OREGON’S NEW BENEFIT
COMPANY STATUTE
Combining Pursuit of Profit with Public Benefit
June 25, 2013
William C. Campbell
Equilibrium Capital
Jeffrey C. Wolfstone
Lane Powell
©2013 Lane Powell PC
1
Background
•
•
•
•
•
•
•
•
HB 2296, signed into law June 18, 2013 by Governor Kitzhaber
Effective January 1, 2014 (codification to be determined)
Drafted by a group of Oregon lawyers, with input from Secretary of State
Submitted to Legislature by the Secretary of State as an agency bill,
sponsored by Reps. Jules Bailey and Tobias Reed
17 other jurisdictions have enacted similar legislation, including Arizona,
Arkansas, California, Colorado, Hawaii, Illinois, Louisiana, Maryland,
Massachusetts, Nevada, New Jersey, New York, Pennsylvania, South
Carolina, Vermont, New Jersey, Virginia, and Washington DC
12 jurisdictions have legislation pending, notably including Delaware
Terminology: Certified B Corporation is a certification conferred by the
nonprofit B Lab. Benefit corporation (or company) is a legal status
administered by the state
Comparison: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1988556
©2013 Lane Powell PC
2
Central Aims of Benefit Company Legislation
•
•
•
Public Purpose: To “bake in” to the company’s charter one
or more public purposes, including impact on society and
the environment, taken as a whole
Fiduciary Duty: To specify that directors, officers and
managers are obligated to consider the material positive
impact of decisions on multiple stakeholders in the balance
they deem best
Accountability: To report to stakeholders and the interested
public annually how the company performed as against an
identified independent third-party standard
©2013 Lane Powell PC
3
What is a Benefit Company?
•
•
•
•
Eligible Entities—ORS Ch 60 corporations and ORS Ch 63
LLCs, incorporated, organized, formed or created under
section 3 of the new Act; also includes PCs under ORS Ch 58
Electing In—inclusion of statement in articles (a) at
inception, that the entity is “subject to” the Act or (b) after
inception, that the entity “elects to become a benefit
company” under section 3 of the Act (see Minimum Status
Vote below)
Other Means—also may become benefit company by means
of conversion, merger, or exchange of entity interests
General Public Benefit— in addition to any other purpose,
the company must provide “a material positive impact on
society and the environment, taken as a whole, from the
business and operations of the company”
©2013 Lane Powell PC
4
Why Benefit Companies Are Really Needed
“Having chosen a for-profit corporate form, the craigslist directors
are bound by the fiduciary duties and standards that accompany
that form. Those standards include acting to promote the value of
the corporation for the benefit of its stockholders. The ‘Inc.’ after
the company name has to mean at least that. Thus, I cannot accept
as valid for the purposes of implementing the Rights Plan a
corporate policy that specifically, clearly, and admittedly seeks not
to maximize the economic value of a for-profit Delaware corporation
for the benefit of its stockholders …
“… Directors of a for-profit Delaware corporation cannot deploy a
rights plan to defend a business strategy that openly eschews
stockholder wealth maximization—at least not consistently with the
directors’ fiduciary duties under Delaware law.”
eBay Domestic Holdings, Inc. v. Craig Newmark and James
Buckmaster, and craigslist, Inc. (September 9, 2010, Delaware Court
of Chancery)
©2013 Lane Powell PC
5
What are the Key Attributes?
•
•
•
•
•
•
•
•
Minimum Status Vote—required to elect in or out
Specific Public Benefits—optional in articles
Governors—directors, managers, or members
Modified Fiduciary Duty—effect on specified constituencies
Third-Party Standard—recognized criteria established by an
independent organization
Benefit Report—published and delivered annually
Enforcement—may compel company, governor, member,
officer or manager re duties and public benefit standards
Limitations of Liability—otherwise, no claims against
governors, directors, managers, members re public benefit
©2013 Lane Powell PC
6
Examples of Specific Public Benefits
•
•
The Model Legislation (prepared in conjunction with B Lab) lists seven
non-exhaustive possibilities for specific public benefits, which are:
• Providing low-income or underserved individuals or communities
with beneficial products or services
• Promoting economic opportunity for individuals or communities
beyond the creation of jobs in the ordinary course of business
• Preserving the environment
• Improving human health
• Promoting the arts, sciences, or advancement of knowledge
• Increasing the flow of capital to entities with a public benefit for
purpose
• The accomplishment of any other particular benefit for society or
the environment
See Patagonia, Greyston Baking, Mob Rules, and GIIRS materials
©2013 Lane Powell PC
7
Minimum Status Vote
•
•
•
•
Election In, Generally: In addition to all other applicable
requirements to amend articles under ORS Ch 60 or 63, approval
of a majority of interests entitled to vote on the action (most
other states have a higher threshold, typically 2/3)
Exceptions:
• Entity governing documents or ORS Ch 60 or 63 require
more than a majority vote or vote by voting groups, etc.
• Entity has shares listed on national securities exchange,
etc., each class/series must approve by 2/3 of shares
entitled to vote
Election Out: Same minimum status vote as required to amend
benefit company’s purpose in its articles (see above); also for
merger, exchange of interests, conversion, or sale, etc. of
substantially all assets outside ordinary course of business
Dissenters’ Rights: Not provided unless otherwise triggered
©2013 Lane Powell PC
8
Governors and Benefit Governors
•
•
Governors are:
• Directors of a corporation
• Managers in manager-managed LLC
• Members in member-managed LLC
Company must have a “board of governors” and may
designate at least one member of the board as a “benefit
governor:”
• In addition to other powers, duties, etc., must meet
additional qualifications in organizational documents
• Shall provide information or statements to other
governors concerning their decision-making obligations
(see below)
©2013 Lane Powell PC
9
Modified Fiduciary Duty
•
•
Governors must act in the “best interests” of the benefit
company (under ORS Ch 60 or 63), considering in addition
how decisions will affect:
• Interests of shareholders or members
• Employees and workforce of company and of
subsidiaries and suppliers
• Subsidiaries and suppliers
• Customers
• Communities (location of offices, facilities, etc.)
• Local and global environment
• Short-term and long-term interests
• Ability to fulfill general and any specific public
purposes
Unless required in articles, Governors need not give priority
to a particular interest over other interests
©2013 Lane Powell PC
10
Third-Party Standard
•
•
Company must assess the extent to which it provides a
general public benefit or any specific public benefit in
articles against a “third-party standard”:
• Meaning a recognized standard for defining, reporting
or assessing an entity’s social and environmental
performance
• Must establish criteria that apply to all of the interests
(see above)
• Is developed by an organization that is not under the
control or the company or its affiliates
• Information is publicly available concerning the
measurement criteria and weighting used, the process
by which the standard is developed, and the
organization sufficiently discloses any relationships
that might compromise its independence
No audit or certification report by third party required
©2013 Lane Powell PC
11
Benefit Report
•
•
•
•
•
Company each year must prepare, and deliver within 120
days after fiscal year end (or when other annual report is
delivered) to each holder of equity interest, a “benefit report”
Benefit report must set out a narrative of:
• Extent to which company provided general public benefit
and (if applicable) specific public benefit, and actions
and methods use to provide such benefits
• Circumstances that hindered provision of benefits
Report must also assess the extent to which the company
met or exceeded identified third-party standard, in a manner
consistent with previous reports (or explain inconsistencies)
Also describe process and rationale for selection or change
of third-party standard
All reports must be posted on publicly available websites (or
copies must be provided without charge to any person on
request)
©2013 Lane Powell PC
12
Enforcement Mechanism and Limitations
•
•
•
No proceeding against a benefit company or governors,
members, officers or managers, for failure to pursue, create
or provide a general or specific public benefit identified in
articles or for violation of standard of conduct under the Act,
except:
• The company, a governor, a shareholder or member, or
another person identified in articles or bylaws as having
a right to commence such a proceeding may…
• Commence a direct or derivative proceeding to compel
company to provide such benefits or require governors,
etc., to act in accordance with standard in articles or
prescribed under the Act
Company is not liable for money damages for failing to
provide a general or specific public benefit
Governor is not personally liable for money damages as a
consequence of taking/not taking an action if duties are
discharged under ORS 60.357 or 63.155
©2013 Lane Powell PC
13
Questions?
©2013 Lane Powell PC
14