The Greening of Corporate Oregon
Oregon has long led the pack when it comes to sustainability. Recently, it became the first state to expressly allow a corporation to adopt social responsibility provisions into its articles of incorporation. House Bill 2826 was signed into law by Governor Kulongoski in June 2007.
This unique new law amended the Oregon Business Incorporation Act to allow a corporation’s articles of incorporation to include “a provision authorizing or directing the corporation to conduct business of the corporation in a manner that is environmentally and socially responsible.”
The question now is how this will affect the green movement in corporate Oregon. The new law does not command businesses to include a sustainability provision, and businesses could have included such provisions in their articles previously. Rather, it has created a visible option that drafters can see and consider.
“There is a common misunderstanding that a board can’t think of anything beyond profit maximization” said Dick Roy, Founder of the Center for Earth Leadership and drafter of HB 2826.
Roy and the other drafters considered how to amend the Business Incorporation Act to explicitly include a sustainability provision. He noted that the green movement has been led primarily by private corporations because of the difficulty in public corporations of giving true importance to sustainability.
“This is a fundamental issue of our time, and we were looking for a way to help move that along,” he said.
Roy hopes to make an example for other states, and is currently working on proposals to expand his efforts. It is not clear what the effect of HB 2826 has been so far. Oregon is not the big corporate state Delaware is, but it is clear that this state has a sustainable outlook that may help foster an attractive niche for green companies.
The new law, of course, does not come without some skepticism. Opponents question why any business would do more than the minimum. Consumer companies such as Nike have taken on corporate social responsibility on their own as a result of market forces. Other corporations may seek to differentiate themselves by amending their articles of incorporation to include sustainability provisions as a result of the law, but corporations less subject to public scrutiny may not see an incentive.
Willamette University College of Law Professor Peter Letsou worries about the effects of agency conflict and other unintended consequences that may result from the loosening of constraints on management. “[HB 2826] is based on the premise that you can trust management, but corporate law is built on the idea that you can’t,” he said.
A provision allowing management to act on behalf of other constituencies beyond its shareholders could either lead to better companies or to ones that are more poorly run. Letsou said he believes that laws designed to handle the issue directly – ones that would command a company to act sustainably – would be a better way to make corporations behave.While a variety of laws exist to expressly limit the pollution a business may create, we still have miles to go in terms of implementation and enforcement. It is uncertain whether HB 2826 will influence corporations to adopt express sustainability provisions that go beyond the minimum legal requirements. In the meantime, ambitious minds will be pondering new legislation to pave the way for sustainable business practices in Oregon and beyond.