Making Oregon the Delaware of Green Business

By Judd F. Sneirson

Corporate law permits, but does not require, businesses to act sustainably or to adopt sustainable business practices. The business judgment rule protects corporate executives and directors when they make decisions, including sustainable business decisions, provided that the decision-maker is fully informed and disinterested, and the decision is made in good faith and believed to be in the best interests of the company. Put another way, corporate decision-makers have no legal duty to cater exclusively to shareholders, and may direct company efforts more broadly, benefiting all of the firm’s constituencies—its shareholders, to be sure, but also its employees, customers, creditors, suppliers, the environment, and the communities in which the firm does business.

The corporate governance workgroup of Oregon Lawyers for a Sustainable Future begins with this premise and aims to make Oregon corporate law more amenable to sustainable businesses and sustainable business practices. The group’s first law-reform effort amended ORS 60.047 in 2007 to permit Oregon corporations to include in their articles of incorporation a provision authorizing or directing company decision-makers to manage their businesses sustainably.1 To the extent Oregon corporate law already permits and protects sustainable business decisions, such a charter provision is arguably unnecessary. Including such a provision would, however, offer additional protection for sustainable business decisions beyond Oregon’s business judgment rule, which some believe is not reliably and evenly applied.2

The workgroup’s current effort would amend Oregon’s “other constituency statute,” which, since 1989, has expressly permitted corporate directors to take non-shareholder considerations into account when weighing the merits of a proposal to take over an Oregon corporation.3  Thirty-three states have similar statutes, although most of them are not limited, like Oregon’s, to the take-over context.4 These statutes in effect codify the principle noted above, that corporate directors may consider more than just shareholders’ interests in determining the best interests of the company. Legislation expected to be proposed in the 2011 legislative session would (a) remove the takeover limitation, making Oregon’s other-constituency statute generally applicable, (b) add sustainability language to the list of permissible considerations, and (c) offer an additional measure of protection for business decisions made by directors of Oregon corporations.

By building on these efforts, Oregon can lay claim to having the greenest corporate laws of any American jurisdiction. This niche is a natural fit for the state—Oregon is already a leader in sustainable products, services, and practices; its legal community boasts expertise in these areas; and sustainability lies at the heart of the Oregon Business Plan. In this spirit, I have developed a set of additional provisions designed to further green Oregon’s corporate statute and establish the state as “the Delaware of green business.”5 Like the reforms discussed above, the additional provisions are optional and would only apply to corporations wishing to be governed according to a stricter, greener model of corporate governance.  A company must affirmatively elect “green corporation” status for the provisions to apply.6

To qualify as an Oregon green corporation, a firm must include in its charter a statement that the company is an Oregon green corporation and a provision directing that it be managed in an environmentally and socially responsible manner. By doing so, the firm publicly commits itself to sustainability in its core corporate document, and also puts potential investors on notice of how the company is to be run.

The second qualification for “green corporation” status is that two important non-shareholder constituencies, the company’s non-management employees and the community in which the company conducts its business, must be represented on the board of directors. The directors representing those stakeholders’ interests would add diverse perspectives to the decision-making process and thereby, in theory, improve it.

And last, the provisions require periodic triple-bottom-line disclosures accounting for the company’s recent financial, environmental, and social activities.7 This transparency should encourage managers to minimize activities that shareholders might view negatively and do more to improve the lives of employees, the communities in which the company does business, and the environment. Sustainability reporting would also aid socially responsible investors in screening appropriate investments and help disseminate information on sustainable business practices, allowing other firms to  learn from, adopt, and perhaps improve upon them.8

The mere adoption of these reforms, together with any attendant publicity, may be enough to attract businesses to incorporate or reincorporate as an “Oregon green corporation.”9 Firms may also seek green corporation status to curry favor with consumers, who, according to several studies, prefer green businesses and will pay more for their products and services. Oregon could enhance this benefit by creating a green corporation mark, like the “USDA Organic” symbol, and licensing Oregon green corporations to use it. The state could also offer financial incentives to firms electing green corporation status; any foregone revenues might be more than offset by new green businesses and jobs in Oregon and by the intangible good that new green corporations will do both inside and outside the state.

By establishing Oregon as a leader in green business, these reforms may be just the thing to lift the state out of its current economic difficulties, advancing sustainable business and sustainability in the process.  Time will tell whether the state legislature has the wherewithal to pursue such an agenda. 

 Globe in grass

Judd F. Sneirson is a professor at the University of Oregon School of Law and writes about sustainability and corporate governance.  His papers can be downloaded from his social science research network site: http://ssrn.com/author=432039.
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 Endnotes

 1ORS 60.047(2) now provides that an Oregon corporation’s “articles of incorporation may set forth . . . (e) [a] provision authorizing or directing the corporation to conduct the business of the corporation in a manner that is environmentally and socially responsible.” 
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2See, e.g., Naito v. Naito, 35 P.3d 1068, 1083 (Or. Ct. App. 2001) (reciting but not following the business judgment rule); Colvin v. Colvin, No. 05-409-AA, 2007 WL 2248160, at *11-15 (D. Or. Aug. 1, 2007) (same).
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3The Oregon legislature enacted the provision in response to an out-of-state threat to take over Precision Castparts Corporation.
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4Florida, Georgia, Hawaii, Illinois, Indiana, Maine, Massachusetts, Minnesota, Mississippi, Nebraska, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, Vermont, Virginia, Wisconsin, and Wyoming have generally applicable other-constituency statutes, whereas Arizona, Connecticut, Idaho, Iowa, Kentucky, Louisiana, Maryland, Missouri, Rhode Island, South Dakota, and Tennessee have limited statutes like Oregon’s.  Delaware—by far the dominant jurisdiction in American corporate law—has no other-constituency statute but has decisional law similar to a generally applicable other-constituency statute.  See, e.g., Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985); Revlon, Inc. v. MacAndrews & Forbes Holdings Inc., 506 A.2d 173, 182 (Del. 1985).
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5I set out this proposal in more detail in Race to the Left: A Legislator’s Guide to Greening a Corporate Code, 88 Oregon Law Review (2009).
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6E.g., Del. Code Ann. tit. 8 §§ 341-56 (2009) (the Delaware Code’s subchapter on close corporations).
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7Many corporations, including Nike, already voluntarily make such “green disclosures.”
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8Although it would seem counterintuitive, firms already share such information.  See Mary Tripsas, Everybody in the Pool of Green Innovation, N.Y. Times, Nov. 1, 2009, at B5.
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9To paraphrase the movie “Field of Dreams”: “If you build it, they will come.”
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