SB298 SD1.DOC

SECTION 1. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER

SUSTAINABLE BUSINESS CORPORATIONS

§ ‑1 Purpose and findings. This chapter authorizes the organization of a form of business corporation that offers entrepreneurs and investors the option to build and invest in businesses that operate in a socially and environmentally responsible manner. Enforcement of those responsibilities comes not from governmental oversight, but rather from new provisions on transparency and accountability included in this chapter.

§ ‑2 Definitions. As used in this chapter:

"Benefit director" means the director designated as the benefit director of a sustainable business corporation under section ‑8.

"Benefit enforcement proceeding" means a claim or action brought directly by a sustainable business corporation, or derivatively on behalf of a sustainable business corporation, against a director or officer for:

(1) Failure to pursue the general public benefit purpose of the sustainable business corporation or any specific public benefit purpose set forth in its articles; or

(2) Violation of a duty or standard of conduct under this chapter.

"Benefit officer" means the individual designated as the benefit officer of a sustainable business corporation under section ‑10.

"General public benefit" means a material positive impact on society and the environment, taken as a whole and as measured by a third-party standard, from the business and operations of a sustainable business corporation.

"Independent" means that a person has no material relationship with a sustainable business corporation or any of its subsidiaries. Service as a benefit director or benefit officer shall not, by itself, deem a person independent. A material relationship between a person and a sustainable business corporation or any of its subsidiaries shall be conclusively presumed to exist if any of the following apply:

(1) The person is, or has been within the last three years, an employee of the sustainable business corporation or any of its subsidiaries, other than as a benefit officer;

(2) An immediate family member of the person is, or has been within the last three years, an executive officer of the sustainable business corporation or any of its subsidiaries, other than as a benefit officer; or

(3) The person or an association of which the person is a director, an officer, or a manager or in which the person owns beneficially or of record five per cent or more of the outstanding equity interests or owns beneficially or record five per cent or more of the outstanding shares of the sustainable business corporation; provided that a percentage of ownership in an association shall be calculated as if all outstanding rights to acquire equity interests in the association had been exercised.

"Minimum status vote" means that in addition to any other approval or vote required by this chapter or the bylaws adopted by the shareholders:

(1) The holders of shares of every class or series shall be entitled to vote on the corporate action regardless of any limitation stated in the articles of incorporation or bylaws on the voting rights of any class or series; and

(2) The corporate action shall be approved by vote of the shareholders of each class or series entitled to cast at least two-thirds of the votes that all shareholders of the class or series are entitled to cast thereon.

"Specific public benefit" includes:

(1) Providing low-income or underserved individuals or communities with beneficial products or services;

(2) Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;

(3) Preserving the environment;

(4) Improving human health;

(5) Promoting the arts, sciences, or advancement of knowledge;

(6) Increasing the flow of capital to entities with a public benefit purpose; and

(7) The accomplishment of any other particular benefit for society or the environment.

"Subsidiary" of a person means an association in which the person owns beneficially or of record fifty per cent or more of the outstanding equity interests; provided that a percentage of ownership in an association shall be calculated as if all outstanding rights to acquire equity interests in the association had been exercised.

"Sustainable business corporation" means a domestic corporation, as defined in section 414-3, that has elected to become subject to this chapter and whose status as a sustainable business corporation has not been terminated as provided in this chapter.

"Third-party standard" means a standard for defining, reporting, and assessing overall corporate social and environmental performance that is:

(1) Comprehensive in its assessment of the effect of the business and its operations upon the interest listed in section ‑7(a);

(2) Developed by an organization that is independent of the sustainable business corporation;

(3) Credible because the standard is developed by an organization that:

(A) Has access to necessary expertise to assess overall corporate social and environmental performance; and

(B) Uses a balanced multi-stakeholder approach including a public comment period of at least thirty days to develop the standard; and

(4) Transparent because the following information is publicly available:

(A) The criteria considered when measuring the overall social and environmental performance of a business, as well as the relative weightings of those criteria;

(B) The identity of the directors, officers, any material owners, and the governing body of the organization that developed and controls revisions to the standard;

(D) The process by which changes to the membership of the governing body of the organization that developed and controls revisions to the standard are made; and

(E) An accounting of the sources of financial support for the organization that developed and controls revisions to the standard, with sufficient detail to disclose any relationships that could reasonably be considered to present a potential conflict of interest.

§ ‑3 Formation of sustainable business corporations. A sustainable business corporation shall be formed in accordance with the domestic corporation organizational requirements of chapter 414; provided that its articles shall also state that it is a sustainable business corporation.

§ ‑4 Election of an existing domestic corporation to become a sustainable business corporation. (a) An existing domestic corporation may become a sustainable business corporation under this chapter by amending its articles so that they contain, in addition to the requirements of chapter 414, part XI, a statement that the corporation is a sustainable business corporation. An amendment pursuant to this subsection shall not be effective unless it is adopted by at least the minimum status vote.

(b) If a corporation that is not a sustainable business corporation is a party to a merger, consolidation, or division, or is the exchanging corporation in a share exchange and the surviving, new, or any resulting corporation in the merger, consolidation, division, or share exchange is to be a sustainable business corporation, then the plan of merger, consolidation, division, or share exchange shall not be effective unless it is adopted by the corporation by at least the minimum status vote.

§ ‑5 Termination of sustainable business corporation status. (a) A sustainable business corporation may terminate its status as such and cease to be subject to this chapter by amending its articles to delete the statement that the corporation is a sustainable business corporation, as required by section ‑3. An amendment pursuant to this subsection shall not be effective unless it is adopted by at least the minimum status vote.

(b) If a plan of merger, consolidation, division, or share exchange would have the effect of terminating the status of a business corporation as a sustainable business corporation, the plan shall not be effective unless it is adopted by at least the minimum status vote.

§ ‑6 Corporate purposes. (a) Every sustainable business corporation shall have the purpose of creating a general public benefit. This purpose is in addition to its purpose as specified pursuant to section 414-41.

(b) In addition to its purpose under section 414-41 and subsection (a), the articles of a sustainable business corporation may identify one or more specific public benefits for which the sustainable business corporation was created. The identification of a specific public benefit under this subsection does not limit the obligation of a sustainable business corporation to create a general public benefit.

(c) The creation of general and specific public benefits as provided in subsections (a) and (b) of this section shall be in the best interests of the sustainable business corporation.

(d) A sustainable business corporation may amend its articles to add, amend, or delete the identification of a specific public benefit for which the sustainable business corporation was created. An amendment pursuant to this subsection shall not be effective unless it is adopted by at least the minimum status vote.

§ ‑7 Standard of conduct for directors. (a) In discharging the duties of their respective positions, the board of directors, committees of the board, and individual directors of a sustainable business corporation, in considering the best interests of the sustainable business corporation:

(1) Shall consider the effects of any action of the sustainable business corporation upon:

(A) The shareholders of the sustainable business corporation;

(B) The employees and workforce of the sustainable business corporation and its subsidiaries and suppliers;

(C) The interests of customers as beneficiaries of the general or specific public benefit purposes of the sustainable business corporation;

(D) Community and societal considerations, including those of any community in which offices or facilities of the sustainable business corporation or its subsidiaries or suppliers are located;

(E) The local and global environment;

(F) The short-term and long-term interests of the sustainable business corporation, including benefits that may accrue to the sustainable business corporation from its long-term plans and the possibility that these interests may be best served by the continued independence of the sustainable business corporation; and

(G) The ability of the sustainable business corporation to accomplish its general public benefit purpose and any specific public benefit purpose;

(2) May consider:

(A) The resources, intent, and conduct of any person seeking to acquire control of the corporation; and

(B) Any other pertinent factors or the interests of any other group that they deem appropriate; and

(3) Shall not be required to give priority to the interests of any particular person or group specified in paragraphs (1) or (2) over the interests of any other person or group unless the sustainable business corporation has stated its intention to give priority to interests related to a specific public benefit purpose identified in its articles.

(b) The consideration of interests and factors in the manner required by subsection (a) shall not constitute a violation of a director's fiduciary duties.

(c) A director shall not be personally liable for monetary damages for any action taken as a director if the director performed the duties of the director's office in compliance with the general standards of conduct pursuant to section 414-221 and this section or for failure of the sustainable business corporation to create a general public benefit or a specific public benefit.

(d) A director shall not have a fiduciary duty to a person that is a beneficiary of the general or specific public benefit purposes of a sustainable business corporation arising from the status of the person as a beneficiary.

§ ‑8 Benefit director. (a) The board of directors of a sustainable business corporation shall include one director who shall be designated the "benefit director" and who shall have, in addition to all of the powers, duties, rights, and immunities of the other directors of the sustainable business corporation, the powers, duties, rights, and immunities provided in this section.

(b) The benefit director shall be elected pursuant to sections 414-193 and 414-194 and may be removed in the manner provided by sections 414-198 and 414‑199, and shall be an individual who is independent. The benefit director may serve concurrently as the benefit officer. The articles or bylaws of a sustainable business corporation may prescribe additional qualifications of the benefit director, provided that the qualifications are consistent with this subsection.

(c) The benefit director shall prepare, and the sustainable business corporation shall include in the annual benefit report to shareholders required by section -12, a statement whether, in the opinion of the benefit director, the sustainable business corporation acted in accordance with its general, and any specific, public benefit purpose in all material respects during the period covered by the report and whether the directors and officers complied with sections ‑7(a) and ‑9(a), respectively. If in the opinion of the benefit director the sustainable business corporation or its directors or officers failed to act according to the requirements of this chapter, then the statement of the benefit director shall include a description of the ways in which the sustainable business corporation or its directors or officers failed to act according to the requirements of this chapter.

(d) For all purposes, the acts of an individual in the capacity of a benefit director shall constitute acts of that individual in the capacity of a director of the sustainable business corporation.

(e) If the bylaws of a sustainable business corporation provide that the powers and duties conferred or imposed upon the board of directors shall be exercised or performed by a person or persons other than the directors or if the bylaws of a statutory close corporation that is a sustainable business corporation provide that the business and affairs of the corporation shall be managed by or under the direction of the shareholders, then the bylaws of the sustainable business corporation shall provide that the person, persons, or shareholders who perform the duties of the board of directors shall include a person with the powers, duties, rights, and immunities of a benefit director.

(f) Regardless of whether the bylaws of a sustainable business corporation include a provision eliminating or limiting the personal liability of directors, a benefit director shall not be personally liable for any act or omission committed in the capacity of a benefit director unless the act or omission constitutes self-dealing, wilful misconduct, or a knowing violation of law.

§ ‑9 Standard of conduct for officers. (a) Each officer of a sustainable business corporation shall consider the interests and factors described in section -7(a) in the manner provided in that section when:

(1) The officer has discretion to act with respect to a matter; and

(2) It reasonably appears to the officer that the matter may have a material effect on:

(A) The creation of general or specific public benefit by the sustainable business corporation; or

(B) Any of the interests or factors referred to in section -7(a).

(b) The consideration of interests and factors pursuant to subsection (a) shall not constitute a violation of the officer's fiduciary duties.

(c) An officer shall not be personally liable for monetary damages for any action taken as an officer if the officer performed the duties of the position in compliance with the general standards of conduct pursuant to section 414-233 and this section or for failure of the sustainable business corporation to create a general or specific public benefit.

(d) An officer shall not have a fiduciary duty to a person that is a beneficiary of the general or specific public benefit purposes of a sustainable business corporation arising from the status of the person as a beneficiary.

§ ‑10 Benefit officer. A sustainable business corporation may have an officer designated as the benefit officer who shall have the authority and shall perform the duties in the management of the sustainable business corporation relating to the purpose of the corporation to create general or specific public benefit as may be provided by or pursuant to the bylaws or, in the absence of controlling provisions in the bylaws, as may be determined by or pursuant to resolutions or orders of the board of directors. If a sustainable business corporation has a benefit officer, the duties of the benefit officer shall include preparing the benefit report required by section -12.

§ ‑11 Right of action. (a) Except as provided in sections -12(e) and -12(f), the duties of directors and officers under this chapter, and the general and any specific public benefit purpose of a sustainable business corporation, shall be enforced only in a benefit enforcement proceeding. Except as provided in section -12(e) and -12(f), no person may bring an action or assert a claim against a sustainable business corporation or its directors or officers with respect to the duties of directors and officers under this chapter and the general and any specific public benefit purpose of the sustainable business corporation, except in a benefit enforcement proceeding.

(b) A benefit enforcement proceeding may be commenced or maintained only:

(1) Directly by the sustainable business corporation; or

(2) Derivatively by:

(A) A shareholder;

(B) A director;

(C) A person or group of persons that owns beneficially or of record five per cent or more of the equity interests in an association of which the sustainable business corporation is a subsidiary; or

(D) Any other persons as may be specified in the articles or bylaws of the sustainable business corporation.

§ ‑12 Annual benefit report. (a) A sustainable business corporation shall deliver to each shareholder an annual benefit report including:

(1) A narrative description of:

(A) The ways in which the sustainable business corporation pursued general public benefits during the year and the extent to which general public benefit was created;

(B) The ways in which the sustainable business corporation pursued any specific public benefit that the articles state as a purpose of the sustainable business corporation and the extent to which that specific public benefit was created; and

(C) Any circumstances that have hindered the creation by the sustainable business corporation of general or specific public benefits;

(2) An assessment of the overall social and environmental performance of the sustainable business corporation, prepared in accordance with a third-party standard applied consistently with any application of that standard in prior benefit reports or accompanied by an explanation of the reasons for any inconsistent application;

(3) The name of the benefit director and the benefit officer, if any, and the address to which correspondence to each of them may be directed;

(4) The compensation paid by the sustainable business corporation during the year to each director in their capacity as director;

(5) The name of each person that owns five per cent or more of the outstanding shares of the sustainable business corporation either beneficially, to the extent known to the sustainable business corporation without independent investigation, or of record;

(6) The statement of the benefit director described in section -8(c); and

(7) A statement of any connection to the third party standard, or its directors, officers, or material owners from the sustainable business corporation, or its directors, officers, and material owners, including any financial or governance relationship that might materially affect the credibility of the objective assessment of the third party standard.

(b) The benefit report shall be sent annually to each shareholder within one hundred twenty days following the end of the fiscal year of the sustainable business corporation.

(c) A sustainable business corporation shall post its most recent benefit report on the public portion of its website, if any, except that the compensation paid to directors and any financial or proprietary information included in the benefit report may be omitted from the benefit report as posted.

(d) Concurrently with the delivery of the benefit report to shareholders pursuant to subsection (b), the sustainable business corporation shall deliver a copy of the benefit report to the department of commerce and consumer affairs for filing, except that the compensation paid to directors and any financial or proprietary information included in the benefit report may be omitted from the benefit report as filed under this section. The department of commerce and consumer affairs shall charge a fee of $70 for filing a benefit report.

(e) In addition to the penalties set forth in section 414‑473, each sustainable business corporation that fails or refuses to file a benefit report for any year shall be subject to a penalty in an amount not to exceed $100 for every violation, neglect, or failure, to be determined by the director of commerce and consumer affairs by rule pursuant to chapter 91 to be recovered by action brought in the name of the State by the director. A continuing failure to file the required report shall be a separate offense for each thirty days of the continuation. The director of commerce and consumer affairs, for good cause shown, may reduce or waive the penalty imposed by this subsection.

(f) In addition to the grounds for administrative dissolution set forth in section 414-401, the director of commerce and consumer affairs may commence a proceeding under section 414-402 to administratively dissolve a sustainable business corporation if the sustainable business corporation fails to file its annual benefit report for a period of two years.

(g) The provisions of section 414-16 shall apply to the filing of an annual report pursuant to this section.

§ -13 Rules. The director of commerce and consumer affairs shall adopt rules pursuant to chapter 91 to effectuate the purposes of this chapter."

SECTION 2. This Act shall take effect upon its approval.

THE SENATE	S.B. NO.	298
TWENTY-SIXTH LEGISLATURE, 2011		S.D. 1
STATE OF HAWAII