now it is to produce a positive impact on the environment for benefit corporations. the accountability element, previously the directors were charged with a mission to maximize profits and they shall consider the effects on other stakeholders which are categorized as a society and the environment. the transparency element which is the production of an annual benefit report, this is assessed against a third party standard. you choose any third party standard you want as long as it met the qualifications of the statute which is transparency, the ability for the public to comment on the works of a third party standard that is not being funded by the people that are using this standard. similarly, how we use accounting principles to produce the financial documents, there is no

standardized method to produce qualitative reports. we didn't want to dictate which ones you had the use, so we require, again, as stated in the legislation what the qualifications for third-party standard are, the legislation allows the company to choose that as long as it meets those requirements. that way, we have clear and concise reports that the investor can verify the information and the consumer can go back to a standardized methodology to consider the basis for those reports. one of the points of confusion that people get is that we certify companies being a certain level of social and environmental performance. it is different from the legislation that is called benefit corporation legislation.

it is a certification conferred to any for-profit business entity. benefit corporations, the legal status administrative by the state as an alternative corporate form to the traditional corporate form. a benefit corporation does not have to be a certified corporation. they can choose a number of third-party standards out there. we offer hours for free. there is numerous other ones, these are all potential standards. benefit corporation laws do not affect whether they are a c or an s corp. it has nothing to do with tax law. a certified the corporation must meet a certain high standard of

social and environmental performance. again, and they don't have the legal protection of the statute that is offered under california law. they are still susceptible to a shareholder lawsuit. the benefit corporation provides the legal protection. and as mentioned, it can be any corporate form. a benefit corporation is a corporation under the california corporate code. next, here are, as of january 3, i will have the associate who is a community development person going over the people here in california that have become benefit corporations and give examples of businesses. >> i am head of community development out of san francisco here for b-labs.

the slide here is showing the overall depiction of the companies in california that became benefit corporations. the law took effect on january 3 of this year. on the official day of opening, 12 companies became benefit corporations. to give something back, green retirement plans, and there was a lot of press around this thanks to being part of this. they have been a leader in this sort of business for a long time. and moving forward with retirement, they wanted to set up a structure where he knew his company would last another 50 years. there is the least for the benefit corporations from san francisco on the first day, a number of others from the bay area as well that makes a lot of sense, given the community that we have. just to give a couple quick

overviews of what some of these companies are, the san francisco-based credit card processing competed against the paypals of the world, adding focused doing good in the social and environmental sense as well as making a profit. they were one of the original certified corporations and became a benefit corporation on the third of january. over 40% of their expenditures are directed toward local suppliers. over 10% of their profits go back to charitable organizations, so they are doing a lot of interesting things beyond providing a great service and competing with some of the bigger companies out there. one more example for you here was to give something back. a long history of doing great things and moving beyond the

model to have have had really good office supplies services across the area. his motivation for becoming a benefit corporation was that he knows he will be scaling at some point in the think this says it all. looking at this from an investor perspective, how does he get the trust that will maintain that mission? a lot of times in your original shareholders are the ones aligned with you. he either move their shares to something else or it goes down in the family that might not have the same values as the original shareholder. really critical position to give something back and have a framework to protect them with their mission in the longer- term. i will move it back to eric, this is a listing on some of the third-party standards that have been recognized. >> you produce the annual

benefit, you said that you don't have to be certified by a third- party, but you must use it as a rubric for production of the annual benefit report? here are some examples of third- party standards we feel that the qualification of the legislation, and there are numerous differences. they evaluated the social and the environmental qualifications of the company. even great america that sound environmental, they look at the social and environmental aspects of the company as well. letters of support from great america regarding the legislation passed in california, that is pretty much yet. if there are any questions regarding the benefit corporation legislation, we would be happy to answer them. commissioner dwight: thank you for coming to present. i have some the familiar red with the movement -- familiarity with the movement. what makes a company b-corp?

>> there are two different kinds of companies. a benefit corporation is the statutory entity that someone assumes when they file their corporation or amend their articles. they must produce a material of positive impact. an entity that is recognized by b-lab has to take an evaluation test and be reviewed by our non-profits and is allowed to use that designation as a certified b-corporation. commissioner dwight: i presume that we are talking about a certified b-corp. >> no, benefit corporations. no, the legal entity benefit corporations. >> b-corporation in general

during this legislation. commissioner dwight: 8 california benefit corporation is a certified b-corp? >> no. the california benefit corporation as a legal entity that has assumed the designation as a benefit corporation through the department of state. you can choose any third party standards to assess their annual benefit report against. as indicated, that list is approximately what we feel meet the qualifications of the legislation, but it is up to the company to determine if they meet those qualifications. >> if the company is incorporated in delaware, there are quite a few on your list, can it become a california benefit corporation? >> absolutely. either before the senate whorehouse, i forget which one,

they stated they can incorporate in california. new york just passed a benefit corporation legislation and the 13 companies became benefit corporations, and one left in delaware. that is one of the attractions california had for passing legislation, the enticement for companies to leave delaware and return home because these are countries that are thinking sustainably, and they want to be incorporated in california. now this provides them an opportunity to do so because delaware has not done this at this point in time. commissioner dwight: and he will advise you -- [inaudible] >> you are seeing that this is

bucking the trend, being incorporated in delaware doesn't do that. there are countries that are certified the corporations that are waiting for their state to produce a this legislation so that they can grow. as he just explained, it will give something back and they were fearful growing. if you and i are the sole owners, to bring on an outside investor, as soon as we get one other investor, if he or she doesn't agree with us, we are susceptible to a shareholder lawsuit. now california has freed up that ability for socially minded and environmentally minded businesses to bring in investors and feel free that they are not going to be sued for the process. commissioner dwight: so do you have an assessment of what it

costs to become ab b- corporation? >> a benefit corporation? commissioner dwight: you'll have to go through the process of changing the state, and there is a cost for may maintaining status. >> it is using a third party standard with an assessment guidelines similar to how you use accounting principles. until you are required for it to be certified -- in new york, the 13 that incorporated there on friday, these are new york city prices, it was a hundred and $50 that they were charging to alter your articles of incorporation. commissioner dwight: i have

never received a bill for less than $850. >> again, it is a very simple thing. it is a 2/3 vote by the shareholders. it basically paraphrases imf benefit corporation and your normal mission statement. 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