On Wednesday, the California State legislature will be reviewing SB201, a landmark bill that would create a new corporate form known as the Flexible Purpose Corporation.
Why is this important?
Right now, instead of recognizing that business and market-based strategies have the potential to bring positive social change to millions, we have legal structures that actively deter such possibilities.
If you want to create an organization focused solely on making profits, the law knows how to deal with you. If you want to create en entity focused only on creating social good, the law knows how to deal with you as well. But if you want to do both, you're caught between a rock and a hard place.
Under current California law, officers of publicly held corporations can be sued for any actions that are seen to create a trade-off with financial returns. It doesn't matter if the effort is to green your environmental footprint, support an underserved population, or even benefit your own employees. Unless you can prove the action benefits your bottom line, you risk a lawsuit.
This bill changes that. It enshrines a simple common sense principle, one to which all of us should be able to agree. So long as you're transparent with your investors, the law shouldn't punish you for trying to do good while doing well.
This should hold true no matter where you fall on the spectrum, whether you're a social enterprise that exists mostly to benefit society, or a mega multinational for whom profits come first, or somewhere in the middle.
If you've been following recent trends in the sector, you will know that California isn't the first to be considering this concept. Vermont, Maryland and several other states have recently enacted legislation creating alternate corporate forms, including benefit corporations, as well as L3Cs (Low-profit Limited Liability Companies).
This bill pursues a similar purpose. It casts the widest possible net so that all of those who wish to pursue both profit and positive social good can do so.
Let's give SB201 our support. For all the hype about corporate social responsibility, such activities have little chance of becoming real priorities when legal structures punish people that pursue them seriously.
If you agree, call or email the California Senate Committee on Banking and Financial Institutions to let them know: (916)651-4102 or Eileen dot Newhall at senate dot gov.