LAW AND SOCIAL ENTREPRENEURSHIP

Katie Smith Milway and Christine Driscoll Goulay wrote a great post in Harvard Business Review about the explosion of social entrepreneurship in the last decade. Check out the post here.

I’m ecstatic to see that the next generation of business leaders are taking social enterprise seriously. With the exception of a few schools, the legal academy is not even aware of the social enterprise movement. The legal academy is about 20 years behind the curve on this. Why does this divide across the quad exist? When will the legal academy start taking this sector seriously?

Wall Street Journal interview with Jacqueline Novogratz

It’s a privilege to welcome Suzanne McKechnie Klahr to socentlaw.com. Ms. McKechnie Klahr is the Founder of build.org, an Ashoka Fellow, and to my knowledge, the first person to ever teach a social entrepreneurship course at any law school (Stanford Law). She currently is a Lecturer at Law on Social Entrepreneurship at both Stanford Law School and Harvard Law School, and has served as both a role model and a mentor to me. We are lucky to have her wisdom and insight.

Suzanne McKechnie Klahr is the CEO and Founder of BUILD, a four-year entrepreneurship-focused college preparation program whose mission is to provide real-world entrepreneurial experience that empowers youth from under-resourced communities to excel in education, lead in their communities, and succeed professionally. By helping students develop and run their own small businesses, BUILD supplements traditional school with real-world business experiences and critical skill-building for the future. BUILD currently operates two San Francisco Bay Area sites, one site in Washington, DC, and has plans for national expansion. BUILD maintains an incredible track record with 100 percent of its seniors having applied to and gone onto college. For her accomplishments with BUILD, Suzanne has received numerous awards and been asked to speak nationally on such topics as education, social entrepreneurship, venture philanthropy, new models of providing legal services to the poor, and poverty alleviation strategies. In 2006 she was inducted as a lifetime member of Ashoka, a global fellowship of leading social entrepreneurs. In 2007, she was honored by CBS’s Jefferson Award on television, on radio, and in print. In 2008, Suzanne was elected to the San Mateo County Women’s Hall of Fame and in 2009, she was named as one of Silicon Valley’s Most Influential Women by the Silicon Valley/San Jose Business Times. She earned a dual degree from Brown University and a JD from Stanford Law School, and she has successfully completed the Harvard Business School’s Executive Education program in Strategic Perspectives in Non-Profit Management.

It’s my pleasure to welcome Professor Deborah Burand as a new author on socentlaw. She’s been a real leader in the sector over the years, and you can catch her at the upcoming Law and Finance of Social Enterprise Symposium at NYU.

Professor Deborah Burand is the Co-Director of the Law School’s International Transactions Clinic that she cofounded in 2008. She also teaches in the area of impact investment lawyering. Burand returned to the Law School in January 2012 after taking a leave of absence to serve as general counsel to the Overseas Private Investment Corporation, the development finance institution of the United States.

Prior to joining the Law School faculty, Burand worked in the microfinance sector, most recently as executive vice president of strategic services at Grameen Foundation, a global microfinance network. Earlier in her career, she worked as a senior attorney in the international banking section of the Federal Reserve Board’s legal division, and at the U.S. Treasury Department, first as the senior attorney/advisor for international monetary matters and later as the senior advisor for international financial matters. She also worked in private practice at Shearman & Sterling where, among other things, she advised bank advisory committees in the negotiation and implementation of Brady Bond deals that restructured the sovereign debt of Vietnam and Peru, and she supported, on a pro bono basis, the development of the world’s first debt-for-nature swap.

Burand is a member of the faculty of The Boulder Microfinance Training Institute (Turin, Italy) where she teaches courses on securing debt and equity finance for microfinance institutions. She was the co-topic leader for finance for the 2009 Clinton Global Initiative. In 1993-1994, she was an International Affairs Fellow of the Council on Foreign Relations (during which she was seconded to the IMF and EBRD), and is currently a member of the Council. She is a member of the bars of New York and the District of Columbia. She earned her BA, cum laude, from Depauw University and a joint graduate degree, JD/MSFS with honors, from Georgetown University.

This is a full two-hour lecture at Harvard’s iLab on how to structure your social enterprise for impact. The lecture addresses the three types of social enterprise business models, then compares and contrasts seven legal structures including:

• Corporation
• B Corp Certification
• Benefit Corporation
• Flexible Purpose Corporation
• LLC
• L3C
• Nonprofit

The UC Hastings Business Law Journal is proud to host a symposium exploring the new legislation recently passed in California that allows corporations to promote the public good. 
The symposium will feature representatives from B Lab, the legislation drafters, professors, practitioners in the field, and business advisors.

DATE / TIME:
October 19th, 9am – 4pm

LOCATION:
Alumni Reception Center, UC Hastings,
200 McAllister St. San Francisco, CA

MORNING SESSION:
The opening speaker will introduce the legislation’s background and describe benefit corporations, as well as flexible purpose corporations, benefit limited liability companies, and low-profit limited liability companies (L3Cs). The morning panel will compare social benefit corporations to their counterparts, and explore why a corporation would elect to organize as one type of corporation over the other.

AFTERNOON SESSION:
In the afternoon, speakers will shift their focus toward the practical aspects of running these corporations-How can social and environmental impacts be quantified? How should a board adequately consider their new stakeholders? The afternoon panel will then present the partisan viewpoints surrounding the legislation, arguing both for and against its need and expansion. Finally, our closing speaker will address the future of these entities-Will the legislation expand? What type of lawsuits can we expect?

Students, professors, practitioners, and business owners are welcome to join the event. Lunch and reception graciously hosted by DLA Piper, and a reception will follow the event. MCLE Credit will be available.

RSVP to: symposium@hblj.org

Today Regent University Law Review is hosting a symposium entitled “Emerging Issues in Social Enterprise” in Virginia Beach, Virginia.

The symposium website is available here:  http://www.regent.edu/acad/schlaw/student_life/studentorgs/lawreview/symposium.cfm.

The panelists include law professors who teach and write in one or more of the following areas:  business associations, corporate governance, nonprofit, securities regulation, social enterprise, and tax law.  In addition, the panels will feature three current corporate attorneys and two social entrepreneurs.

Stay tuned for live tweeting today from @socentlaw.

Panelists

Gregory P. Bergethon, Esq., C.P.A., (The Keel Group, Ltd.)

Cassady V. Brewer (Georgia State University College of Law)

Joan MacLeod Heminway (University of Tennessee College of Law)

Lyman P. Q. Johnson  (Washington and Lee School of Law and University of St. Thomas School of Law)

Marcia L. Narine (University of Missouri-Kansas City School of Law)

Michael I. Pirron (CEO of Impact Makers, a founding certified B Corporation in Virginia)

Dana Brakman Reiser (Brooklyn Law School)

Kyle Westaway (Founder of Westaway Law, co-founder of social enterprise Biographe, and Lecturer at Law at Harvard Law).

The moderators include Regent law professors Douglas H. Cook and J. Haskell Murray.

B Corps, Benefit Corporations and More: Turning The Traditional Business Model On Its Head from CSRB @ Lokey School of Business on Vimeo.

The US Treasury and IRS are proposing a rule change involving Program Related Investments. Below is the post from Jonathan Greenblat – Director of the Office of Social Innovation.

Recently, the Obama Administration took a simple but important step that has the potential to do a lot of good in communities across the country – anything from improving education, creating opportunity in low-income communities, or keeping our water and air safe.

Traditionally, foundations have tackled our most vexing problems primarily by making grants to organizations. Foundations are required to make annual charitable contributions of at least five percent of their total assets. These overwhelmingly are done via grants and most stay very close to the five percent minimum. The remaining 95 percent of assets are maintained in an endowment and typically invested in a diversified portfolio in order to preserve or increase value to enable continued giving in the future.  The proposed rule issued by the Treasury Department and IRS would make it easier for philanthropies to make what are called Program Related Investments (PRIs).

PRIs allow foundations to put more of their resources to work to advance their charitable mission through means other than grant-making – like equity investments, loans, loan guarantees, or other investments. Despite their flexibility, PRIs historically have not been used with much frequency because of confusion as to how they work and the high costs associated with them.  For example, many foundations find it necessary to proactively seek legal counsel to confirm that an investment would qualify under the definition of charitable purpose even before using a PRI.

To address these concerns, the Treasury Department and the IRS proposed a rule that includes updated examples of how private foundations may use PRIs to fund charitable activities, which will help foundations make these investments more easily and at a lower cost. The guidelines illustrate that organizations can use PRIs to support groups working on a diverse set of issues from preserving the environment, to furthering education and scientific research, to relieving the poor and distressed.

This important update is the first in 40 years since PRIs were implemented in 1972.

The proposed rule also clarifies how foundations can use different methods such as credit enhancement arrangements to strengthen the capacity of organizations.  This approach can leverage the balance sheets of foundations, enabling “capital activation” and potentially adding significantly to their capacity to drive social impact.  Such methods can serve as an indicator to other institutional investors about the possibilities of deploying capital in creative ways to generate value and strengthen communities.

A PRI is an investment made by a foundation, which, although it may generate income, is made primarily to accomplish charitable purposes.  PRIs are novel for several reasons.  First, they provide foundations with the flexibility to fund activities serving charitable purposes in a variety of ways beyond conventional grants.  Second, such investments can be made to tax-exempt charities but also to social enterprises and conventional businesses.  And third, unlike conventional grants, PRIs can take various forms, including equity investments and low-interest loans.

These guidelines do not cover all the potential scenarios, and public comments on the proposed rule have been requested by July 18.  We hope that the proposed rule will spark a dialogue over the next two months with the philanthropic community.  Through feedback on the guidelines and an exchange of ideas, we hope to update the regulations in a manner that serves the public interest.  This additional guidance is expected to facilitate the ability of foundations to determine whether investment qualifies as a PRI, reducing the transaction costs, conserving a foundation’s resources for additional charitable activity, and increasing capital flows for charities and social enterprises that can create jobs and generate impact.

To comment on the proposed rule for PRIs, please visit the Federal Register.

Originally posted by Kevin LaCroix on D and O Diary

The purpose of the benefit corporation is to provide an appropriate enterprise vehicle for for-profit mission-driven businesses. Among the objectives in structuring the benefit corporation form is the need to address critical issues regarding the duties and potential liabilities of directors and officers. The key objectives of the model legislation are to ensure that directors and officers of the benefit corporation do not incur liability for considering the interests of constituencies other than shareholders and to ensure that the directors and officers do not incur monetary liability for allegedly failing to fulfill the organization’s general or specific benefit purposes.

It is important to note that although the model legislation provides that the directors and officers cannot be held liable for damages under the benefit corporation provisions, the benefit corporation provisions do not exempt the directors and officers from liability for violating general standards of fiduciary care. The exemption from monetary damages in the model legislation provide only that directors is “not personally liable for monetary damages for (1) any action taken as a director if the directors performed the duties of office in compliance [existing statutory provisions specifying the duties of directors generally]; or (2) failure of the benefit corporation to pursue or create general public benefit or specific public benefit.” Parallel provisions provide similar protections for officers.

The point is that the exemption from monetary damages under the benefit corporation provisions does not exempt the directors and offices from claims for damages for violation of their general fiduciary duties. By the same token, however, the model legislation specifies that the directors and officers of the benefit corporation cannot be held liable for considering the interests of constituencies other than shareholders.

The model legislation does provide for a “benefits enforcement action,” for shareholders to pursue injunctive relief if the organization is not pursuing its benefits objectives or providing required reporting. Even though this action does not allow for damages, it does create a context within which defense costs could be incurred.

In other words, not withstanding the liability protections in the model legislation, directors and officers of a benefit corporation continue to face the possible liability exposures and defense expense exposures.

As a for-profit venture organized to pursue a public good, a benefit corporation does not really fit within the usual D&O insurance framework, which divides the world between non-profit and commercial enterprises. In addition, the benefit corporation regime has unique aspects that could have insurance implications, such as the possibility of a benefit enforcement action.

In just over two years, seven states have enacted legislative provisions allowing for benefit corporations. Implementing legislation is under consideration in several more states. It seems likely that adoption of benefit corporation legislation will become more generalized in the months and years ahead. It also seems likely that as the benefit corporation form become more widespread that insurers will be called upon to address the insurance needs of this new type of enterprise. The unique features of these organizations raises the possibility that new insurance solutions, targeted to the unique needs of these kinds of companies, will be required.

In any event, benefit corporations represent an interesting innovation on the corporate enterprise landscape. If, as seems likely, more states adopt benefit corporation enabling legislation, the issues involved in addressing these companies’ insurance requirements will become an increasingly common concern.

Photo: marked141