Legislature(2015 - 2016)BARNES 124
02/13/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB49 | |
| HB26 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 26 | TELECONFERENCED | |
| *+ | HB 49 | TELECONFERENCED | |
HB 49-BENEFIT CORPORATIONS
3:16:21 PM
CHAIR OLSON announced that the first order of business would be
HOUSE BILL NO. 49, "An Act relating to corporations, including
benefit corporations, and other entities; and providing for an
effective date."
3:16:44 PM
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, speaking
as prime sponsor of HB 49, stated that this bill would expand
the options for Alaskan entrepreneurs and investors by placing a
new type of corporate entity, a benefit corporation, or "B Corp"
in Alaskan statute. He explained a benefit corporation as a
for-profit corporation that incorporates 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.
REPRESENTATIVE SEATON asked to read a short paragraph from Dodge
v. Ford Motor Company, 170 NW 668 (Mich 1919), which read:
A business corporation is organized and carried on
primarily for the profit of the stockholders. The
powers of the directors are to be employed for that
end. The discretion of directors is to be exercised in
the choice of means to attain that end, and does not
extend to a 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 said that maximizing corporate returns can
interfere with other corporate goals, such as electing to do
something beneficial for the community by enhancing social
benefits. By electing in their articles of incorporation to
become a benefit corporation (B-Corp), businesses simply gain
the flexibility to include mission and social impacts in their
business practices. Allowing the creation of benefit
corporations will give business owners more choices in how to
run their businesses and will bring to Alaska a slice of the
$6.6 trillion invested nationally by similar corporations.
3:18:43 PM
REPRESENTATIVE SEATON said that benefit corporations are formed
voluntarily and have the same tax status as any other for-profit
corporations. Twenty-seven other states and the District of
Columbia have passed benefit corporation legislation and many
more have benefit corporation bills in process. Over 1,440
benefit corporations have incorporated in other states,
including Patagonia, Rasmussen College, Epic Coffee, and King
Arthur Flour Company, which is 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. He said that
B Lab is a non-profit corporation that created a benefit
corporation certification, similar to the LEEDS certification.
3:20:59 PM
CHAIR OLSON suggested the LEEDS certification is "green
certification."
REPRESENTATIVE SEATON agreed.
3:21:07 PM
REPRESENTATIVE SEATON clarified that this bill does not require
certification but incorporates the benefit corporation
provisions into statute. Just as traditional corporations
provides their shareholders with financial reports, a benefit
corporation will additionally create and publish a biannual
benefit report describing how the company has pursued the
general public benefit. This report, which is held against a
third-party standard, would allow shareholders, investors, and
the public to confidently invest in benefit corporations that
share their values. A two-thirds majority vote is required to
form or change any corporate status so shareholders will drive
the decisions and the selection of the general community
benefits that for-profit corporations might select.
3:22:26 PM
CHAIR OLSON recalled the last legislature had a similar non-
controversial bill related to benefit corporations.
REPRESENTATIVE SEATON agreed that he had introduced a bill last
legislature that passed out of the committee last year. He
added that this bill will afford shareholders flexibility, but
potential investors will be aware of the benefits prior to
investing.
3:23:46 PM
REPRESENTATIVE SEATON provided a section-by-section analysis of
the bill. He said that Section 1 would establish how
corporations may be dissolved and statutory language was amended
to include benefit corporations. Section 2 would add a new
chapter to the corporate code for benefit corporations.
REPRESENTATIVE SEATON related that proposed Article 1 would
establish how a new business corporation or existing entity may
become a benefit corporation and it declares that an amendment
of an existing corporation must be adopted by at least the
minimum two-thirds vote.
3:24:26 PM
REPRESENTATIVE SEATON said that proposed AS 10.60.020 indicates
that the plan of merger or status change must be approved by at
least the minimum required vote if an existing corporate entity,
that was not a benefit corporation but becomes a B-Corp as a
result of a merger or other status change.
REPRESENTATIVE SEATON stated proposed AS 10.60.030 would require
that in addition to the corporate purposes under existing AS
10.06.005, a benefit corporation shall have the purpose of
creating general public benefit from all effects of its business
and operations. In addition, creating the general public
benefit must be found to be in the best interest of the benefit
corporation.
REPRESENTATIVE SEATON said that proposed AS 10.60.040 will allow
a benefit corporation to identify or amend its articles to
include specific public benefit purposes in addition to the
general public benefit purposes, and it lists examples of
specific public benefits.
3:25:28 PM
REPRESENTATIVE SEATON related that proposed AS 10.60.050
indicates a professional corporation formed under AS 10.45 does
not violate this statute by being a benefit corporation.
Proposed AS 10.60.060 provides that a benefit corporation may
terminate its benefit status by amending its articles or by
being party to a merger, but it must be approved by at least the
minimum required vote. He stated that proposed AS 10.60.070
indicates if a benefit corporation disposes of all or
substantially all of its assets the transaction must be approved
by the minimum status vote required.
3:26:09 PM
REPRESENTATIVE SEATON directed attention to proposed Article 2,
AS 10.60.100, of HB 49 will establish seven factors that the
board of directors and individual directors of a benefit
corporation shall consider while discharging their duties.
However, the directors of the benefit corporation are not
required to give priority to any one of these listed factors
unless the intention to prioritize has been identified in the
benefit corporation's articles of incorporation.
REPRESENTATIVE SEATON referred to proposed AS 10.60.110, which
states that consideration of these factors does not constitute a
violation of existing Alaska statutes regarding the duties and
rights of corporate boards. Proposed AS 10.60.120 states that
except as provided in the articles of incorporation, a director
of a benefit corporation is not personally liable for monetary
damages for action, inaction, or failure of the benefit
corporation to create a general public benefit if the duties of
the director were performed in compliance with this chapter.
REPRESENTATIVE SEATON said AS 10.60.130 clarifies that the
director of a benefit corporation does not have a duty to a
person solely because that person is a beneficiary of the
benefit corporation's general or specific public benefit
purpose.
3:27:43 PM
REPRESENTATIVE SEATON said proposed AS 10.60.140 declares that
directors of a benefit corporation who make business judgments
in good faith fulfill their duties under this chapter, if they
are not personally invested in the subject, are informed on the
subject of the judgment, reasonably believe the business
judgment is in the best interest of the benefit corporation, and
have considered the interests and factors listed under AS
10.60.100.
3:28:14 PM
REPRESENTATIVE SEATON directed attention to proposed Article 3,
which would allow the board to include a benefit director who is
not financially liable if acting in good faith.
REPRESENTATIVE SEATON related that proposed Article 4, AS
10.60.230 directs an officer of a benefit corporation to
consider the factors listed in AS 10.60.100. It states that an
officer of a benefit corporation is not personally liable for
monetary damages if their duties were performed in compliance
with Alaska statutes.
REPRESENTATIVE SEATON directed attention to proposed Article 5,
AS 10.60.300 which states that persons may bring an action or
claim against a benefit corporation for a failure to pursue
general or specific public benefits as set out in their articles
or for a violation of duties under this chapter, but is limited
to someone within the corporation. Thus someone within the
community cannot bring a cause of action against the corporation
for not fulfilling its duties. He stated that proposed Article
6 requires a benefit corporation to file a biennial benefit
report in addition to the biennial report and provides details
of what must be in the report.
3:29:57 PM
REPRESENTATIVE SEATON stated that proposed Article 7 would
establish a status change for a merger or amendment for a
benefit corporation or domestic entity other than a business
corporation, which must be approved by at least a two-thirds
vote of all shareholders entitled to vote. It also would
establish statutory guidelines for third-party standards used as
an assessment tool in the required annual benefit report to
ensure that the general or specific public benefits are being
done.
REPRESENTATIVE SEATON stated that proposed Article 8 would allow
the department to adopt regulations to implement the new style
of corporation.
3:30:22 PM
REPRESENTATIVE COLVER asked whether this would be similar to
"Newman's Own" style of corporation instead of being just a pure
monetary profit driven corporation. He asked for further
clarification of the difference between this model and the
typical corporation model with a for-profit motive.
REPRESENTATIVE SEATON answered that the corporate categories are
nonprofit and for-profit corporations. He suggested that a for-
profit corporation may wish to do something to benefit the
community or to have a specific benefit; for example, recreation
may be vital to a sporting goods company that wants to improve
trails in a community. The corporate shareholders and investors
might object, but in a benefit corporation, they will be
informed of the general and specific benefits, such as the
improved trail motive. However, it doesn't mean the corporation
is a nonprofit corporation; however, the benefit corporation has
a general community social goal as well as making money.
3:33:12 PM
REPRESENTATIVE COLVER asked whether the goals and objectives of
the benefit corporation would lie within the articles of
incorporation and the bylaws or just be strictly stated in the
corporate articles.
REPRESENTATIVE SEATON answered that seven parameters are listed
on page 4 of the bill. If the corporation has a first priority,
the board of directors would be held to that goal as the primary
benefit, but if the corporation did not prioritize, the board
would decide how to best exercise the general benefit for the
community. He characterized it as being a very flexible
arrangement; however, third-party standards can apply. For
example, if the benefit corporation's mission was sustainable
farming, it would be measured against the third-party standards
that define sustainable farming. The benefit corporation report
to its investors will allow them to measure if the benefit
corporation has accomplished its goal.
3:34:55 PM
REPRESENTATIVE KITO asked whether the primary responsibility is
to shareholders is subsidiary support for beneficial purposes or
if it was possible for the primary component to be the benefit
corporation with the subsidiary being the for-profit purpose.
REPRESENTATIVE SEATON answered that the mix was up to the
corporation. He suggested the benefit corporation can mix and
match its goals based on the board of directors and
shareholders.
3:36:17 PM
REPRESENTATIVE KITO asked whether it could be nearly at the
level of a nonprofit, in which 95 percent of the revenue is put
towards its beneficial purpose.
REPRESENTATIVE SEATON answered that it would be up to the board
and the shareholders, in essence, since the shareholders elect
the board of directors.
3:36:39 PM
REPRESENTATIVE HUGHES offered her belief that the benefit
corporate structure is laid out well. She offered that for-
profit corporations already conduct charitable activities and
set up charitable foundations. She asked whether they were
limited by law. She understood the for-profit aspect would be
according to the shareholders; however, she asked why a
corporation would convert to a benefit corporation instead of
funneling funds to a nonprofit to obtain a tax write-off.
REPRESENTATIVE SEATON answered that corporations could be
subject to shareholder lawsuits since the corporate model for a
for-profit corporation provides the legal framework. Some
shareholders might object to reductions in stock dividends since
the corporation has a fiduciary responsibility to provide
profits. The benefit corporation's mission is clearly designed,
such that the benefit corporation will further certain specific
beneficial goals in the community. Thus, investors understand
they won't just receive a return on investment, but will also
promote the community goals listed in the benefit corporation's
portfolio.
3:41:23 PM
REPRESENTATIVE HUGHES asked whether any current corporations
want to transfer to benefit corporations.
REPRESENTATIVE SEATON replied that Gordon Blue, Executive
Director of the Alaska Sustainable Fisheries Trust has expressed
interest, as well as a coffee company in Homer that would like
to improve the status of coffee growers. He referred to letters
of interest in members' packets from groups who have expressed
an interest, but he indicated that there wasn't anyone yet.
3:43:06 PM
REPRESENTATIVE HUGHES said nonprofit organizations cannot weigh
in in on partisan or political matters during elections. Now
that the [U.S. Supreme Court ruled on] Citizens United,
corporations may seek to persuade the voting public through
other means, including advertising. She asked whether benefit
corporations could weigh in politically.
REPRESENTATIVE SEATON answered that nothing in HB 49 would
expand or limit that ability. He stated that if shareholders
are agreeable money could be funneled from a "C" corporation.
He stated that a benefit corporation might decide it wants to
improve the community by putting part of its profits into
political campaigns, but regular corporations can also do so.
It doesn't "fool" anyone since the benefit is transparent and
will be listed on the corporate paperwork. He said that HB 49
doesn't expand the ability of benefit corporations to gain or
lose tax credits. Therefore, benefit corporations are no more
restrictive or permissive in terms of the structure, but
investors will know what the social benefit will be for benefit
corporations.
3:45:45 PM
REPRESENTATIVE JOSEPHSON asked if the benefit corporation could
surprise its shareholders and pursue a political path through a
political action committee (PAC) even if it wasn't the targeted
benefit.
REPRESENTATIVE SEATON answered no; that he did not believe so.
He reminded members that benefit corporations also must file
reports.
3:47:23 PM
REPRESENTATIVE KITO said there might be potential for Alaska
Native Regional Corporations to take advantage of benefit
corporations since some fiduciary firewalls currently prohibit
the corporation from putting funding back into the community or
the tribe affiliated with the corporation. He offered his
belief the benefit corporations will provide additional
responsibility in the corporate bylaws that allow corporations
to bring benefits back to their shareholders communities and not
just to shareholders in the form of dividends. He saw some
potential, whether or not the Native Regional Corporations will
choose to do so. He thanked the sponsor for bringing this bill
forward.
REPRESENTATIVE SEATON commented that those are the types of
general or specific benefits that could be put forth in the
findings of a benefit corporation.
3:48:48 PM
CHAIR OLSON directed attention to the fiscal note of $40,000.
He stated that the fiscal impact was for "one time" information
technology and legal costs.
3:49:35 PM
REPRESENTATIVE KITO asked whether the division anticipates that
the business licensing fee would be used to pay for some of the
start-up costs.
SARA CHAMBERS, Acting Director, Division of Corporations,
Business, and Professional Licensing, Department of Commerce,
Community, & Economic Development (DCCED), stated that the
division is funded through program receipts. Thus the division
would need to recover costs for filing fees to those
corporations, she said.
3:50:29 PM
CHAIR OLSON opened public testimony on HB 49.
3:50:42 PM
ERIK TROJIAN, Director of Policy, B Lab, stated that his
organization has had time to deliberate on how to take companies
who instill beliefs and want to continuously grow. He
reiterated that there is $6 trillion available in social impact
investment in the marketplace. That has actually doubled over
the past few years, he said, and continuously grows because
people don't want to just think about the bottom line and their
earnings, but also what happens with that money. He has
observed that as young people graduate from college, they want
to work for companies with morals and beliefs. He stated that
profit must be the central part for all of the companies to pay
employees and shareholders or the companies will go out of
existence since making profits is central. As this bill was
developed with their corporate attorney, the idea was to touch
the areas that impact the ability for companies to exercise
their morals and beliefs.
3:53:27 PM
MR. TROJIAN stated that the first benefit corporation law passed
about four years ago, and in the last four years 27 states have
passed it, including Delaware, which is seen as the home of
corporate law. Last fall, now Chief Justice Leo Strine Jr.,
Delaware Supreme Court, wrote a 22-page article in the Harvard
Law Review in support of the necessity of benefit corporations.
If a company wants to think this way and act this way, this law
needs to be put in place or he must rule against them.
Recently, the U.S. Supreme Court ruled on the Hobby Lobby case
[Burwell v. Hobby Lobby, 573 U.S. ___(2014)] and the cited
benefit corporations, which pertained to the Patient Protection
and Affordable Care Act (PPACA) ruling that does have the right
to have morals and beliefs. The dissenting view said that
corporations can only maximize profits so how can Hobby Lobby
have a religious belief in the company. The majority ruled that
the only reason they can is because the beliefs are very closely
held. However, if the company had been a general corporation
with multiple shareholders, it could have been sued for having
this religious belief in there company, but benefit corporations
would allow companies to grow and bring in multiple shareholders
who maintain this belief. Thus the corporate culture could
range from a moral belief to a community belief. He stated that
these are not quasi nonprofit companies, but benefit
corporations are businesses that want to instill morals and
beliefs however it wishes. He characterized it as deregulating
the purpose of corporations. He stated that corporations are
the method that companies use when going from small to big since
that is the structure for multiple shareholders.
3:55:54 PM
MR. TROJIAN offered his belief that the structure has
artificially constrained companies with a moral belief to a
small size. In four years' time there are well over 1,700
corporations and it just keeps growing and growing, with some
states producing one or two benefit corporations per day. Other
legislatures are working on benefit corporation legislation,
such as Montana and Idaho. He stated that benefit corporations
provide an option, which doesn't impact traditional companies.
Benefit corporations must consider shareholders and the general
public benefits equally so it isn't feasible to donate 95
percent of the profits to nonprofit organizations or
shareholders will have a right to object. Thus the entities
have to be treated equally and the shareholders have a right to
oust the directors if they are not performing in a proper way.
Benefit corporations have given shareholders increased rights
that did not previously exist.
3:57:50 PM
MR. TROJIAN said the traditional corporation's duty is to
maximize profits, but benefit corporations allow shareholders to
hold the company to the standards that were understood when the
stock in the company was purchased. Thus benefit corporations
create legal protections on both parts - for the director and
the shareholders in a fair and balanced way. He related a
scenario to illustrate choices benefit corporations can make.
If an Alaska manufacturer wanted to buy parts and the cheapest
ones were in China, the corporation normally must purchase them
at the lowest cost; however under the benefit corporation
structure, the company could buy locally as part of its
community benefits and absorb the additional costs since
supporting the community has a value to the benefit corporation.
3:59:46 PM
REPRESENTATIVE KITO related his understanding that the value of
selecting the benefit corporation model is to provide a benefit
to shareholders and to the public. He expressed concern that
allowing a corporation to withhold or withdraw a benefit means
the benefit corporation wouldn't be providing a beneficial
purpose. He asked for further clarification under the benefit
corporation structure whether corporations would be allowed to
deny or limit benefits to other individuals.
MR. TROJIAN said the benefit is in the "eye" of the directors of
the shareholders, which is the unique part of this. It's not a
benefit that government considers a benefit to society, but
benefit corporations let the free market identify that benefit.
Thus if a benefit corporation comes up with some crazy idea of
what benefits the community, it may well result in no one
investing and no one purchasing the benefit corporation's
products. The benefit corporation would fail and not succeed.
That's the way the free market works. Through the annual
benefit report the public, shareholders, and potential investors
obtain transparency and make a determination on whether to
support the company. This process results in a much better
informed public and allows the free market to determine if the
benefit corporation positively benefits the community.
4:01:47 PM
REPRESENTATIVE KITO related a scenario in which a benefit
corporation that holds a specific religious value or belief as
its community benefit, only hires people with that religious
belief and denies other individuals employment, and the
shareholders support this effort, it wouldn't provide a benefit.
Instead it would allowing for a restriction of commerce and a
limitation for the ability of other people to participate in the
workforce because the benefit corporation decides to only hire
certain people. He expressed concern that this type of
structure will actually allow companies to discriminate and
obtain public support from shareholders to do so.
MR. TROJIAN responded that other laws also apply, which prevent
companies from hiring based on their religion. In addition,
this bill would not allow benefit corporations to shirk fair
hiring practice laws. Thus, the aforementioned scenario would
be illegal. Of course, the Hobby Lobby demonstrates that
companies can currently hold values important. This bill would
create a corporate form that allows a company to have multiple
shareholders without the fear of shareholder lawsuit. He often
hears that corporations can do this already and they can so long
as they don't bring in multiple shareholders, which artificially
limits companies with a moral or community belief to a certain
size. This bill will remove that aspect, but it's also already
been happening in many instances with LLCs or closely-held
corporations.
4:04:06 PM
REPRESENTATIVE JOSEPHSON, with respect to Hobby Lobby, said it
would be illegal or unconstitutional to ask applicants about
their religious or cultural beliefs, but according to the U.S.
Supreme Court decision because the company was closely held it
could proscribe or prohibit certain types of health care
coverage. He asked whether that was what happened.
MR. TROJIAN answered yes; but it did not have anything to do
with the benefit corporation law. Companies have the right to
do this, if they so wish; however, if shareholders object they
have the right to sue for not maximizing profit.
4:05:24 PM
REPRESENTATIVE JOSEPHSON said the Calvert Investments, Inc. is
an investment management firm that he described as an ethics
fund, since it avoids investments that would contribute to
tribal war or pollution. He asked whether that describes the
benefit corporation model.
MR. TROJIAN said that is the beginning of it. He stated that
approach is called negative screening, such as not investing in
tobacco. However, the benefit corporations tend to go that
extra step and do positive screens, such as investing in
companies that purchase from local suppliers or hire people from
within the community. Currently, the funds are very limited and
corporations don't have the ability to enforce their investments
as they pertain to general public benefits. This allows
shareholders to hold corporations accountable, he said, noting
that the Calvert Investments, Inc. has been very limited in how
it can operate. He characterized it as being very myopic in
terms of its view in how the economy can utilize this. He said
he always thinks of the benefit corporation as beginning a whole
new sector of the society. He acknowledged that some people
will still want to buy the cheapest products and will want to
obtain the maximum return on their money.
4:07:25 PM
MR. TROJIAN emphasized that there is a sector of the economy
that wants this and new and innovative ideas will come up. For
example, when he was debating this issue in Colorado, he
discovered in a hearing that NASA [National Aeronautics and
Space Administration] had expressed an interest. He related his
understanding that NASA wants to commercialize patents but not
purely for-profit but in terms of how patents can improve
society as a whole. These are ways that these funds will have
additional powers, rights, and grow and expand this sector of
the economy, he said.
4:08:22 PM
CHAIR OLSON commented that he is familiar with a coffee merchant
in Kodiak that sells fair trade coffee and although the coffee
is more expensive, customers are willing to pay for it because
the growers are paid fairly. He suggested that the company's
shareholders are interested in fair trade.
MR. TROJIAN answered yes. He suggested that the second benefit
corporation created was Blessed Coffee, a Maryland company. The
specific benefit of Blessed Coffee is that it gives 40-50
percent of its profit to Ethiopian coffee growers. He pointed
out this is something very specific that would not be allowed
under a traditional corporation.
[HB 49 was held over].
4:11:15 PM
The committee took a brief at-ease.