In a move to protect against the current economic downturn, the California legislature signed a new regulation in regard to corporate governance. However the bill was vetoed by Governor Schwarzenegger. Under existing law, a director of a corporation is required to perform the duties of a director in good faith and in a manner that the director believes to be in the best interests of the corporation and its shareholders, and with the care of an ordinarily prudent person. This bill would have, until January 1, 2015, specify that, in considering the best interests of the corporation and its shareholders, the board of directors, committees of the board, and individual directors of a domestic corporation may consider specified factors, including:
- The effect the corporation’s actions would have on the prospects for potential growth and on the economy of the state and nation.
The bill would have enacted related provisions relative to the consideration of these factors, as specified, and the duties of the board of directors, committees of the board, and individual directors of a domestic corporation. The bill would also, until January 1, 2015, provide that an act of the board of directors, a committee of the board, or an individual director of a domestic corporation shall be presumed to be in the
best interests of the corporation, except as specified.
Below is an excerpt of the Governor’s response:
I am returning Assembly Bill 2944 without my signature.This bill would permit corporate directors to consider a variety of
new factors other than strictly financial return when making business
decisions on behalf of a corporation, including decisions relating
to the acquisition or control of a corporation.While this bill proposes a new model of corporate governance
consisting of a package of many intriguing concepts, it is just that;
a package of concepts that could produce unknown ramifications and
the need for which have not been fully demonstrated. Corporate
governance is a serious matter and changes should not be entered into
without deliberate study and evaluation.While I have concerns with the approach taken with this bill, I am
interested in many of the issues raised in support of this measure.
California should be at the forefront of all states in considering
alternative models of corporate governance for the new millennium.
This is potentially another opportunity for California to once again
lead to a new era of innovation. I urge the Legislature to consider
and study new styles of corporate governance that can offer
alternatives to the current model, but that maintain the vital
shareholder protections that have helped turn California into the
economic powerhouse of the world.
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