B.C.’s benefit corporations law: innovation incentive or liability shield?

By Shannon Waters May 27, 2019

Last week, the B.C. Green Party celebrated a historic legislative event when leader Andrew Weaver’s private member’s bill M209, Business Corporations Amendment Act, was granted royal assent, making it the first private member’s bill put forward by a MLA from outside the ruling party to ever be passed in the province.

The bill provides a legal framework for businesses committed to pursuing social and environmental goals to incorporate as benefit companies under the Business Corporations Act — something Weaver says many companies operating in the province have been clamoring for.

“This legislation is part of positioning our province to be a leader on the cutting edge of global economic trends,” Weaver said in a news release the day the bill passed. “We are seeing shifts in consumer patterns and behaviour, particularly among younger demographics sensitive to their social and environmental impact. By becoming the first jurisdiction in Canada to create benefit companies, B.C. can best create space and opportunities for its businesses that want to lead the way.”

But not everyone is excited about Weaver’s bill.

Dr. Carol Liao, an assistant professor with the University of British Columbia’s Peter A. Allard School of Law, has been critical of Weaver’s B-Corp ambitions since he introduced a similar bill in May 2018.

“This legislation does the opposite … of what it is advertised to do and what the people advocating for it purport that it does,” she told BC Today.

“It strips away liability from directors that would normally be in place under existing law. A mining company could put into their articles, ‘We’re a benefit company’ and then their directors would get an unprecedented amount of liability protection from this legislation.”

‘Despite any rule of law to the contrary’
Liao says a clause in one subsection of the bill that deals with the responsibilities and obligations of benefit company directors and officers is extremely problematic.

The clause bars courts from ordering monetary damages against officers in breach of the subsection — which requires them to “act honestly and in good faith” while “conducting the business in a responsible and sustainable manner, and promoting the public benefits specified in the company’s articles.”

Liao says, in effect, this could “insulate directors from any type of liability from breach of those duties.”

“Benefit company on its face sounds fantastic, doesn’t it? But then when you look at it from the perspective of a lawyer, what you’re doing is buying limited liability — you’re gaining limited liability from doing good,” she said.

During committee stage debate, Liberal MLA Ralph Sultan picked up on Liao’s concern. “As I understand this particular feature … we are further insulating directors in certain aspects of these benefit corporations,” he said of the clause. “If my interpretation is correct, I would forecast a great rush to convert to public benefit corporations amongst boards who always have the grey cloud of possible litigation hanging over their heads.”

Upon seeing the legislation, Sultan — a former corporate director — said corporate officers are likely to think, “Wow, we get more immunity. Let’s sign up, and if we have to prove benefits, well, that’s the easiest part of the whole assignment.”

For his part, Weaver does not see the clause as a liability issue.

“There is section 142 of the Business Corporations Act, which is very clear about the responsibility that directors have to shareholders — nothing changes in that,” he told BC Today. “But rather than seeking financial penalties, you still have injunctive relief. You can still go to court and require something to be done … there is just no financial directive.”

But that’s not the issue Liao is most concerned about. “[The clause] states the directors have no duty — they can’t be sued by anybody — if they fail [to fulfill those benefit obligations],” she said. “Only shareholders can sue, which is not the case under regular corporate law.”

B.C. would be better sticking with existing laws regarding corporate social responsibility, she argues.

“I would be anxious as a stakeholder of a benefit company, given the degree of insulation that directors have from accountability and responsibility under this law,” she told BC Today. “As it’s worded, the bill tries to eliminate tort claims and it insulates directors from any type of liability from breach of those duties.”

Regulation vs. restriction
Liao sees no need for benefit corporation legislation, contending companies concerned about having a positive impact already have legal alternatives to pursue social good as well as profit.

B.C.’s Community Contribution Company (C3) designation has been an option since 2013; it allows companies adopt a corporate structure that includes capping dividends paid to shareholders at 40 per cent with the rest earmarked for social causes.

The C3 designation is “great for certain areas” of the business community, according to Weaver, who contends that features like the asset lock have a “limiting” effect on the appeal of becoming a C3.

Liao also has concerns about the bill’s provision for a third-party regulator to set standards for benefit corporations, which amounts to “the privatization of good governance standards” and effectively allows for self-regulation on the part of companies that commit to being benefit corporations.

But Weaver says third-party certifications are already well-known in B.C. and elsewhere, such as Fair Trade, Certified Organic and Leadership in Energy and Environmental Design (LEED) certifications.

“The worry about having a public regulatory provider is that it would — potentially at least — suppress innovation which is what we are looking to encourage,” he said, noting that overly prescriptive government programs sometimes see poor uptake from the sectors they aim to engage.

Before jumping in with a bureaucratic approach, Weaver said his legislation will allow government to assess corporate interest in becoming benefit corporations and evaluate the way companies wield the legislative provisions.

“We have created legislation that will allow this to go forward, and then government will monitor the innovation in the sector and determine whether there is a need for government to step in,” he said.

It’s an interesting stance from a party leader whose caucus has been critical of the so-called professional reliance model that resource sector companies in the province operate under. “Professional reliance has played a significant role in the loss of public trust in decision making around industrial activity,” according to Green Party House Leader Sonia Furstenau. The issue was so important to the Greens that reviewing the professional reliance model was included as a component of the Confidence and Supply Agreement with the NDP government.

“We allow government the regulatory oversight, but we do not want to suppress innovation,” Weaver said of the legislation’s approach to corporate conduct. “We want to nurture and encourage innovation, and when government proscribes anything, it is top down and what ends up happening is it fails.”

Weaver said he consulted widely on the proposed legislation — with interested companies, corporate lawyers, the B.C. branch of the Canadian Bar Association, with Liao herself and also with B Corporation, an American non-profit organization that currently serves as the main body that certifies benefit corporations in the U.S., Canada and beyond.

Liao said Weaver’s consultations “lacked a lot of rigour” and seemed to have mostly included companies and lawyers that are fired up about becoming benefit corporations. She also has misgivings about B Corp, which she describes as “a lobbying machine.”

“You’ve got a private regulator … that is charging the client fees [of $500 to upwards of $50,000],” she said. “This is the problem when you have businesses regulating themselves.”

The organization is just one of “a multitude of stakeholders” who were consulted on Weaver’s bill, according to the Green leader.

“We talked to B Corp to understand what their business model is, but this was driven by business coming to us, not B Corp coming to us,” he said. “We reached out to because we wanted their input.”

High hopes, deep doubts
Weaver has big dreams for the effect his bill will have on corporate behaviour and is dismissive of Liao’s concerns that “somehow all of these [companies] are going to go rogue and use this as a way of avoiding liability.”

“That’s not what we have been hearing — we have been hearing from many, many people and companies who have done this voluntarily,” he said.

Soon, B.C. will have its own B Corp alternative, according to Weaver — a homegrown third-party regulator to certify and set standards for benefit companies operating in the province.

“I fully expect a B.C.-based company of some form to come up,” he said. “B.C. is a leader — in a multitude of areas but particularly in social enterprises. Our hope is that the business community in B.C. realizes there is an opportunity for innovation here.”

Other jurisdictions, including Quebec, are already moving toward setting up their own benefit corporation legislation. “In Holland, they are looking at our legislation to actually create benefit enabling legislation in that jurisdiction as well,” Weaver told BC Today.

But for Liao, the legislation represents “a new corporate structure out there that is going to give [corporate] clients immunity, limit their liability and accountability to the public” just because they include the duty to provide some kind of benefit to a group other than their stakeholders in their corporate articles.

She’s not alone in those concerns: Allard School of Law professor Joel Bakan called benefit corporations “retrograde” in a letter addressed to Premier John Horgan, Finance Minister Carole James and Attorney General David Eby in April. Other law professors and lawyers have also expressed their concerns about Weaver’s legislation to elected officials.

Weaver’s optimism suggests a rosy view of the role corporate entities play in society. In the context of this bill at least, Weaver sees companies as important innovators who deserve room to take risks that could result in rewards for both their bottom line and for British Columbians.

“Any solution to the grand challenges of our time require all hands on deck, and there is a very important role for business to play,” Weaver says of the potential benefits of his legislation.

Liao’s concerns suggest a more skeptical view of corporate citizenship and emphasize the importance of oversight and regulation.

“If the Green Party bill is passed, we’ll obfuscate the progress of Canadian corporate law and governance, seemingly validate unsustainable corporate behaviour from regular corporations, and create a special market for the private Americanization of good business standards at the expense of real broad-scale sustainability initiatives,” she wrote in an op-ed published in The Globe and Mail last year.