A new law passed by the state Assembly could, for the first time ever, make it legal in California for a corporation to put social responsibility before shareholder profits.
The Assembly on Monday overwhelmingly approved AB 361, a bill introduced by Marin Assemblyman Jared Huffman that would create a new class of corporation in California called "benefit corporations."
Benefit corporations' charter would be, according to Huffman's office, "to pursue a material positive impact on society and the environment, while meeting higher standards of accountability and transparency."
State law currently requires corporations to put financial interests first, and any corporation not doing so could face legal action from shareholders.
Corporations in a "benefit" category would be required to submit annual reports on how they're meeting certain social and environmental standards, as defined by a neutral third party.
Huffman calls the bill, which passed 50 – 14, "the start of something transformational."
"Socially-responsible businesses, investors and consumers all over California are calling for this type of legislation," said Huffman. "But most importantly, this bill sends a message to socially-minded companies and entrepreneurs that California is open for this emerging form of business."
Similar legislation has been passed in Maryland, Hawaii, New Jersey, New York, Vermont and Virginia. California's bill was suggested by several responders to Huffman's annual "There Oughta Be a LawÂ…or Not" contest, which challenges constituents to propose their own legislative ideas.
The bill was sponsored by a nonprofit agency called B Lab, which certifies socially responsible companies as "B Corporations."
Jeff Kletter, founder and CEO of the San Rafael-based KINeSYS Inc., supports AB 361 and says such bills are necessary to "take the economy to the next level."
"Benefit corporations are companies that care for more than the almighty dollar but understand the power of money to help achieve positive changes," says Kletter.
Stuart Rudick, of Mindful Investors LLC, in Mill Valley, agrees, adding that "benefit corporations value profits, people and our planet equally."
The bill now proceeds to Gov. Jerry Brown's desk for approval.