, she stated,  is changing the word "reasonably"                                                               
to "rationally"  in keeping  with model  legislation establishing                                                               
benefit corporations.  This change  occurs in four places   twice                                                               
on page  6, lines 9  and 11, and  page 9, lines  17 and 19.   She                                                               
said the third  change is removal of "for  general public benefit                                                               
purposes" to  avoid redundancy on  page 15,  line 7.   The fourth                                                               
change,  she continued,  is  deletion of  the  word "purpose"  in                                                               
order  to use  the definition  of those  terms in  the definition                                                               
section  without tying  them to  the  public benefit  corporation                                                               
requirements.   This  change occurs  on page  15, line  11.   The                                                               
fifth  change,  she  reported,  is that  the  effective  date  is                                                               
changed to July 1, 2018.  This change occurs on page 17, line 7.                                                                
MS.  CARPENETI addressed  questions  asked  by committee  members                                                               
during  the bill's  previous hearing.   Regarding  Representative                                                               
Knopp's  question about  examples  of  benefit corporations,  she                                                               
noted  that   many  types  of  businesses   have  become  benefit                                                               
corporations since the first law  was passed in Maryland in 2010.                                                               
The benefit corporations currently  incorporated in the U.S. come                                                               
from  a range  of  industries,  including retail,  manufacturing,                                                               
technological,    service,    professional   services,    private                                                               
education, and  food and beverage  production.  They come  in all                                                               
sizes   from   one-person   service  companies   to   large-scale                                                               
international   brands.      Examples   of   well-known   benefit                                                               
corporations,  she  related,  include Method,  Kickstarter,  Plum                                                               
Organics,  King Arthur  Flour, Patagonia,  Solberg Manufacturing,                                                               
Laureate Education, and Alt School.                                                                                             
MS. CARPENETI addressed the committee's  question about whether a                                                               
benefit  corporation must  be publicly  traded and  reported that                                                               
they  do  not  have  to  be  publicly  traded  to  be  a  benefit                                                               
corporation.    She  said  the legal  designation  of  a  benefit                                                               
corporation does  not set  requirements as  to whether  a benefit                                                               
corporation  is publicly  traded  or privately  held.   Currently                                                               
there are  around 5,000 benefit corporations  throughout the U.S.                                                               
and only  one of  them is  publicly traded  and that  is Laureate                                                               
Education and Alt School, which went public in February 2017.                                                                   
MS. CARPENETI  addressed the  question about why  the need  for a                                                               
benefit corporation if  it isn't publicly traded.   She explained                                                               
that most of  the 5,000 benefit corporations  throughout the U.S.                                                               
are private  companies.  However,  she continued, many  have also                                                               
taken outside capital  in the form of venture  capital or private                                                               
equity  dollars  and  so  being able  to  protect  the  company's                                                               
mission  over  time  and   consider  stakeholders  is  incredibly                                                               
important  to   these  entrepreneurs,  especially   when  outside                                                               
capital has been raised.                                                                                                        
MS. CARPENETI noted there were  several questions about a special                                                               
taxation  benefit conferred  to benefit  corporations.   She said                                                               
there  is   no  special  tax   benefit  conferred,   the  benefit                                                               
corporation  status   only  affects  requirements   of  corporate                                                               
purpose,  accountability,  and  transparency.    Everything  else                                                               
regarding  corporation laws  and tax  laws remain  the same,  she                                                               
reported.   So, a  type of corporation    whether C  or S    must                                                               
still be elected.                                                                                                               
MS.  CARPENETI  addressed  Representative Wool's  question  about                                                               
whether  Newman's Own  is an  example of  a benefit  corporation.                                                               
She  said  she's  found  no  indication  of  Newman's  Own  being                                                               
registered as  a benefit corporation,  rather Newman's  Own gives                                                               
100  percent  of  its  after-tax  profits  to  the  Newman's  Own                                                               
Foundation, a private non-profit  foundation, which in turn gives                                                               
the money  to various  educational and  charitable organizations.                                                               
While  the   way  Newman's  Own  operates   is  commendable,  she                                                               
continued, it's  probably not a  good example of being  a benefit                                                               
corporation  because  being  a   benefit  corporation  means  the                                                               
business is  run in a  particular way.  So,  if a company  were a                                                               
poor  employer and  had  bad corporate  citizens  in a  community                                                               
where it operated  but gave away some of its  profits, that would                                                               
not  make  it  a  benefit  corporation.   The  focus  of  benefit                                                               
corporations,  she  continued,  is   on  being  profitable  in  a                                                               
responsible way, not  what the corporation does  with its profits                                                               
once they've been earned.                                                                                                       
MS.  CARPENETI  addressed  another question  from  Representative                                                               
Wool about whether benefit corporations  would be exempted if the                                                               
tax  law were  changed.    She explained  that  tax wise  benefit                                                               
corporations still  elect whether to  be C or S  corporations, so                                                               
this  benefit corporation  status only  affects the  requirements                                                               
for corporate purpose, accountability, and transparency.                                                                        
Everything else regarding the tax status remains the same.                                                                      
4:44:59 PM                                                                                                                    
REPRESENTATIVE  BIRCH posed  a scenario  of  Microsoft with  Bill                                                               
Gates  operates Microsoft  as  a regular  corporation.   He  said                                                               
whoever owns those shares can  decide whether to direct shares to                                                               
a charitable purpose.   He said he is still  trying to understand                                                               
the merits  of a  benefit corporation  since there  is not  a tax                                                               
benefit he is aware of.                                                                                                         
CHAIR  KITO   recounted  that  in  previous   discussion  it  was                                                               
mentioned that  it is  a culture of  social responsibility,  so a                                                               
corporate  structure  that  would allow  individuals  within  the                                                               
corporation  as well  as the  earnings of  the corporation  to be                                                               
utilized for a  tangible beneficial purpose.  With  just a profit                                                               
motive or fiduciary  motive then the profits could be  used for a                                                               
charitable purpose or  not.  But as was heard  last week from Mr.                                                               
Letourneau,  he continued,  a corporation  would like  to operate                                                               
with  a culture  of  being  responsible and  giving  back to  the                                                               
community  and this  can  be  done by  registering  as a  benefit                                                               
corporation, which  allows the company  to be accountable  to its                                                               
shareholders and that the shareholders  would also expect certain                                                               
behaviors from  employees, directors,  or others,  so not  just a                                                               
profit or charitable giving motivation.                                                                                         
REPRESENTATIVE BIRCH asked  what the advantage is in  doing it in                                                               
that manner as opposed to a non-profit like United Way.                                                                         
CHAIR  KITO  replied  that   there  are  significant  differences                                                               
between the  services provided by  a non-profit and  the services                                                               
provide by  a profit.  For  example, if he operated  a for-profit                                                               
corporation that made  and sold a "widget", he  doesn't know that                                                               
he would be  able to convert that into  a non-profit organization                                                               
and if he did,  100 percent of that benefit would  go to the non-                                                               
profit.   He  said it  is about  cultural sensitivity  and giving                                                               
back to  the community and,  depending on what form  a particular                                                               
owner,  or a  board of  directors would  want to  take for  their                                                               
corporation, they  could structure  with this bill  a corporation                                                               
that would allow them to do what  they would like to give back in                                                               
their way.   For example, if  their company was a  mountain guide                                                               
company,  rather than  just  making a  profit  the company  could                                                               
choose to  have its  employees do 20  hours of  community service                                                               
once a month and that could  be part of the corporate culture and                                                               
bylaws so that that whole  mountain guide company is committed to                                                               
giving back to some component of the community.                                                                                 
4:48:18 PM                                                                                                                    
VICE  CHAIR WOOL  recalled that  in the  committee's conversation                                                               
with  the gentleman  from Anchorage  last week  it was  said that                                                               
this could almost  be used as a marketing badge  to say, "This is                                                               
how we run our company and another reason to support them."                                                                     
CHAIR KITO said  that is one of those things  that are identified                                                               
specifically  in the  bill -  that it  is not  a designation  for                                                               
marketing purposes  - but it can  be utilized as a  selling point                                                               
of the company and what the company might be able to offer.                                                                     
MS.  CARPENETI   added  that  corporations  are   also  generally                                                               
expected  to put  the interests  of their  shareholders as  their                                                               
primary  consideration.   Two cases  have set  the precedent  for                                                               
this,  she said.   One  is Dodge  v. Ford  Motor Company  and the                                                             
other  is eBay  Domestic Holdings  Inc. v.  Newmark.   Both cases                                                             
affirmed  that all  activities of  a for-profit  corporation must                                                               
seek to maximize the economic value  for its stockholders.  It is                                                               
important to  note, she continued,  that the  benefit corporation                                                               
status is needed  to protect mainly directors from  being sued in                                                               
a derivative suit.  So, it is  a legal protection as well for the                                                               
corporation to say  that it is going to add  the consideration of                                                               
its mission in addition to its economic.                                                                                        
4:50:10 PM                                                                                                                    
CHAIR KITO removed his objection to  the adoption of Version D as                                                               
the working document.                                                                                                           
[Vice Chair Wool returned the gavel to Chair Kito.]                                                                             
4:50:21 PM                                                                                                                    
REPRESENTATIVE  WOOL  moved to  report  CSHB  124, Version  30-LS                                                               
0348\D,  Bannister,  4/4/17,  out of  committee  with  individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no objection,  CSHB 124(L&C)  was reported  from the  House Labor                                                               
and Commerce Standing Committee.                                                                                                

Document Name Date/Time Subjects
HB38 Supporting Document - 2017 Research Report 3.24.17.pdf HL&C 4/10/2017 3:15:00 PM
HB 38
HB0038 ver J 3.24.17.pdf HL&C 4/10/2017 3:15:00 PM
HB 38
HB038 Explanation of Changes version A to version J 4.10.17.pdf HL&C 4/10/2017 3:15:00 PM
HB 38
HB038 PowerPoint Presentation 4.10.2017.pdf HL&C 4/10/2017 3:15:00 PM
HB 38
HB038 ver J Sectional Analysis 4.10.2017.pdf HL&C 4/10/2017 3:15:00 PM
HB 38
HB038 ver J Side-by-side 4.10.2017.pdf HL&C 4/10/2017 3:15:00 PM
HB 38