More Questions than Answers Yet on Benefit Corporation Law

We work with a mix of social enterprises from our base in Maryland, which just happens to be the first state in the union to have passed legislation creating Benefit Corporation status, and we’ve got a lot of practical questions, for existing businesses and for start-ups.

As of October 1, 2010, it will be possible in Maryland for a corporation to elect to build into its charter its own expectation and requirement to deliver social benefits. Corporate decisions must weigh community benefit along with profit.

This is pretty cool, and it begins to define a new economic space in which entrepreneurs can work more easily on building strong companies while living out their values. Legislation sponsor State Sen. Jamie Raskin argues the concept convincingly on the Kojo Nnamdi show.

But thinking through implementation of the law, we see real questions (and practically speaking, real hurdles) of electing, converting, and social benefit assessment and reporting. An entrepreneur will need to know that, in practical terms, electing to be a Benefit Corporation can actually benefit his or her particular corporation and create value both for shareholders and for the community. At this point, meaningful benefits of electing under state law don’t yet exist.

So, while personally, I am in love with the concept—creating a world of superhero capitalism from a people-planet-profit ethic—I know that we all will need clarification, articulation, and integration of information and guidance among agencies if we want to put it into practice.

Pride aside, Maryland isn’t alone in this movement toward hybrid structures that promote social value via enterprise. Vermont passed legislation shortly afterwards, with other states likely to come on soon. I loved seeing this national story covered last week in my hometown paper, the Kansas City Star.

The advocacy work is fueled largely by B-Lab, the national membership association offering certification as a “B Corp” and a badge to any business in the country. Lots of companies have jumped onto the B Corp bandwagon, which show there is real interest in being identified as a triple bottom line company.

Nonprofit and small business advocates should note that similar options designed for LLC, solo, and partnership-type enterprises also are working their way through state and local governments. Now in Michgan, Vermont, Illinios, Wyoming, Utah, and in the Crow Indian Nation, Oglala Sioux Tribe, and North Carolina, the L3C (low profit, limited liability companies) filing option for taxable operations is primarily directed at achieving community benefits. In our state, L3C legislation got stalled last session.

As it stands in Maryland, we have some unfinished business. But the new Benefit Corporation law is a promising and strong first step that has generated a lot of chatter and excitement among social impact investors, business associations, and nonprofit leaders. This fall, ChangeMatters is convening listening sessions and facilitated discussions among actual entrepreneurs and technical assistance providers with whom we work. Let us know if you’re interested.

What do you think?

• Are you curious about this new Benefit Corporation legislation? What info would you need to decide whether something like this is right for your social enterprise?
• Does it make better sense for startups or for existing businesses?
• What incentives or other supports need to be created for social-purpose small and medium-sized enterprises that would encourage the growth of more and more cool, triple bottom line businesses (and maybe even strengthen the economy while we’re at it)?
• How might those of us building social enterprises help each other with our different people-planet-profit businesses?
• What questions do you have about this?

Your comments and questions here will inform these sessions and more.

Not Your Mentor’s Nonprofit Sector Conference

It has been two weeks since the Social Enterprise Summit/World Forum conference in San Francisco. I am still following up on contacts, good and crazy ideas, and only now looking through scores of handwritten notes for highlights. Where I imagine I will uncover even more cool ideas.

Find more photos like this on wdydwyd?

This slideshow is part of the project wdydwyd (Why Do You Do What You Do) by visual artist-social enterprise strategist-and great guy Tony Deifell.

Over 700 participants from at least 30 countries. Note to file: We in North America are running behind the rest of the world in this field. Economic structures are different, which is an enormous factor, but the models for innovation in social enterprise are in the UK and Australia and maybe elsewhere.

So, here’s the take-away vibe: open, collegial, purposeful, cooperative, and smart, smart, smart. I overheard—and participated in—conversations in which we honestly listening and troubleshooting with each other. Felt like a community around social purpose entrepreneurship—idea people and roll-up-the-sleeves builders and advisors and investors in the business of social change. Honestly, it was cool and I have to encourage anyone thinking about attending in future years to just do it.

For more of a taste: check the Twitter hashtag #socent10, Gene Takagi’s Twitter highlights, Cause Capitalism’s notes from one of the breakout session on disruptive philanthropy, blog posts by two selected bloggers.

Update: And a post from Peter Holbrook, who is leading social enterprise from London.

Not a Joke: Foundations That Abuse Their Superpower, Convening

Mark Rosenman’s new report Caring to Change reminded me of my own scattered but at times impassioned critique of foundation practice.

No matter how honorable the program officers, the inherent power difference between funders and nonprofits must be openly acknowledged by professionals on both sides of the funding line.

Pretending it doesn’t exist or that it doesn’t matter is beyond naïve, it inhibits truth-telling, it stunts innovation, it restricts the flow of important information. And surely that slows our ability to make meaningful change in the world.

Another critique is to note the positive and negative of the special power they have for “convening.”

No doubt, the power of money draws people in. What nonprofit professional more experienced than a 6-month intern doesn’t know this rule: if you need people to come to a meeting, let them know a foundation officer will be there. This can be a really useful strategy—to bring people together who otherwise might not know about each other’s work or take time out to compare notes or discover some ways to amplify each other’s efforts. No joke.

But have you heard the one about the high profile foundation that invited a national mix of Native leaders to come to a weekend retreat to advise them on design and development of a program to promote indigenous small business creation? Vigorous debate all morning. But at lunch, they unveil the previously and fully-formed program. It’s not funny, of course. And even less so, when I recall that a few months after I heard that “joke,” I heard a similar one about the same foundation from a group of women business owners.

Foundations: Innovation, Really?

Among interviewees and participant advisors to the project that resulted in the report Caring to Change, many see foundations as embodying double standards for innovation and risk. With all the trendy and appealing chatter about “innovation” and game-changing, scalable solutions (see White House, see new journals, see social venture philanthropy), I’m wondering if mainstream and family foundations are enough a part of the conversation.

Foundations can afford to be risk-takers. Arguably, that’s exactly what they are supposed to be. These paragraphs, which I discovered buried in the middle of the report, shouted out to me as tough and spot-on critiques. I bolded the particularly sassy quote that I loved.

“While there was an appreciation for encouraging genuine creativity and timely attention to emerging issues, there was widespread agreement that overvaluing innovation requires nonprofits to re-jiggle and change successful programs (or those that are beginning to work) into new forms to satisfy foundations’ desire for something different in the next grant cycle…Too often, if the innovations do not provide positive results, those who suffer are the nonprofit organizations (which are seen by the foundation to have failed, rather than having suffered the consequences of becoming reluctant guinea pigs) and their constituents – rather than the foundation, which required the innovation and risk in the first place.

“Many interviewees built on this argument by stating that in spite of insistence on innovation on the part of grantees, foundations tend to be risk-averse with respect to their own operations and appearances, and that they are excessively eager to avoid making or acknowledging mistakes on their own part. One program officer jokingly quipped that ‘If we’re here in perpetuity, what difference does it make if we risk screwing up all of next year?’”

Individually, and collectively, grantmakers have a relatively modest amount of money to invest. The credibility and influence they bring is comparatively outsized.

Foundations were the original source of social venture capital. For the sake of communities worldwide, and for widespread and sustaining social change, let’s hope Mark’s report and the new voices—and resources—around social innovation inspire and embrace them as colleagues.

Caring Enough to Change Philanthropy

I just finished reading a new report on bettering philanthropy, Caring to Change: Foundations for the Common Good, the result of a project developed by Mark Rosenman in collaboration with the Aspen Institute’s Program on Philanthropy and Social Innovation. A veteran researcher and thought leader in the nonprofit and philanthropy sector, Mark’s expertise is in critique and improvement its infrastructure and capacity to influence public policy.

He started with some provocative premises:

Enormous growth in foundations assets and grantmaking in the past few decades
+ Broad-based accomplishments in nonprofit/philanthropy infrastructure

= Less than significant impact on some of society’s most intractable problems, particularly when concerns about race, poverty and growing economic inequality are considered

Perhaps it is time
… to think about additional grantmaking strategies,
… to go beyond fueling innovation in relatively narrow program areas,
… to think beyond the current debates and alternatives.

Perhaps it is time
… to see if their might be some new ideas, especially among people who don’t usually get asked about foundation grantmaking strategy.

The project engaged a dizzying mix of over 150 recognized, established, underrecognized, and emerging professionals to uncover their criticism of—and recommendations for—grantmaking. And in the end, here’s the core theme that emerged:

“Foundations will be more effective in their own particular missions and more appreciated as institutions when they also aim to advance the Common Good.”

Funders should ground their grantmaking in core social values, have a clear idea of their unique role, and view solutions using a long-term perspective. In addition, they should pay greater attention to diversity and opportunity, and make more connections among approaches, solutions, organizations, and institutions.

The report rings true. The particular rules and traditions, which I would call peculiarities or even superpowers, of foundation grantmaking make it possible to extraordinary things. But these same particulars suggest leadership responsibilities. This report has sparked some reflection for me, and over the next week, I’ll post a few more thoughts and critiques.

Additional print copies of the full report can be ordered at cost at the project website. A free downloadable .pdf file also is available at the site.

Open Letter to New Executive Directors

Dear Executive Director Following a Founder,

If this were easy, it would be easy. The job of serving as the first Executive Director after a founder–in any situation, in any organization, in any economy–is probably the hardest job in the nonprofit sector.

Taking it on requires tough skin and an iron stomach. And somehow, through it all, being steadfast in exhibiting excellent management skills, strategic vision, an ability to generate excitement and bring in partners, and more. One person, even a strong leader, alone cannot accomplish the job. This job is big. And probably, typically, best designed as an Interim Position.

If the situation presented to you by the board upon your employment was anything like typical, you’ve had to generate fresh programming and refresh the institutional identity on not much more than spit and duct tape.

And if you’re feeling discouraged, it’s because you’ve been trying things and the results aren’t as dramatic as you’d hoped. Probably you’re looking at financials that haven’t much changed.

It’s reasonable to get tired and to feel discouraged and burned out, which happens anytime you try and give everything and the early results suggest it didn’t matter.

Don’t give up. Together, you and new, trusted board members can examine the remaining problems with straight up honesty and integrity. You need to be “critical friends” (emphasis on both) to each other and to the organization. You need to develop (with key allies) an energizing vision and a credible plan for turning things around and moving everything ahead. The beautiful thing is the potential impact a renewed organization can have.

Good luck, and my sincere wishes for inspiration, wisdom, courage, friendship, and creative expression,

Social Enterprise is Foxy

Talk about “social enterprise” often tends to emphasize business innovation or the franchise business-flavored nonprofit model (overly simplified: a relatively straightforward program scaled fast and all over, with big startup investment from government or tech money) over any other nonprofit models that, even if small or local, can work.

The idea, perhaps not spoken directly, is Business (equity-building) is big, efficient, innovative, and good and Nonprofit (nonequity) is small, inefficient, unimaginitive, and bad.

That’s too simplistic a view, of course. And it doesn’t take into account the very different finance rules by under which nonprofits have to –creatively– bootstrap to operate.

My feeling is that good ideas for fixing the world need serious investment, and the trick is to fit particular ideas to the particularly appropriate legal structures and business models that have the best chance of the most impact.

The other thing that bugs me about this topic (which, BTW, I’m totally into) is…can’t we say that any nonprofit with an efficient financial model and having successful social impact (however rare they may be) is a social enterprise?