the new legislative construct, meaning that the new legislation does not automatically affect
existing and future corporations governed by the state’s business corporation act.

The corporate charter must include a statement that the corporation will pursue a “general public
benefit.” For example, Vermont and Maryland law define this as “a material positive impact on
society and the environment, as measured by a third-party standard, through activities that
promote some combination of specific public benefits.”6

The corporation may identify one or more specific public benefits in addition to the general
public benefit.7

The process followed in pursuing public benefits must meet a “third-party standard.” Although
not specified by name, B-Lab, a nonprofit corporation promoting benefit corporation legislation,
has developed criteria that would meet the third-party standard. B-Lab has organizational and
financial interests in the passage of benefit corporation legislation.8
In addition to the common elements noted above, the Vermont law contains a unique enforcement
mechanism, called a “Benefit Enforcement Proceeding.”9 This new state court proceeding affords the
right to bring a claim or action against a director or officer for failure to pursue any general or specific
public benefit purpose set forth in the benefit corporation’s articles of incorporation or for violation of a
duty or standard of conduct under the applicable statutory chapter. A benefit enforcement proceeding
may be commenced or maintained only by: (1) a shareholder that would otherwise be entitled to
commence or maintain a proceeding in the right of the benefit corporation on any basis; (2) a director of
the corporation; (3) a person or group of persons that owns beneficially or of record 10 percent or more of
the equity interests in an entity of which the benefit corporation is a subsidiary; or (4) other persons as
specified in the articles of incorporation of the benefit corporation.10
The benefit corporation legislation raises interesting questions, including the appropriate criteria
for satisfying the third-party standard, how courts will assess whether “a material positive impact” has
occurred, and to what extent deference will be given to directors’ considerations of an array of
nonfinancial interests.
The California Flexible Purpose Corporation
In California, a group of corporate lawyers spent a year drafting a very detailed proposed statute
known as the Corporate Flexibility Act of 2010, which creates the Flexible Purpose Corporation (FPC).
As in the case of the benefit corporation legislation outlined above, this new law would be a stand-alone
chapter under Title 1 of the California Corporations Code.11 But the proposed statute differs significantly
from benefit corporation legislation. For example, the bill outlines a broad definition of “special
purpose,” which includes both charitable and public-purpose activities permitted by the IRS for nonprofit
corporations seeking tax-exempt status as well as short- and long-term benefits of the FPC’s activities for
(1) employees, suppliers, customers, and creditors, (2) the community and society, and (3) the
environment.
MD. CODE ANN., CORPS. & ASS’NS, § 5-6C-01(C) (2010); VT. STAT. ANN. tit. 11, § 21.03(a)(4) (2010). MD. CODE ANN., CORPS. & ASS’NS, § 5-6C-01(D) (2010); VT. STAT. ANN. tit. 11, § 21.03(a)(6) (2010). 8
http://www.bcorporation.net. 9
VT. STAT. ANN. tit. 11, § 21.13 (2010). 10
VT. STAT. ANN. tit. 11, § 21.13(b) (2010). 11
S.B. 1463, 2009-10 Leg. (Cal. 2010). 6
7
Oregon State Bar Sustainable Future Section Fall 2010 The proposed California legislation requires the board of directors of the FPC to publish an
annual report on its impact in accomplishing its special purposes and an assessment of anticipated future
expenditures, but does not impose third-party criteria. The bill also requires the FPC to send a “Special
Purpose Current Report” to board members within 45 days of “any expenditures, excluding compensation
for officers and directors made in furtherance of special purpose objectives, whether operating, capital, or
other expenditure of corporate resources where the expenditure has or is likely to have a material adverse
impact on the flexible purpose corporation’s results of operations or financial condition for a quarterly or
annual fiscal period.”12 This requirement could be onerous in practice.
Amendments to Existing Constituency Statutes
In Oregon, two recent legislative proposals by corporate lawyers addressed corporate governance
within the Oregon Business Corporation Act. In 2007, the Oregon legislature passed HB 2826, which
amended Or. Rev. Stat. § 60.047, the section of the Oregon Business Corporation Act that addresses the
required and permissive content of articles of incorporation. The revised law explicitly permits a
“provision authorizing or directing the corporation to conduct the business of the corporation in a manner
that is environmentally and socially responsible.”13
Because this statute is permissive, and requires a special provision in the articles of incorporation,
the drafters viewed the legislation as a modest but important initial step. And it was viewed in academic
literature as a “useful stepping stone, serving to highlight the possibility that corporate charters can serve
as a means to begin encouraging sustainable corporate behavior . . . .”14
Building on HB 2826, members of the corporate bar assisted in introducing HB 2829 in 2009, to
amend the so-called “other constituency” provision of the Oregon Business Corporation Act.15 A total of
32 states have enacted other-constituency provisions to provide broad discretion to the board of directors
in considering a range of factors (in addition to the interests of the shareholders) in its decision-making
function, including “provisions [that] expressly permit decisions that elevate other non-shareholder
considerations—such as labor and local communities—over shareholder wealth.”16 Oregon is one of ten
states in which the other-constituency provision applies only in the context of a hostile takeover of a
business corporation, a limitation that HB 2829 would have eliminated.17
Proponents of HB 2829 sought to accomplish two objectives. First, the legislation would have
broadened the applicability of the other-constituency provision to cover all board decision-making, both
in the hostile-takeover arena and generally in all other matters. Second, the new provision would have
added unique language making explicit what is commonly understood as implicit in the existing authority
of directors. Under the bill, directors would be expressly authorized to consider “the economic,
environmental, social, or ethical considerations that are reasonably regarded as appropriate to the
responsible conduct of the corporation’s business” in their decision-making.18
12
Id. § 3501. OR. REV. STAT. § 60.047(2) (e) (2007). Susan L. Smith, Chartering Sustainable Transnational Corporations, (Jan. 29, 2009), available at Social Science
Research Network, http://ssrn.com/abstract=1335035. 15
H.B. 2829, 75th Leg. Assem., Reg. Sess. (Or. 2009). 16
Id. 17
Judd Sneirson, Green Is Good: Sustainability, Profitability, and a New Paradigm for Corporate Governance, 94
Iowa L. Rev. 987, 998 (2009). 18
Or. H.B. 2829. 13
14
Oregon State Bar Sustainable Future Section Fall 2010 HB 2829 would have applied to all Oregon corporations, including those in existence at the time
of adoption as well as new corporations formed in the future. The proposal stalled in committee in 2009,
and is expected to be reintroduced in the 2011 session of the Oregon legislature.
Conclusion
As Justice Brandeis wrote: “It is one of the happy incidents of the federal system that a single
courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic
experiments without risk to the rest of the country.”19 Here, several states have begun to address a
common question—namely, the role of the corporation in modern society—by taking significantly
different approaches.
At the heart of these different approaches is the question whether it is best to create a new type of
corporate entity or to modify the existing business corporation act (on either an opt-in or a generally
operative basis). There is a wide spectrum of competing views, running the gamut from proponents of
broadly defined social responsibility as an overlay for all chartered entities to proponents of strict
adherence to economic market-based shareholder primacy.20 There are also interesting questions relating
to the ability of special constituents, shareholders, or others to enforce accountability to general or
specific charter provisions related to social responsibility. And there are yet further questions about the
long-range prospects of different types of corporations (e.g., benefit corporations, FPCs, and business
corporations) as well as their ability to coexist as useful business models.
We will continue to witness the unfolding of this “happy incident” of democracy relating to the
role of the corporation in addressing matters of social responsibility. As Oregonians, we will also have
the opportunity to assist in defining our own unique approach.
Mr. Wolfstone is a shareholder in the Portland office of Lane Powell PC, and Ms. Pray is the Assistant Director of the Green Business Initiative
at the University of Oregon School of Law in Portland and General Counsel & Consultant at Blue Tree Strategies, Inc.
New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting). See, e.g., Aneel Karnani, The Case Against Corporate Social Responsibility, WALL ST. J., Aug. 23, 2010 (“Can
companies do well by doing good? Yes—sometimes. But the idea that companies have a responsibility to act in the
public interest and will profit from doing so is fundamentally flawed.”). 19
20
Oregon State Bar Sustainable Future Section Fall 2010