First off, thanks to sustainability consulting and expert Joel Makower over at GreenBiz.com, for bringing this issue to my attention with a recent blog post. Here's the crux, California lawmakers are considering a bill that would make sustainable business practices legal and that would discourage shareholder lawsuits targeted at discouraging corporate social programs.
This is important because right now, companies could technically be sued for their shareholders for embracing environmental or social responsibility measures that wind up having a negative impact on financial results. The reality is that these investments will sometimes have a short-term impact.
Although there are mechanisms in place that allows businesses to include a focus on sustainability and social responsibility as part of their organizing principles--the B Corporation movement is an example of this--companies with sustainability at their heart could be vulnerable if they focus on the triple bottom line, not just profitability.
The "Corporate Flexibility Act of 2011" that is at the heart of what California is considering would allow corporate entities to structure their operation as a "flexible purpose" corporation, making it harder to be sued by disgruntled shareholder.
As more businesses integrate triple bottom line concerns into their operating missions -- thinking about people, the planet AND profits -- their organizing principles and formal legal structure will become more highly scrutinized. This proposed law is a great way to get ahead of things, and since there is so much technology start-up activity in California, it is a great place for this movement to arise.
If you're a sustainability manager at a large or even midsize established company, it would do well to understand the implications associated with your legal status and how/where you are incorporated.
Watch out, Delaware.
This post was originally published on Smartplanet.com