On Jan. 1, two California bills became effective that create new forms of California corporate entities. AB 361, authored by Assemblyman Jared Huffman, creates the benefit corporation or B-corp, while SB 201, authored by Sen. Mark DeSaulnier, creates the flexible purpose corporation or FPC. Unlike the traditional corporation, B-corps and FPCs now allow for-profit businesses to serve a socially minded purpose without having to maximize shareholder return.
The Need for Change
Prior to the passage of AB 361 and SB 201, corporations were reluctant to advance objectives not aimed solely at improving a corporation’s bottom line. Actions taken by a corporation to act in an environmentally friendly or socially conscious manner were justified only in the context of maximizing long-term shareholder value. Directors of for-profit corporations avoided advancing “not for profit” objectives too strongly for fear of breaching their fiduciary duty to act in the best interests of the corporation’s shareholders. The experience of popular ice cream maker, Ben and Jerry’s, illustrates this conflict of interest when it was forced to accept a buyout bid from corporate giant, Unilever. Despite fears that a Unilever takeover could harm Ben & Jerry’s long-standing commitment to social responsibility, the Ben & Jerry’s board of directors felt forced to accept the offer under threat of a shareholder lawsuit.
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