Social Entrepreneurship: Can State Law Achieve Balance

Between Social Cause and Profit?Erin Albert

Allen

http://www.lemonadeday.org/

Photo from: http://www.nytimes.com/2010/08/07/us/07lemonade.html?_r=1

craigslist, Inc.v. Chancery Court of DE - Civil Action No. 3705-cc – Decided 9/9/10

Opinion online at: http:// www.delawarelitigation.com/uploads/file/int51(1).pdf

• "The corporate form in which craigslist operates, [an Inc.], is not an appropriate vehicle for purely philanthropic ends, at least not when there are other stockholders interested in realizing a return on their investment.”

• "Thus, I cannot accept as valid [at least for some purposes] ... a corporate policy that specifically, clearly, and admittedly seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders ..."

The Issues

• Can companies put mission before profit?• Are the current systems of NFP and FP business

entities sufficient for social business?• At what cost(s) are we willing to pay for and

what can state law do to assist the triple bottom line (people, planet, profit) of companies?

• Can we teach entrepreneurial/intrapreneurial social enterprise-making behavior?

• What can states do to help entrepreneurial thinking?

The Issues, cont.

• « Do the responsibilities of a business manager go beyond earning the highest possible profits? »1

• What responsibilities does a company have to its workers, their families, the community and the society at large?

1. Savitz, A. The Triple Bottom Line. San Francisco, John Wiley & Sons, 2006; 6-7.

We Are All Entrepreneurs Now43 Wake Forest L. Rev. 283

• Social entrepreneurs - business• Policy entrepreneurs – political science• Norm entrepreneurs - law• Moral entrepreneurs – sociology• Intrapreneurs – employee pioneers

The Good News: Entrepreneurship has gone public!

Social Business Defined

• «  …a kind of business dedicated to solving social, economic, and environmental problems that have long plagued humankind—hunger, homelessness, disease, pollution, ignorance. »1

1. Yunus, M. Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs. PublicAffairs, 2010; vii.

Other Definitions

The 7 Principles of Social Business2

1. Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization.

2. Financial and economic sustainability.

3. Investors get back their investment amount only. No dividend is given beyond investment money.

2. http://www.grameencreativelab.com/a-concept-to-eradicate-poverty/7-principles.html

The 7 Principles of Social Business, cont.

4. When investment amount is paid back, company profit stays with the company for expansion and improvement.

5. Environmentally conscious.

6. Workforce gets market wage with better working conditions.

7. …do it with joy.

http://www.grameencreativelab.com/a-concept-to-eradicate-poverty/7-principles.html

Social Entrepreneur Defined

« …those who identify and then challenge—with inspiration, creativity, direction action, and courage—an unjust «stable state’s equilibrium. » »3

« …share a passion, a focus on outcomes and impact that leverages other resources, a sound business model, and high expectations for not only themselves but also their clients. »4

3. Martin, R and Osberg S. “Social Entrepreneurship: The Café for Definition.” Stanford Social Innovation Review, Spring 2007.4. Goldsmith, S, et al. The Power of Social Innovation: How Civic Entrepreneurs Ignite Community Networks for Good. San Francisco, Jossey-Bass 2010.4.

Civic Entrepreneurship Defined

• « …helping communities develop and organize their economic assets and build productive, resilient relationships across the public, private and civil sectors. »5

• « …combines two important American traditions: entrepreneurship—the spirit of enterprise, and civic virtue—the spirit of community. »6

5. Goldsmith, S, et al. The Power of Social Innovation: How Civic Entrepreneurs Ignite Community Networks for Good. San Francisco, Jossey-Bass 2010.4.6. Henton, D et al. http://www.aae.wisc.edu/pubs/cenews/docs/ce269.txt. Last accessed 7/29/10.

Triple Bottom Line & Sustainability

Image: http://www.esru.strath.ac.uk/EandE/Web_sites/99-00/bio_fuel_cells/groupproject/library/sustainableenergy/text.htm

People

Planet

Profit

Companies That Care About Planet, or the Environment

www.treehugger.com

www.goodguide.com

Social Business Stock Exchange

http://www.asiaiix.com/

http://greensx.com/

New Social Business Models

1. Community Interest Company (CIC) - UK

2. Benefit Corporations

3. Low Profit Limited Liability Companies (L3Cs)

Community Interest Company (CIC)

• Available since 2005 in the UK - also referred to as « social enterprises »1

• Conduct business or other activity for community benefit, not purely for private advantage2

– Community Interest Test– Asset Lock

• Exception: May pay limited dividends to shareholders (different from NFP)

1. Yunus, M. Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs. PublicAffairs, 2010; 124-125.2. http://www.cicregulator.gov.uk/aboutUs.shtml

Benefit Corporation1

• Maryland became the first state to pass Benefit Corp legislation in April, 2010, and VT in May

• 7 other states are reviewing for 2011• Benefit Corporations defined as:2

(A) providing low income or underserved individuals or communities(B) promoting economic opportunity for individuals or communities (C) preserving or improving the environment; (D) improving human health; (E) promoting the arts or sciences (F) increasing the flow of capital to entities with a public benefit(G) the accomplishment of any other identifiable benefit for society or the

environment.1. www.bcorporation.net2. VT Secretary of State website - http://www.sec.state.vt.us/corps/ 3. http://www.csrwire.com/press_relases/29332-Maryland-First-State-in-Union-to-Pass-Benefit-Corporation-Legislationhttp://www.bcorporation.net/resources/bcorp/documents/openminds042610maryland.pdf

Low Profit Limited Liability Company (L3C)

• Business entity type available in 9 states & 2 Indian Tribes (VT, IL, MI, NC, UT, WY, ME, NY, LA)

• Concept originated by Robert Lang• «…social mission drives the decisions of the

corporation, but profit and return on investment remain objectives. »1

• « …for-profit company that pursues a social purpose. »2

1. Lang, R. ALI-ABA Course of Study Materials. The L3C: The New Way to Organize Socially Responsible and Mission Driven Organizations. Nov. 2007.2. Yunus, M. Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs. New York: PublicAffairs, 2010; 128.

L3C Business Examples

http://prosperitycandle.com/

Ethical Impact, L3Chttp://www.ethicalimpact.com

http://www.harborquest.com

Evangelin Development, L3Chttp://www.evangelin.org

So what? Why do we care?My Example: Yuspie, LLC

Indianapolis: A Young Professional’s Guide, Second Edition. Bloomington: AuthorHouse, 2010

“What drives an entrepreneur is not money.

That is what drives businesses and businesspeople.”

Stibel, Jeff. “Entrepreneurship As Disease”, Harvard Business Review. Located online at: http://blogs.hbr.org/cs/2010/09/entrepreneurship_as_disease.html.

One Final Example of Social Business: TOMS shoes

Photo from: http://thegreenloopblog.com/toms-shoes-drop-down-in-the-us/830

One for One.TM

“My advice to budding entrepreneursis, don’t try to be an entrepreneur,try to identify the problems in theworld that you want to solve.”

-Blake Mycoskie

Fifield, Will. “Sole man: TOMS Shoes tries on a different business model.” The Costco Connection, September 2010: 25 (9): 24-27.

In Conclusion1. Indiana should adopt the L3C or

other social business entity types to achieve balance between social cause and profit.

2. The US/Indiana should consider setting up a stock exchange for social businesses.

3. Indiana is not doing enough to foster and develop entrepreneurs via education.

Thank you in advance for your participation today!

Panel Discussion:Entrepreneurship in Education:

Teaching Tomorrow’s Innovators

Mandated Education in INIC 20-30-5-6 (b) (8): Good citizenship instruction

“Taking personal responsibility for earning a livelihood”

IC 20-30-5-19 (a): Personal financial responsibility instruction - “Each school corporation, charter school, and accredited nonpublic school shall include in its curriculum for all students in grades 6 through 12 instruction concerning personal financial responsibility.”

http://www.in.gov