January 2013 - socentlaw

DC BENEFIT CORPORATION EDUCATION SEMINAR | FEBRUARY 7, 2013 | WASHINGTON, D.C.

I’m heartened by all of the events around social enterprise that are happening in D.C. Here is another — the DC Benefit Corporation Education Seminar hosted by B Lab and Drinker Biddle and Reath on 2/7/13. Registration here.

DONORS, UNIVERSITIES, & SOCIAL ENTERPRISE

In my Google Alert e-mail from yesterday were two stories about universities receiving millions of dollars to support social enterprise initiatives.

Technology entrepreneur James Lee Sorenson donated $13 million to the University of Utah’s business school to establish the James Lee Sorenson Center for Global Impact Investing.  The story from Reuters is here.

Also, John Edwardson, a retired CDW Chairman and Chief Executive, donated $5 million to the University of Chicago’s Booth School of Business for its social enterprise initiative.  The story from the Chicago Tribune is here.

These large gifts confirm my opinion that law schools are lagging behind business schools in the social enterprise/social entrepreneurship/impact investing space.  Thanks to a number of law professors, however, many of whom contribute to this blog, law schools are starting to gain some ground.

 

PunchRock D.C. Legal Events for Social Enterprises

There are two events happening in Washington, D.C. that will likely be of interest to those in the social enterprise field, both hosted by PunchRock, a collaborative community space for social entrepreneurs. The first event is “Legal Advice Workshop for Social Entrepreneurs” today (Tuesday, January 22nd) at 6:30pm at PunchRock’s office, and co-hosted by the DC Social Innovation Project. The second event is “What Should the Law of Social Enterprises Be?” next Tuesday, January 29th at 6:30pm, co-hosted by UnSectored and American University College of the Law, also at PunchRock’s office. I plan to attend both and am looking forward to meeting more of the D.C. social enterprise community.

Interest Convergence – Or Why Social Enterprise is Not a Fad

Because I have spent the last three years of my career (a long time considering that my legal career began eight years ago) immersed in the social enterprise field, it often occurs to me whether social enterprise is just a fad, and more important whether corporate engagement and interest in social enterprise will wane just as quickly as it has developed. Consider, for example, constituency statutes that were promulgated in many states in the 1980s to protect local corporations in response to increased out-of-state takeover activity. Generally, a constituency statute allows directors to consider the interests of non-shareholder constituencies when making business decisions for the corporation. Non-shareholder constituencies include employees, customers, creditors, suppliers, and the communities where the corporation is situated or does business; the national, state, and local economies; and both the long-term and short-term interests of shareholders and the corporation. And yet, constituency statutes never became relevant in empowering mission-driven corporations to “just say no” to multinational conglomerates acquiring them (for example, consider the often-referenced takeover of Ben & Jerry’s by Unilever which occurred after a constitutency statute was adopted in Vermont).

The fate of the benefit corporation and other new organizational forms created to facilitate social enterprise may be the same as constituency statutes—an inspirational goal to protect social missions, but never really relevant to the actual accomplishment and sustainability of those missions. “Hybrid” legal structures may never be used in significant numbers or adjudicated by courts in meaningful and useful ways. They just may never ripen to their full potential. Additionally, an economic boom could decrease the urgency of corporations to focus on the drivers of their interest in social enterprise—namely, increased global demand for natural resources, unprecedented economic disparity and inequality, and in-your-face evidence of climate change. (I don’t think that it is a coincidence that social enterprise has developed so rapidly during an economic downturn.)

I happen to believe that social and environmental sustainability issues are important to the well-being of the world’s economic, financial, and social health, and therefore worth pursuit. On that issue I agree with Cass Brewer’s earlier post. However, corporate managers or other people don’t have to agree with my sentiment in order for corporate interest in social enterprise to be sustained over the long run. My interest in social enterprise comes from a place of caring for the fate of humanity and our planet. But corporate interest in social and environmental sustainability issues often comes from the very thing that social entrepreneurs are trying to alter—pursuit of profits. Corporate managers see an untapped potential in pursuing social and environmental objectives because greater social, environmental, and economic equality and sustainability will lead to larger markets of customers and consumers for their products and services. Those markets are at the base of the pyramid and present a new area of growth for companies working in the saturated markets of the developed world. So while I may advocate equality and sustainability for their own sake, corporate managers may advocate it because, in the long run, it opens up new markets and more profits.

For example, Proctor & Gamble (P&G) operates an initiative called “Protecting Futures: Keeping Girls in School” through which it partners with non-governmental organizations to provide puberty education, sanitary protection, and sanitary facilities to girls in developing countries. The goal of the initiative is to provide the means for girls to attend school during their menstrual cycles (purportedly girls in the targeted countries miss school a few days a month while managing their menstrual cycles). While the goal is admirably, undoubtedly corporate managers at P&G must also see the potential to capture the loyalty of future customers and expand into a new market—if the girls stay in school, do well, and obtain employment they will have the funds to continue using the P&G products by purchasing them. Similar logic is the basis of many corporate social responsibility initiatives or other forays into projects that create social or environmental value, including those corporations who establish and/or fund educational programs—these companies see the need to continue to educate their future workforce, often with technological skills in math, science, and engineering. Even pure (non-CSR) social enterprise like the Rickshaw Bank in Guwahati, India is successful in large part because private banks sees a new avenue of profits in the rickshaw drivers that pay them to rent and eventually own their own rickshaws.

There is no denying that corporations also have to contend with the effects of climate change, increased global demand for resources, and social/political unrest on their manufacturing, supply chains, workforce, product distribution, consumer market, and other business operations. It will not be easy, or profitable, for corporations to continue business as usual without some understanding, acceptance, and incorporation of sustainability and/or social innovation goals. Nonetheless, these corporations are adapting and hell if they’re not going to make money while doing it.

This is why social enterprise is so brilliant! And why it is thriving and will continue to thrive. Social enterprise promotes a convergence of interests—financial interests and interests in humanity and the planet. So far, it’s a win-win situation.

HYBRID STRUCTURES WEBINAR │ 1/29/13 │ ONLINE

Jonathan Ng, the Global Legal Director for Ashoka, recently sent me information about a webinar that Morrison & Foerster, Jones Day, and Adler & Colvin are putting on specifically for Ashoka staff, Ashoka Fellows, and Ashoka’s contacts and partners.  Jonathan said I could post information about the webinar on this blog.  You must preregister for the webinar here.

The speakers include:  Susan H. Mac Cormac (Partner, Morrison & Foerster) R. Todd Johnson (Partner, Jones Day); David Levitt (Principal, Adler & Colvin).

The webinar is described as “a workshop on legal ‘hybrid’ structures – where social, environmental, and economic missions are embedded in one or more legal forms. . . . [The presenters will] provide detail on important corporate, governance, and tax issues – as well as operational challenges – and discuss how the various models may or may not be effective in maximizing social and environmental goals through company operations.”

PROFESSOR BREWER ON THE L3C

Professor Cass Brewer (Georgia State Law) recently posted a draft of his article, Seven Ways to Strengthen and Improve the L3C.  His article was prepared for Regent University School of Law’s Symposium on Emerging Issues in Social Enterprise.

While Professor Brewer recognizes that the L3C is flawed in its current form, he does not stop there.  Professor Brewer should be commended for exploring and proposing creative, potential solutions.

The abstract of the paper is as follows, and the entire article is well worth your time:

The raison d’être for the low-profit limited liability company (“L3C”) is to encourage program-related investments (“PRIs”) by private foundations. PRIs are special types of investments that can be both charitable and profitable. PRIs have been embraced by knowledgeable scholars, practitioners, foundation managers, and even the U.S. Treasury Department. Further, the L3C and PRIs are associated with the growing “social enterprise” movement. The L3C thus would seem to be in the right place at the right time and should have the full support of the charitable sector, practitioners, and lawmakers.

Yet, after a fast start, adoption of L3C legislation across the U.S. has stalled. In fact, several states recently have considered L3C legislation and have either rejected it outright or deferred its passage indefinitely. Many highly-regarded scholars and practitioners adamantly oppose the L3C, even though those scholars and practitioners generally endorse PRIs. This slow pattern of adoption and strong opposition to the L3C contrasts sharply with the rapidly increasing acceptance of another type of “social enterprise” entity, the benefit corporation.

Why is L3C legislation languishing? Because the L3C suffers from the following fundamental defects: (i) except in name, the L3C is indistinguishable from a regular LLC; (ii) without any type of statutory enforcement mechanism, the L3C lacks accountability and transparency; and (ii) because the L3C promises more than it can deliver absent new federal legislation, the L3C fails of its essential purpose of encouraging PRIs. Given these defects, the L3C’s opponents maintain that the L3C is a well-intentioned but nonetheless failed experiment that should be abandoned.

This article argues that even though the L3C in its current form is defective, the L3C should not be abandoned. Instead, the L3C can be a viable tool for tax-exempt organizations and PRIs if the current statutory framework is strengthened and improved. With the foregoing premise in mind, this article proposes seven relatively simple but impactful changes that would strengthen and improve the L3C statutory framework. If the L3C becomes more than just a brand, then perhaps the L3C can fulfill its raison d’être.

 

Social Innovation Resource Guide

With some reservation, my research assistant Ari Dropkin and I created a Social Innovation Resource Guide. You can find it here and the description of it is below. I say that we created it “with reservation” because the social innovation world is far too vast to be captured in any one guide, nor maybe should it be. We originally created it for the law students in my social enterprise courses at Georgetown Law — it is an instrument that they will use to learn about the field and conduct their research as they represent social enterprise clients in my legal clinic. I’m happy with the way it turned out but hope that people will send me more resources that we have failed to include.

Official description:

This Social Innovation Resource Guide is a work-in-progress that attempts to capture various resources that assist, advise, and document social innovation. Social innovation–defined by the Stanford Social Innovation Review as “a novel solution to a social problem that is more effective, efficient, sustainable, or just than existing solutions and for which the value created accrues primarily to society as a whole rather than private individuals”–is drawing widespread academic interest. This Resource Guide began as an instrument for law students enrolled in the Social Enterprise & Nonprofit Law Clinic at Georgetown University Law Center. In it you will find find foundations that support social innovation, organizations that are creating metrics to measure social innovation, attorneys who counsel social innovators, centers and incubators that grow social enterprises, and much more. This Resource Guide is meant to be collaborative and dynamic, and useful to all. Please email us with suggestions for the guide at social [email protected]