September 2010 - socentlaw


As an attorney for social enterprise, I speak with clients almost every day that have no lack of people and organizations that would like to invest in them. Many of their customers, neighbors, and fans would much rather invest their small nest eggs into local socially responsible businesses than mutual funds (even SRI ones) that invest in giant multinational corporations. But guess what? It is illegal for them to do so.

An extremely complicated set of laws and regulations adopted in the 1930s and early 1940s makes it illegal for a business to offer or accept investments from the public without jumping through numerous legal hoops that can easily cost hundreds of thousands of dollars in legal and accounting fees, filing fees, and other costs.

The result is that social enterprise must compete for extremely scarce funding which may require entrepreneurs to sacrifice their vision. And the vast majority of us are prohibited from putting our investment funds where we would like to put them. After all, is it really riskier for me to invest in a business in my community where I shop regularly and know the owners than it is for me to invest in faceless multinational corporations most of which seem to be completely out of touch with the imperatives of the new economy?

The securities laws were put in place for a good reason – to protect average investors from losing their life savings in unregulated investment schemes. Well, didn’t investors lose their life savings in completely regulated and legal investment schemes in the last few years? It is time to ask why these regulations make it almost impossible for small social enterprises to raise capital and what we are trying to protect people from.

This past summer, I participated in a small step toward changing this situation. At Sustainable Economies Law Center, a nonprofit at which I am co-director, two summer law student interns wrote a request for a rule change for the Securities and Exchange Commission, the federal agency that regulates investing. Our request was simple: exempt from the regulatory requirements solicitation of investments of up to $100.

Imagine if social enterprises could solicit investments of $100 and offer a financial return on those investments without having to spend hundreds of thousands of dollars for securities law compliance? This would not solve the current market failure, but it would be an amazing first step that could lead to more extensive reforms.

My colleague Michael Shuman in his book Small Mart Revolution and elsewhere has shown that small locally owned businesses are not the risky investments they are made out to be. They make up approximately half of the economy and are more than holding their own in a system which is stacked almost completely against them. We must do away with the outdated laws that prevent investment dollars from flowing to them.

Jenny’s blog post is a finalist in the SOCAP / Triple Pundit Competition asking the question: How will social enterprise unlock the $120 billion market opportunity for individual impact investment?

photo: Aram K.


Reposted from Harvard Business Review

by: Will Patten

It is hard to overstate the role and impact of business today. As an area of human endeavor, Business — with a capital B — is clearly the most powerful force in the world. It can boast the greatest concentration of talent, resources, and fresh thinking.

And many aspects of western civilization appear to be in crisis. Health care, education, transportation, environment, wealth distribution, energy … the list goes on. The needs are great, and solutions are shockingly scarce.

Whether Business is responsible for the current crises can be argued forever. We don’t have time for that argument. The point I want to make is that, as the dominant power in the world, Business will have to be a major part of the solutions.

For many business leaders, that fact is energizing. They know that they are in command of powerful organizations that could be powerful forces for change. But there’s a problem: corporate law in the United States compels any publicly traded corporation to put the financial interests of shareholders above all other interests — and shareholders have come to expect immediate and sizable returns on their investments. As a result, much of the creative talent housed in many businesses is focused on maximizing shareholder value in the near term, even at great risk, and even when the means of achieving it might not be in the long-term interests of anyone — including shareholders. Shortcutting safety procedures in deep water oil drilling immediately comes to mind.

It’s an interesting notion that Business, held captive by a narrow definition of fiduciary responsibility, is not able to make the long-term investments that could benefit communities, the environment, and ultimately the shareholders. If this notion is even partly correct, then our most powerful institution will be unable to do enough to solve the social and environmental crises confronting us.

Earlier this spring, Vermont made a new path available. Through an initiative called the Vermont Benefit Corporation, it provided for a different class of organization — one that exists not simply “for profit” but “for benefit” and therefore expands the definition of fiduciary responsibility beyond an exclusive obligation to shareholders to encompass the interests of all corporate stakeholders, including employees, the local economy, and the environment. Are the directors of a Benefit Corporation still obliged to act in the best interests of the company’s owners? Absolutely. But they have legal protection to make investments with an eye to the long term, aiming for sustainable returns, not fast paybacks for shareholders. (To learn more about the Vermont Benefit Corporate Charter see this pdf of the enabling legislation, or you can read an excellent article here.)

In 1994, on the Fourth of July, Czech Republic President Vaclav Havel gave a speech in Independence Hall, Philadelphia, that resonated with many. “Today, many things indicate that we are going through a transitional period,” he said, “when it seems that something is on the way out and something else is painfully being born. It is as if something were crumbling, decaying, and exhausting itself — while something else, still indistinct, is rising from the rubble.”

For some, it seemed clear what was crumbling and decaying: an economy based on consumption, and driven by overdependence on growth. Some made it their business to give the future a less indistinct shape. Business may or may not be the root of our problems, but the solutions will come more quickly and be more durable if we can find a way to involve Business in them. The option of Benefit Corporation status may be just what Business needs in order to do the right thing for all of us.
Will Patten is the Executive Director of Vermont Businesses for Social Responsibility (VBSR), a statewide not-for-profit organization promoting triple bottom line business practices. It is the largest such organization in the US. Mr. Patten was formerly Director of Retail Operations for Ben & Jerry’s, where he retired after a 22 year career.

photo: Nicholas Erwin


Today is an exciting day in the world of social enterprise law because it marks the first day of a weekend-long summit of top social enterprise attorneys from around the country. These attorneys have flown into Boulder to spend the weekend brainstorming about how they can collaborate together to serve the emerging sector of social enterprise more effectively and more efficiently. Regardless of the outcome, social entrepreneurs around the nation should be expecting an innovative approach to legal services. And of course, if there are any announcements coming out of this weekend, you’ll hear it here first.

In the mean time, you should get to know some of the attorneys involved:

Jenny Kassan

Bruce Campbell

Brian Howe

Jochem Tans

Kendall Thiessen

Kyle Westaway

photo: jaxxon