Benefit Corp Revolution: What it means for businesses,

non-profits, and YOU

SPEAKERSJonathan Storper, Esq.Hanson Bridgett LLP

Dermot HikischB Lab

Josh BeckerNew Cycle Capital

MODERATED BY Leslie Keil, Esq.Hanson Bridgett LLP

PRESENTED BY

LESLIE KEIL, Esq.Senior Counsel

Hanson Bridgett LLPGEO Circle Co-Chair

Full Circle Fund

Tweeting Tonight?Mention

@HansonBridgett@FullCircleFund@Bcorporation

@JoshBecker2010 #bcorp #SocEnt #csr

Socially Responsible Businesses

Seeking Legal Protection for Stated Values

• Safe harbor for directors for multi-stakeholder approach• Flexibility to prioritize among profits, environment and social

concerns

Better Exit Strategies and Succession Planning

• Stated values unchanged by sale of minority/majority of stock• Greater flexibility to identify the "right" buyer and succession

planning

Better Business Model

• "Firms of Endearment" beat S&P 500 peer firms return 9x over a 10 year period

• 60 million Americans are "conscious consumers"• "Socially responsible" investors manage $2.7 trillion• 100,000 sustainable businesses adopting a better model• Aligned strategic partners, vendors, suppliers and

stockholders

JONATHAN STORPER, Esq.Partner & Sustainable

Business Practice Chair Hanson Bridgett LLP

What is a Benefit Corporation?

• New class of for-profit general California corporation• Create traditional economic value, PLUS... Purpose: creates a material positive impact on society and

environment, taken as a whole Accountability: In addition to profits, must consider

environmental and social factors in actions and operations Transparency: reports annually on environmental and

social performance using independent standards• Flexible: can revert to general corporation or other entity• No independent certification requirements

Purpose

Traditional Corporations

•Engage in any lawful business activity•May identify narrower purpose in Articles of Incorporation

Benefit Corporations

•ADDITIONAL purpose to create "general public benefit" Definition: A material positive impact on society and the

environment taken as a whole, from the business and operations of a benefit corporation (§14601(c)) Adds to and/or limits other corporate purposes

What Makes a Benefit Corporation Different?

What Makes a Benefit Corporation Different?

Purpose

Option to include 1+ "specific public benefit" purposes

"Specific public benefits" (defined in §14601(e)):

•Providing low-income or underserved individuals or communities:– beneficial products or services– economic opportunity beyond creating jobs in ordinary course of

the business•Preserving the environment•Improving human health•Promoting the arts, sciences, or advancement of knowledge•Increasing flow of capital to entities with public benefit purpose•Accomplishing any other particular environmental/social benefit

What Makes a Benefit Corporation Different?

Accountability

Mandatory: Board of Directors and Officers must consider impact on ALL of the following (§14620):

•Shareholders•Employees/workforce •Community and society, including any local community where company, its subsidiaries or suppliers are located•Short and long-term interests, including:

– benefits that may arise from its long-term plans; and– possibility that interests may be best served by retaining control

•Ability to accomplish general, and any specific, public benefit purpose

• Customers • Environment (local and global)

What Makes a Benefit Corporation Different?

Transparency

Annual Benefit Report (§14630)

•Explanation of how company pursued general/specific public benefit, the extent to which it was achieved, and circumstances that hindered achievement•Process and rationale for selecting the third party standard used to prepare report•Any connection between the company and creators of the third party standard used that might affect credibility

Transparency

How does the Assessment work?

•Annually assess triple bottom line performance using an independent, third-party standard (§14600(g))•Standard must be comprehensive, credible, independent and transparent•Must apply the standard consistently from one year to the next or explain reasons for inconsistencies•No auditing or certification required

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What Makes a Benefit Corporation Different?

What Makes a Benefit Corporation Different?

Transparency

Third Party Standard Requirements

• Independent third party standard• Uses a balanced multi-stakeholder approach• Developed by a company with no material financial relationship with

the benefit corporation (= or > 5% ownership/income stream) • No more than 1/3 of the benefit corporation directors represent an

association from a specific industry or a business which is assessed against the same standard

• The benefit corporation is not materially financed by an association or business which is assessed by the same standard

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What Makes a Benefit Corporation Different?

Transparency

Sample of Qualifying Standards*

• B Impact Assessment (www.bcorporation.net)• Global Reporting Initiative (www.globalreporting.org)• Green Seal (www.greenseal.org)• People4Earth Business Framework (www.people4earth.org)• Food Alliance (www.foodalliance.org)• ISO 2600 (www.iso.org/iso/social_responsibility)• UL Environment – ULE 880 (www.ulenvironment.com)

* New standards are being developed and existing standards being tailored to meeting Benefit Corporation criteria

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Transparency

Disclosure of Annual Benefit Report

• Send to all shareholders within 120 days after fiscal year end• Post on benefit corporation's website• Website version may exclude any financial or proprietary info• If no website, then provide free copy to anyone upon request

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What Makes a Benefit Corporation Different?

Resources

Benefit Corporation Information Center hosted by B Lab: www.benefitcorp.net

Firms of Endearment: How World-Class Companies Profit from Passion and Purpose by Rajendra S. Sisodia, David B. Wolfe, and Jagdish N. Sheth. Upper Saddle River, PA: Wharton School, 2007

Profit for Life: How Capitalism Excels by Joseph H. Bragdon. Cambridge, MA: Society for Organizational Learning, 2006

The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance by Robert G. Eccles, Ioannis Ioannou and George Serafeim. Boston, MA: Harvard Business School, 2011

DERMOT HIKISCHDirector of Business

Development B Lab

Big Problem

Our current capitalist system wasn’t designed for this

• Current corporate law works against sustainability and social impact

• No standards to distinguish ‘good companies’ from good marketing

Maximize

shareholder value

exclusively

20th Century 21st Century

Create

social and shareholder value

simultaneously

Big Opportunity

Shareholder corporation Stakeholder corporation

The evolution of capitalism

The Entrepreneur is The Engine of Change

Initiative 1:Shine a light on the

Entrepreneur

Initiative 2:Remove legal impediments for the Entrepreneur

Initiative 3:Drive capital to the

Entrepreneur

B Lab is a nonprofit organization that supports the world’s leading entrepreneurs using business to solve social problems

B Corporations * Impact Investing * Public Policy

Good products

Last 10 years Next 10 years

Big Need

Good companies

+ 500 others

Standards to drive support

B Corporations * Impact Investing * Public Policy

What is a B Corporation?

• Meet independent, comprehensive and transparent standards of social and environmental performance

• Meet higher standards of transparency

• Meet higher legal standards of accountability

B Corporations * Impact Investing * Public Policy

B Impact Rating System

Free web-based tool for positive impact assessment (over 7000 users)

• Comprehensive• Comparable • Transparent• Dynamic• Independent

• Score 80 out of 200 points for certification

B Corporation – Performance Standards

B Corporations * Impact Investing * Public Policy

Certified B Corps – Accountability Standards

“consider the impact of decisions

not only on shareholders,

but on all stakeholders”

Certified B Corps amend their bylaws giving shareholders additional rights requiring directors to:

B Corporations * Impact Investing * Public Policy

Initiative 1: Supporting a MovementLeader of this movement are 500+ B Corps across 60 industries and 40 states

B Corporations * Impact Investing * Public Policy

1.Lend their Leadership to advance B Lab’s mission to help create a new corporate form.

2.Save money by taking advantage of the growing number of partnerships which deliver immediate financial value. (>$2m in annual savings

1.Maintain mission by adopting the B Corp Legal Framework. As a B Corporation, founders and other mission-driven minority shareholders can hold directors accountable to consider the impact of operating and liquidity decisions not only on shareholders, but on all stakeholders.

2.Enhance brand equity by differentiating the company, not justits products, through third party validation that company has met higher performance and legal standards.

5. Enhance Brand Awareness, 300+ press hits in 2011,national brand campaign.

Why Become a B Corporation?

B Corporations * Impact Investing * Public Policy

B Corporation – Benchmarking

Over 2000 companies have completed the assessment

B Corporations * Impact Investing * Public Policy

The Entrepreneur is The Engine of Change

Initiative 1:Shine a light on the

Entrepreneur

Initiative 2:Remove legal impediments for the Entrepreneur

Initiative 3:Drive capital to the

Entrepreneur

B Corporations * Impact Investing * Public Policy

Initiative 2: Advancing Supportive Public Policies

The community becomes a powerful constituency

• New corporate form > Benefit Corporations

• 7 states passed (MD, VT, HI, NJ, VA, CA, NY)• 10 states moving forward

• Strong business support

B Corporations * Impact Investing * Public Policy

The Entrepreneur is The Engine of Change

Initiative 1:Shine a light on the

Entrepreneur

Initiative 2:Remove legal impediments for the Entrepreneur

Initiative 3:Drive capital to the

Entrepreneur

B Corporations * Impact Investing * Public Policy

Driving capital beyond SRI to Impact Investing

- Indpnt ratings agency based on B Ratings System (S&P analog)-Morningstar and Capital IQ for Impact- Fund Ratings and Company Ratings- Developed and Emerging Markets-50 GIIRS Pioneer Funds; 300 Companies; 30 Countries

Initiative 3: Drive Capital

B Corporations * Impact Investing * Public Policy

15 Pioneer Investors

B Corporations * Impact Investing * Public Policy

200 Pioneer Companies

Pioneer Companies by Industry:

Pioneer Companies by Region:

B Corporations * Impact Investing * Public Policy

Beta Analytics & Benchmarking

B Corporations * Impact Investing * Public Policy

Seizing the Opportunity

Private Equity

Building a new sector of the economy

Consulting

Wealth Managemt Home Apparel Education

Building Industry Retail Architecture Arts

Telecom Developing World

Restaurant

Personal Care

FoodClean Tech

B2B

Real EstateBanks

Hospitality

Renewable Energy

B2CBiotechnology

IT

Legal

Media

Footwear

Pharmaceuticals

Marketing

CommPR

• Creates economic opportunity

• Strengthens communities

• Restores environment

• Alleviates poverty

www.bcorporation.netwww.benefitcorp.netwww.giirs.orgdermot@bcorporation.net

JOSH BECKERPartner

New Cycle CapitalCo-Founder & Board Chair

Full Circle Fund

Questions?

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