Traditional corporations are legally bound to put profit maximization ahead of other goals. If they don’t, shareholders may sue. Benefit corporations operate under a broader definition of success – one that includes material positive impact on society and the environment. Specifically, benefit corporations must: 1) have a corporate purpose to create a material positive impact on society and the environment; 2) redefine fiduciary duty to require consideration of the interests of employees, community and the environment when making decision; and 3) publicly report annually on its overall social and environmental performance using a comprehensive, credible, independent, and transparent third party standard.
Vermont and Maryland were the first states to enact benefit corporation legislation, in 2010. New Jersey, Virginia and Hawaii followed earlier this year. New York is poised to become the seventh state to join the movement, and similar legislation has been introduced in Colorado, Michigan, Pennsylvania, and North Carolina.
Entrepreneurs with a desire to advance a social or environmental mission while generating value for shareholders now have another concrete tool for doing so. It isn’t the only tool – B Corp status is another way for a for-profit corporation to signal its intention to prioritize social and environmental benefit along with the creation of shareholder value. B Lab, the nonprofit organization that certifies B Corporations, was one of the sponsors of the California’s benefit corporation legislation.
Like many, we’re still following the evolution of the L3C (low-profit limited liability company), a corporate form just a little over three years old. Over the course of those three years nine states and two federal jurisdictions have enacted L3C laws, and according to a recent tally by interSector Partners, there are now 488 L3Cs organized across the country. The L3c movement has not progressed without controversy, but much of that has focused on the usefulness (or not) of the L3C in paving the way for foundations to fund for-profit entities via program-related investments (PRIs). A 2010 research study indicated that the ability to pursue PRI’s wasn’t, in fact, the primary motivator for most early L3C founders – that the appeal lay more in the ability to create “a for profit with a nonprofit soul.”
Time will tell which corporate form – or forms – will truly take off. For now, I’m just excited that there are an increasing number of options. May the momentum continue.
At one point I raised the possibility of networked activity replacing the function of some nonprofits. This is the dreaded disintermediation we all wince when hearing about.
If an artist can sell his or her work through an easily-constructed web site, why do we need art centers and galleries? If a volunteer can surf the net for places to give time, what role do volunteer centers play?
There are certainly value added activities associated with each of these entities so I don’t mean to imply that they can be readily replaced tomorrow.
On the other hand we should not delude ourselves that there is something sacrosanct about our current line-up of nonprofits. If major cities and small towns alike can lose their newspapers they can also lose their once-cherished nonprofits.
As I made this point a young woman commented that she was not sure there was reason to mourn the loss of these groups if they were made irrelevant by advances in technology, changing community needs or generational preferences.
My initial reaction was that people who had worked or volunteered on behalf of these organizations for major portions of their lives might feel differently. But I immediately realized that was a defensive reaction.
There is a classic case of nonprofit law involving cy pres, a legal doctrine which asserts that if a donor’s intent can no longer be met his or her gift should be devoted to another cause “as close as possible” to the original cause.
The case I’m thinking of involved a lighthouse in Boston Harbor. A trust had been established to bring the local newspapers to the lighthouse keeper from Boston each week by boat. Eventually the lighthouse was automated and the keeper retired. Through this technological advance there was no way for the trust’s original intent to continue to be pursued. The court determined that delivering newspapers to an old sailors’ home was close enough and the trust’s purpose was shifted. Here is a hundred-year-old case of technology impacting a nonprofit’s purpose and fundamentally altering it.
I assume no one cried over the loss, but then again, the lighthouse no longer had any employees to shed those tears.
Yet in recent weeks we have seen two more major affiliates of well-known national nonprofits leave the fold. Planned Parenthood Golden Gate, in Northern California, is now Golden Gate Community Health, and KCET, the PBS affiliate in Los Angeles, recently announced its intention to leave the PBS family in January 2011.
Each of these situations is unique and involves a combination of differing perspectives, financial tensions and interpersonal conflicts, but I wonder if economic pressures are increasingly going to drive large affiliates of national organizations to leave behind their household brand name in favor of independence.
KCET will lose access to crucial PBS programs such as Sesame Street, while the two health organizations named above will continue to offer the same service but without the benefit of instant name recognition.
Given the demands of participation in a national organization (financial, programmatic, quality review, brand usage and the like) we may see additional large affiliates deciding they can do better on their own.
In the short run that may be true, but it remains to be seen whether they can replace the instant name recognition and credibility of their former national partners with local support. And of course there is always the possibility – indeed the likelihood – that the national organization will establish a new franchise in the same area, providing a high profile competitor who will build on the previous organization’s name recognition, now abandoned.
Stay tuned.
Each panelist highlighted different aspects of the five trends impacting the social sector and what their organizations are doing in response to, or in some cases, as part of the trends.
For example, Matt Halperin said the Omidyar Network is sector-agnostic when it comes to their investments, for them, sector-blurring has become sector indifference.
Dee Dee Nguyen of Marin Community Foundation talked about the changing demographics of California and the challenge of engaging younger donors in giving circles.
Peter Friess of the Tech Museum of Innovation showed a footage of kids being videotaped, so that the childrens’ explanations can be used in place of signage explaining the museum’s exhibits, to make the visitor experience more meaningful for other children.
It was a lively discussion with lots of people hanging around after for more. Special thanks to Judi Powell and Dion Ward of NCG and Janet Camarena of Foundation Center for helping make this event a success!
As Valerie Lies, President and CEO of the Donors Forum, described in her powerful opening remarks to the 600 guests of last week’s event, Chicago is struggling with many of the same economic and political challenges as the rest of the country.
I described La Piana Consulting’s NonprofitNext research and the five key trends that are converging to reshape the social sector landscape.
Joining the discussion was Mae Hong, Director of Rockefeller Philanthropy Advisors, Nicole Robinson, Director of Kraft Foods Global Community Involvement division, and Ricardo Estrada, Chicago’s First Deputy Commissioner of the Department of Family and Support Services.
The panel itself represented the future, with young and diverse leaders, whose affiliations spanned a blurring of sectors across government, philanthropic, and corporate social action.
Where will you take nonprofits next? Join the conversation today!
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