This second week has two sections; one addresses structural questions for socially conscious businesses and lastly – how can a socially conscious business be sustainable and really change the world?
L3Cs and Benefit Corporations – the Basics of Structure
The absence of clear legal guidance has been a major challenge to the architects of social entrepreneurship. However, two major attempts in the past couple of decades to provide a legal structure have been the L3C company, and the Benefit Corporation. State legislators have given attention to this in an effort to enable the pursuit of social and environmental goals in a For-Profit business enterprise.
The Low Profit Limited Liability Corporation (L3C)
Since the state of Vermont first allowed an L3C registration in 2008, about half of the states have enacted this liberating legislation which is built on an LLC framework. It carries the goal of giving For-Profit, mission-driven companies the ability to attract philanthropic funds.
“Low-profit, limited liability corporations (L3Cs) are designed to be a hybrid between a charity and a for-profit business. The creation of the L3C structure started with nonprofits that face a rapidly shrinking pool of charitable funds, grants, and foundation resources. Although public funding is quickly evaporating, the number of private interests willing to invest in socially-driven endeavors is multiplying in leaps and bounds. The catch though, has been that private investors won’t participate unless they can achieve a return on investment – an impossible feat for a traditional nonprofit.
The L3C business structure is unique in that it allows the organization to diversify its funding pursuits and allocate risks to allow a higher rate of return to private investors. Although this structure is still in its infancy, it holds the potential to become a powerful tool for entrepreneurs eager to combine their business savvy and social passion”1.
This is a very limited description, but more details of how this works may be studied at:
http://www.gaebler.com/L3C-Business-Structures.htm
Benefit Corporation (B-Corp)
Since 2010 in the USA, there has been state legislation developing, which is now in about half of the US states providing for a Benefit Corporation. This is a new class of corporation, that is required to create a material positive impact on society and the environment. Most simply their purpose is to:
- Create general public benefit.
- Have a right to name specific public benefit purposes (e.g., 50% profits to charity).
- Create public benefit which is in the best interests of the benefit corporation.
“Green Mountain Power” was the country’s first Public Utility B-Corp. “GMP is also leading through innovative partnerships with customers to offer integrated products and services like E-homes, a total home energy offering, that is already helping Vermonters save money. Their program includes weatherizing homes and using smart products like heat pumps to become more energy efficient by reducing fossil fuel use.
We became a B Corp to demonstrate our deep commitment to creating positive change in the community and the environment through our work to make clean energy more affordable and reliable. We embrace the mission to “do good” in all things we do, put customers first, and seek to make Vermont and the world a healthier place to live. We are very honored to be the first utility to receive the distinguished B Corp certification.” as quoted in their website:
https://www.bcorporation.net/en-us/find-a-b-corp/company/green-mountain-power
Accountants and legal experts will want to study this more thoroughly possibly by starting here:
Other Relevant Terms
Triple Bottom Line (TBL)
A term which has become increasingly used in the social enterprise domain. Certainly, in the values-driven and mission-driven spheres is the “Triple Bottom Line”, credited to Elkington in a 1994 article which contained this definition2:
“The TBL is an accounting framework that incorporates three dimensions of performance: social, environmental, and financial. This differs from traditional reporting frameworks as it includes ecological (or environmental) and social measures that can be difficult to assign appropriate means of measurement. The TBL dimensions are also commonly called the three Ps: people, planet, and profits.
Well before Elkington introduced the sustainability concept as “Triple Bottom Line,” environmentalists wrestled with measures of, and frameworks for, sustainability. Academic disciplines organized around sustainability have multiplied over the last 30 years. People inside and outside academia who have studied and practiced sustainability, would agree with the general definition of Andrew Savitz for TBL. The TBL “captures the essence of sustainability by measuring the impact of an organization’s activities on the world … including both its profitability and shareholder values and its social, human, and environmental capital.3
http://www.ibrc.indiana.edu/ibr/2011/spring/article2.html
Corporate Social Responsibility (CSR)
Corporate entities, both large and small (LLC, C-Corp, S-Corp etc.), oftentimes commit themselves to operate in such a way as to provide social and environmental impact. They develop policies internally, which demonstrate responsible practices for improving conditions in and around the company. Early CSR efforts focused on philanthropy and charity, but the tendency today is to drive toward economic sustainability and prosperity while taking care of their employees and the environment.
Internationally, CSR is a mixed bag with a serious lack of common measures of performance. For some corporations, it is simply a “bandwagon” minimalist approach for political reasons; others are sincerely trying to adopt CSR policies which interface with social responsibility.
The final section concludes this 4-part series with an explanation of why all of this is important and the benefits of socially conscious business and how it really can change the world.
Change the World? Really?
The mission statement of one socially conscience enterprise is somewhat typical, and recognizes the seamless holistic implications of spirituality, social life, and the economics of society.
Our mission is to enhance the spiritual, social, and economic prosperity of communities in developing countries by equipping entrepreneurs to establish profitable businesses that benefit their communities, create jobs, and inspire local entrepreneurs to do the same.
Thus, it makes sense to focus on an engine such as a “socially conscious business”, which brings together life-values, a spiritual world view, economic wealth creation, social justice, and job creation that works toward a holistic prosperity for individuals and communities. As an example, Christian business leaders often speak of “Business for Transformation”, incorporating many of the ideas previously discussed.
Business for Transformation (B4T, BAM)
It should be noted that the term “Triple Bottom Line” has been modified by those aligned with “Business as Mission” or “Business for Transformation” to include profitability, social capital (primarily job creation) and spiritual capital.
Business as Mission (BAM) advocates would suggest that BAM is the ultimate social enterprise inasmuch as it subscribes to Jesus’ commandment to love your neighbor (applied as job creation and social value) be profitable, and make disciples of Jesus (Great Commission) – all at the same time.
A Sustainable Solution
It is important to keep in mind that a typical BAM business model is directed toward cross-cultural international business startups. Thus, there are factors to be considered beyond standard entrepreneurial strategy understood in western societies. Factors such as living conditions, health care, injustices, religious freedom, corruption, and education.
Returning to the original presupposition – “socially conscious business can change the world” – yes really! The benefits of such a business are that it provides jobs for families and thus economic viability and a measure of prosperity – and in areas of high unemployment, injustice, and poverty – it brings together communities in a functional social manner and allows them to value their cultural traditions with a sense of stability and dignity. It provides an internal empowerment which can bring development, improvement, and a viable future. Furthermore, it allows a religious worldview focusing on the “Creator God”, to give eternal value to life itself. In a non-western context, such integration of all elements of society, this model makes total sense, when compared to the segmentations and privatization so often experienced in the west.
All of this is sustainable within culture; it is not forever dependent on external stimulus, resources, and ideology. It also avoids accusations from the host culture that religious groups and western NGOs have hidden agendas. The socially conscious business then liberates the society toward a sustainable solution, where charity, business, religion, education, society, and cultural values are all integrated.
This sustainable solution then is a legitimate business registered as a For Profit, bringing jobs to the region (economic), and addressing the social, and spiritual conditions in the process. In many ways, this is aligned with a good-hearted CSR – the business becomes aware of the families of the business and the surrounding community dynamic and incorporates an action plan into the business model.
“Remember not the former things, nor consider the things of old. Behold, I am doing a new thing; now it springs forth, do you not perceive it? I will make a way in the wilderness and rivers in the desert.” Isaiah 43:18-19
1 http://www.gaebler.com/L3C-Business-Structures.htm
2 John Elkington, “Towards the Sustainable Corporation: Win-Win-Win Business Strategies for Sustainable Development,” California Management Review 36, no. 2 (1994): 90–100.
3 Andrew Savitz, The Triple Bottom Line (San Francisco: Jossey-Bass, 2006).
“Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness.” –Martin Luther King Jr.
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“Socially conscious business can change the world.” —Ray Barreth
Larry W. Sharp, BAM Support Specialist, IBEC Ventures
Larry.Sharp@ibecventures.com