OREGON BENEFIT COMPANIES: STRIVING TOWARD SUSTAINABILITY
by Edward Gerdes, Esq.
From initiative petitions, referendums, and recalls, to public beaches, bottle deposits, and healthcare for all, Oregon has consistently been a pioneer of empowering people and promoting societal benefits, while also protecting and promoting our enjoyment of the environment. Since 2007, Oregon has again taken a national lead, this time in the area of corporate personhood by expanding the most recent historically limited purpose for which a for-profit corporation can exist: to maximize profits. This article discusses how a company can now identify as an Oregon Benefit Company and thereby manage itself to benefit the environment, benefit its employees and the community in which it operates, and benefit its shareholders by making a reasonable profit.
A Very Brief History of Corporations
In the most simplistic of terms, corporations are fictitious entities given legal status by prevailing law. Corporations do not live, at least like you and I do. We are corporal beings, meaning we have a body which breaths and moves, thinks and feels. Corporations have only legal life, in that they are recognized by us and our government as having legal rights. Corporations are not alive, except in a legal, fictitious sense, and only to the extent our government recognizes them.
Originally an English invention, the first corporate charter was granted by Queen Elizabeth to the East India Company in 1600 to further advance the British Empire throughout the sub-Asian continent. Corporations have exploded in numbers, complexity, and control of resources and wealth since the 17th Century. Throughout the U.S.A. for instance, there are more than half a dozen different types of fictitious entities all of which have various and unique corporate powers and protections.
One common factor amongst the various types of for-profit companies has been the single-minded purpose of maximizing profits as justification for the company’s existence. This narrow purpose has been a legislative mainstay of corporate personhood for over 100 years. The proposition was articulated in the U.S.A. in the 1919 case of Dodge vs. Ford Motor Company, in which the Michigan Supreme Court unanimously ruled that Henry Ford was responsible for operating his business to profit the company’s shareholders, not to profit the community as a whole.
In 2007, the Oregon Legislature specifically allowed incorporators, or those creating a company, to state explicitly that the company is authorized “to conduct the business of the corporation in a manner that is environmentally and socially responsible.” ORS 60.047(2). Thus, Oregon was the first state to legislatively authorize incorporators to articulate the notion in the incorporation documents that officers and directors may consider something other than maximizing profits when making decisions.
Essentially, the Oregon Legislature articulated support for companies who want to follow the Triple Bottom Line of corporate management. Following Triple Bottom Line management means that officers and directors of a company must consider social, environmental, and economic impacts before making decisions affecting the company and its business. No longer must a company solely focus on maximizing profits for shareholders.
About the same time in 2007, a non-profit group called B Lab was established to privately certify companies who followed Triple Bottom line factors, to create assessment tools for businesses to measure progress in following the Triple Bottom line, and, importantly, to lobby for state adoption of benefit company legislation. Maryland was the first state to adopt benefit company legislation in 2010, now followed by 26 other states.
Last year, the Oregon Legislature became the 20th state to pass benefit company legislation and only the second state to apply it to limited liability companies. As of January 1, 2014, any Oregon created company can now self-identify as a Benefit Company by registering as such with the Secretary of State.
Oregon Benefit Company
On the first available day of registration in January, Oregon’s Secretary of State Kate Brown released a list of 29 companies who had chosen to become a benefit company. With pride, I can say that Café Yumm! was one of those first 29 companies. Although tied with 28 other Oregon companies, being the first of a new socially conscious movement is most gratifying, and accolades can be shared and embraced by all. Today, Oregon has over 70 benefit companies, and despite the designation being available in Oregon for less than nine months, only four other states have more benefit companies than Oregon (Nevada, California, Delaware, and Maryland).
To become a benefit company under Oregon law, a company must take surprisingly few steps, though each is not necessarily easy to accomplish.
First, a closely held company must record that a simple majority of owners approves becoming a benefit company (if one is a publicly traded company then a two-thirds majority is required).
Second, insert a statement in the articles of incorporation or articles of organization, as the case may be, that the purpose of the company is to provide a public benefit.
Third, appoint a public benefit governor whose responsibility it is to consider actions of the company will affect shareholders, employees, subsidiaries, suppliers, customers, the community, the environment, and short and long-term financial interests of the company.
Finally, prepare an Annual Benefit Report and deliver it to all shareholders no later than 120 days after fiscal end. In addition, make it available to the general public by posting it on your website or providing it at no charge to any person who requests it.
For most small businesses, it may be most advantageous to hire a lawyer to establish the benefit company. For those who wish to attempt creating their own benefit company, a starting point may be the Oregon Secretary of State, www.sos.oregon.gov/business/Pages/benefit-company.aspx
As is true with any social movement, the actual benefits of benefit company designation are not yet know. The number of companies following the Triple Bottom Line and willing to write and distribute reports about how they are balancing social, environmental, and economic factors is relatively small at less than 1,000 nationwide and the wealth controlled by them is a fraction of gross domestic product. The most daunting task by those who are B Corp. registered may be to adopt third-party standards from which to measure their accomplishments and to serve as the standard for filing annual reports.
Third party standards have been created by many non-profits and educational organizations, yet none has become an industry standard. A few of the those third-parties, including B Lab, G4 Sustainability, ISO 26000, have no annual fee associated with use of their standards, while others can cost hundreds of dollars (Green America) or thousands of dollars (Green Seal). Other third-party standard providers may be incompatible with Oregon report requirements (Ceres, for instance) or too narrow in scope for your particular business (People4Earth - manufacturing only).
Once the 70-plus Oregon benefit companies file their annual reports in Spring, 2015, we will be better equipped to determine the actual value associated with companies claiming to consider social, environmental, and economic factors in every decision made within the company. Hopefully, a group of unbiased, yet motivated people from either academia or non-profit organizations will obtain the annual reports and compare the progress of benefit companies to non-benefit companies to determine, if possible, whether following the Triple Bottom Line actually enhances sustainability needs of our communities and the environment.
Edward Gerdes is Vice-President & General Counsel of Beau Delicious! International, LLC dba Café Yumm!. He has over 25 years of experience practicing law in Oregon and Nevada. He is a published author and has taught at the University of Oregon School of Law and Linfield College. In his spare time, he enjoys kayaking, backpacking, visiting wineries and breweries, and gardening, both alone and with family and friends.