it is nothing beyond a simple amendment of your articles. commissioner riley: i have a question regarding the benefit corporations. they have to meet in order to qualify to be a benefit corporation? >> they are making a pledge that they are going to seek to produce a material positive impact on society and the environment. there is a current requirement for a corporation to maximize shareholder value. if they don't, the only people that have a right of action are the shareholders. you must produce a material positive impact, and the unique thing here in benefit

corporations, not only do the shareholders have the private right of action, but it is almost like a whistle-blower element. i have a right to go to court and have you rectify that. [inaudible] >> no, it is similar to a traditional corporation. now you have the mission and the purpose is to not create a material positive impact on society and the environment. i thought arid be some sort of -- commissioner riley: i thought there would be some sort of -- >> it is the shareholders that enforce the like the current corporations.

there is no other qualification needed and a requirement to maximize profit will be enforced by the shareholders themselves. commissioner riley: financial institutions have hot requirements. >> again, it would be a different kind of corporation, that is not applicable here. commissioner riley: anyone could apply to be of benefit corporation? >> correct. after that, they have to produce a material positive impact on the environment. commissioner riley: that there is the standard measure for that? gosh no, there is a third party standard that meets the definition of the legislation. they must measure that against using that third-party standard, so that as the transparency element. rather than simply having you

write your own annual report, you're using it against a third party standard of a valuation so that the consumer and the shareholder can see what you're doing. commissioner riley: is this a pretty new concept? >> yes, january 3 was the first application of this legislation. commissioner clyde: i want to thank you for your presentation, and i also want to say that i am glad to see that this creative, forward thinking energy is not going to be codified. i can see benefits for the organic food distributors, i concede benefits for people trying to develop community theaters. i can see that it has a very creative and open ended -- it is a creative and open-ended program, i think there is great

value in that right now. and having that codified and having a material that the fed associated with that really moves of sport. just making money, you know, is really kind of a limited standard. improving our society and improving the world that we live then, just to see that it is valued and given some quantifiable peace, it is vitally important. commissioner dwight: i am having a little difficulty getting a d on how we really distinguish b-corps from other corps other than saying we are one. here we are, the reason is important, we are talking about weighing on on something -- in

on something that you said is qualitative and not quantitative. if we give financial preference in a bid, shorter the everyone running over and saying, i'm b-corp. you can take me to task on that. i'm virtuous. i don't see where we get to -- if i say i am local, i can prove that. we then look at the factory or corporate documents. if i say i am virtuous, i don't know how we prove that unless i have done something egregious and then in the paper for it. i don't know if we make the distinction on the necessity to be quantitative.

>> the hurdle to enter into being a benefit corp., for most companies, is difficult in the sense that you 82/3 shareholder vote. your writing this and your articles of incorporation. you must produce a material positive impact on society and the environment. these are hurdles and statements that are not truly going to embrace -- and they will have a hard time doing. a large company is going to be very difficult for them. they will have a hard time taking advantage of this, if some people don't agree with that, they are not going to have the x-y-z megacorporation do this. that level of entry and commitment is too high. the potential for a shareholder

lawsuit for not maximizing the impact on society he is too great. they wouldn't do it to because it does increase their potential liability, they may not be meeting that standard. for companies that currently do this, they are being fearful of growing because everyone out there is telling them to make money, make money, make money. this gives them permission to do that. the reality is, you're not going to see major corporations take advantage of this because of the threshold of the 2/3 shareholder vote. the cost of getting rid of a shareholder that doesn't agree and the potential for buying them out. when you have i company like patagonia, they have always had

that mission. the owners of the country, they have a way to retire and insure the company's values continue after them. it is a free-market choice, do i want to encumber or free up the market opportunity? there is arguably about $2.70 trillion and investment dollars that are chasing after these types of companies. the market for these companies to grow, there are 60 million consumers that want to thank consciously when they voted product. they believe that they have a mission to that -- commissioner dwight: i agree that companies with lots of shareholders will have difficulty because of the inertia making the conversion. you'd have to educate 2/3, more than 2/3 just to go to the vote.

i don't find that to be a particularly compelling argument. they can rally the support for it, or people can't be bothered making the analysis. for small companies that are closely held, it is a matter of them coming together and deciding whether they want to do this. and whether it will give them an economic advantage by giving them preferential treatment in local contract and, so that is something a little ironic there. if i have a relatively benign company, my company doesn't pollute or do anything objectionable and i simply say, good for me, i provide local jobs. i would call that a very substantial societal benefits, especially in today's current economic situation.

if i am an accounting firm and i don't have any affluence from my operation, i am a benign corporation that is simply employing people and the more people i employ, all the better for society. is that company qualified? can they qualify as a benefit corporation? not any company can qualify. the point is after that, they have the responsibility of producing a material positive impact. the accounting firm might say, i don't harm the environment, i hire people, that is all the. what do you do after you become a benefit corporation? that is where it really comes into a trigger. when i am here to argue that other companies are good or

bad, people need jobs. we want to encourage the growth of business. we're protecting companies and giving them the freedom to consider the society and environment. commissioner dwight: use some other certification as a proxy for that? this doesn't present a quantitative hurdle, so if i want to claim that my accounting firm meets these standards, do i join 1% for the planet? and then say that it is proxy form by -- for m my -- witnessaa b-corporation? >> you must consider things like education, your workers, suppliers, the environment, the community as a whole.

that would be an element to show that you had a good-faith effort. commissioner dwight: i am busy running a business. >> than being a benefit corporation is not for you. there are examples of people that want to have an impact on society in the environment. again, it is a choice by a business owner whether he or she wants to take this step and go that extra step. i think that is what the supervisor is trying to recognize, pulling out a tremendous effort to be positive. they feel that there will be some sort of way to encourage their growth. >> my company was a member of 1%, and we give far more than

1% of the profits. to good causes that are recognized by the planet. ultimately, we could not be bothered with the administrative overhead of them wanting us to make reports to them and pay a fee on top of that. again, it gets to the fact that there is virtue in just running a business. being an entrepreneur as a full- time job. you have to a knowledge that this is not a financial burden on the company, it is certainly a burden of time and effort. i do not think we should dismiss companies like mine that behavior virtuously, doesn't use toxic materials, everybody likes to work, we give to charity, all

kinds of different things that go on. we volunteer locally. but to give an accounting of that in order to prove our view to -- virtue to take a preferential position on contracts should not be dismissed that it is not for you because you're not interested in proclaiming your virtue. i just think that it is something that bears some discussion and that we have a non-quantitative thing relating to a quantitative fang. i don't object to it at all, i think it is fantastic. we have companies that are already behaving virtuously and others that are doing the extra thing to be recognized, largely often for branding reasons, but they do extra effort. >> it is expensive as for small

companies to do that. are there any other questions? president o'brien: the last interaction answered a lot of questions. right now, it is voluntary? >> it always will be. president o'brien: anybody forming a new llc -- >> no, companies that become corporations, people that were corporations and became benefit corporations. for example, giving something back, they were all existing corporations that shows to amend the articles of incorporation to be of benefit corporation.

>> at one stage, there was a conclusion that there was a tremendous force and desire by corporations, that i think you indicated earlier, will not be able to participate in this program due to their logistics', and their size, which is where i think it would be the greatest benefit. and the desire for people to do good can't because they run the risk of being sued it for deviating away from their primary goal. and there is such a demand there, such a desire stopping them from doing it. >> the flip side of that, too, will be pent-up money out there for investors that they want to invest in companies that don't feel protected with their investment dollars because the company can change the

activities at any point in time. it is a contractual relationship between directors and the investors to say that we are going to both go forward. the outcome has been very good results in keeping people employed during the downturn in the economy. they don't lose jobs, they maintain the jobs because they are thinking long term. they don't go with the cycles of the market, and that is one of the reasons why he wanted the courage to grow these companies. president o'brien: of cake, i will defer. >> llc's would have to convert

to a corporate status. they are under contract law, so the concurrently have these things within their structure, but they don't typically grow to attract investors, because they don't normally invest in llc's. you may want to hear from some of the businesses that have decided to become a benefit corporation. >> we will go to item seven, and have public comment for both yours and the legislation at the same time. i think it will answer a lot of questions. >> item 7, discussion of possible action to make recommendations for border super vials -- supervisors benefit

corporation discount. >> it is great to be back on the commission i served on some years back. i want to apologize ahead of time, i blocked out for the three items i have and i have to speak -- my eight is here. i will speak quickly, ed will be happy to engage in further conversation after this evening if that is what folks want to do. let me provide on a broader context that you have in front of you. in recent years, our city government has chosen to provide various policies to in cent different industries. for example, i believe the support of every example i will give. he twitter the and zynga -- the twitter and zynga changes last year, small businesses, micro

businesses through the local business enterprise program. as a city, we made decisions. we changed city policy. this area you're talking about today really reflects a trend that has developed over the last 15 years around companies that want to be more virtuous. companies that are not just trying to maximize profit, but do something good for the community. these are companies that have double or triple bottom lines, and there are many examples of these types of companies. the presentation before this item referred to the company's better doing good work by the environment, companies that are employing individuals.

disabled individuals and seniors, companies in sustainable practices, as a that many of the types of companies we're talking about have had their start in the bay area. it has been fostered here in the bay area. we have seen and that the rest of the country is catching up to this. there is passed legislation to put benefit corporations on the map. this is a field that i think anyone who observes knows is exploding. we put ourselves out there as a city that wellcome's benefit corporations. when you have a national debate about social responsibility, it is important for us to support companies that are doing well and doing good.

i should also mention that philadelphia became the first city to provide tax benefits to benefit corporation. the specific legislation that you have in front of you is modeled after current contract bidding preferences for local businesses and micro enterprise businesses. this legislation is modeled after those types of programs. to receive this contract preference, the business would have to be legally recognized by california. in the legislation, we put some specific numbers down, but we are very open to feedback on what might be the right number. by legislation states that for benefit corporations, we provide an 8% preference.

for local benefit corporations, we provide an additional 2%, simply to state that these kind of companies, we welcome them. we want them to start here, we want them to grow here, we want them to be headquartered here. i want to address a couple of points that commissioner dwight mentioned. he is someone that i have worked with and the want to thank you for your leadership. the local manufacturing industries and other companies are exactly the types of companies i would be hoping to assist with this kind of legislation. i understand that your company is the type of company that is virtuous. those of the types of companies that we should be targeting with our contracts. we should give them a small lead up in the contract in process and it should be able to

hopefully get more of the city contract and companies that may not be as virtuous. that was not the impetus for this, but i appreciate and want to hear your feedback. know that this is really the beginning of a conversation of what i hopefully a city that does welcome these types of companies. this is a relatively new concept for most folks and it might take a little time to understand, but i believe that in five or 10 years, this will be in every state in the country. i want san francisco to be in the forefront of opening the doors. i am happy to answer any questions. commissioner clyde: thank you, supervisor. the bid preference of 8% and 2%, is that in addition to or instead of the local --

>> they would receive a 2% had preference. in other words, that have a total of 12% bid preference, a slight advantage over local companies that were not benefit corporations. four other companies that are not local, we proposed an 8% bid preference. not as much of a preference, but enough to put you in the running. i will say, i'm very open to feedback on what the right numbers are, but we thought it might make sense to start with some sort of a bid preference. we have asked for feedback and continue to get it. commissioner riley: supervisor, we are all in agreement that we welcome the benefit corporations. it is a good thing. the confusion is, how do we

qualify? we just apply? i am sure business owners will want to spend the time to go and apply it turned out to be that you don't qualify. since this is a new concept, do you foresee some changes in the future to clearly identify what they have to do in order to qualify to be a benefit corporation? >> and the state law clearly defines what is necessary for benefit corporations to qualify itself. it's sort of lays out the criteria by which a company has to a test and change the bylaws to essentially say that we do stand for being a company that has a corporate purpose, a level of accountability and the level of transparency that sets us apart from corporations that are

not benefit corporations. just to be a corporation at all, you have to test certain things through bylaws and your signed under penalty of perjury that that is the case or you can be subject to all sorts of penalties and investigations by state authorities. that is all they have to do, and you don't have to do very much, as i think we all know. i think every single one of you have run companies, as long as you have corporate filings. you stand as a standard corporate entity. commissioner dwight: what is the time frame? for example, my company would have to turn -- change the state of incorporation, and in that step, we would create ourselves as a b-corp in california?

>> yes. commissioner dwight: that would be the process. it would take time. we don't presently bid on any city contracts, but if a company is presently engaged, you're competing against [unintelligible] >> under the legislation, we go through a normal legislative process. it was going to affect 30-45 days after that. that is something that is also under discussion. it will get into affect on feedback and would be -- the states are looking at this.

if there are concerns that people have about when this should go into effect, make sure that we have a fair playing field, i am open to that. commissioner dooley: i like the idea of this legislation, and my question is more about the percentage. kind of a tossup whether it is more beneficial for us, a local company to have a contract versus and out of town b-corp. i'm thinking maybe 8% is too much. does it give too much of a jump, to give more of a nod to