The Social and Commercial Two-Step

Great topic. (I'm tempted to react by saying something like "finally!")

Here are a copule of initial thoughts:

1. CIC's have not been broadly adopted (much to everyone's chagrin). Largely, the reason seems to be a retisence on the part of entreprenuers to allow some government entity to determine what does and does not qualify. In fact, the entire filling process for the CIC seems cumbersome and does not necessarily promote transparency in the marketplace.

2. The L3C has been sweeping the country, but I wonder about its worth as well. First, it addresses a single issue -- funding. It does not address mission anchor, or transparency, or governance issues, all of which become (or can become) serious friction points in the context of mixing mission and money. In addition, the LLC (or L3C) form is not favored by the markets generally, which limits the capital that might flow to these enterprises. Finally, the proposed benefit (the expedited PRI process) has not yet been realized and probably will not until a private letter ruling issues.

In the meantime, one has to wonder whether the L3C craze is distracting legislatures from tackling some of the bigger issues and, possibly, using the once (in a few years) opportunity to get the full attention of a legislative effort on something that may not ultimately make much difference.

3. As you note, the B Corp is a certification process, not a form. Although it is a mark needed to distinguish between who is actually doing good and who is just doing good marketing, it does not address the other issues.

In my next post, I will put forth 5 friction points that I believe must be addressed if we are to achieve a "hybrid" form that works for the social enterpreneur.

Then, if your discussion thread stays open that long, I will publish here the final proposal from the 15-month effort that is concluding in California to attempt to address those friction points in the form of a legislative proposal.

Stay tuned.

RT-
Thanks for jumping right in and sharing your thoughts. We'll definitely all be interested in hearing those 5 friction points you mentioned.

Regarding your other points, I'd be curious to hear what entrepreneurs in the UK are doing instead of using the CIC structure. Why is it so cumbersome? Is the government being overly selective about what qualifies as social benefit? This brings up a broader question for the whole group: is it better to have the government involved--in terms of providing legitimacy-even if they get veto power in terms of what is and isn't social?

Also, I'd like to echo your thoughts on the L3c. I'm not sure it's all that useful because it doesn't open up that many more opportunities.

However, what do you make of the recent Philadelphia ruling for B Corps? As I understand it, 25 B Corps will receive a small tax break of US$4,000. Some might think it's a dropin the bucket. But, if this legislation encourages other local governments to take proactive, enabling steps, then being a certified B Corp could mean a financial pay-off in the future. Any thoughts here?

Lindsay,

The CIC association reports that there are now more than 3500 registered in the UK.

http://www.cicassociation.org.uk/

My impression is that the majority are registered as cooperatives under the Industrial and Provident Society Acts, rather than the Companies Acts. There is a longstanding cooperative tradition in the UK.

I'd described our own below earlier, an informal model like B-Corps. Our Department of Trade confirmed to me several years ago that a business which invests at least 50% of surplus in social purpose may be considered a social enterprise.

To my knowledge, there are no tax concessions for any kind of UK social enterprise. I'd argue that neither should there be, that the entire point is to be something more than conventional business and contributing to the public purse would be part of the social commitment.

You ask whether we assist or impede real large scale change. My observation is that we're certainly seen many more corporate heads come alongside, particular since the credit crisis, to utter what was once almost economic heresy in voicing the need for enhancing capitalism.

http://people-centered.net/Capitalism.aspx

On the other hand, there is business, the toxic form associated with corruption and organised crime which does real harm to both people and planet. This anti-social enterprise is hardly being touched, if even recognised, by social enterprise organisations.

One constraint I've learned of the CIC regulator is that it may be be applied to the kind of activist lobbying we've engaged in. For this reason it would probably not be possible to become a CIC retrospectively.

The real impact I believe will come when social enterprise engenders solidarity from a public which buys into its products and services in the knowledge that social benefit has been and continues to be demonstrated.

Otherwise, it will be just as Gordon Brown described it in his "Business Call For Action" last year when he addressed corporations with a request for "showcases".

Jeff



Jeff

You have really mentioned very good and important things in your post and I am glad to be the part of it.
Tia Smith
<a href="http://www.legalx.net/advertise">lawyer marketing</a>
     

It was 1999, when I first became acquainted with the P-CED model. The same year that the originator Terry Hallman first deployed it to source a development initiative in Russia.

http://en.wikipedia.org/wik[…]ntered_Economic_Development

The point he made in his paper, rather that there being no legal form to do good and make profit, is that there's nothing illegal if the directors of a business determine that to be the entire point of the business and incorporate it in the memorandum and articles as we would describe it here in the UK.

P-CED was launched in the UK in 2004, as a guarantee company, which has no share capital before migrating to a conventional share company. A CIC is a formal interpretation of the same principles. Profit for social purpose.

             

I'm starting to think that yes the creation of new legal structures may actually slow down real large-scale change in mainstream business.These new structures might end creating a new sector of create niche & boutique change agencies. Seems to reinforces the superhero activist thinking. So far I've not seen any real structures that really offer any game changing help to social enterprise or much or a competitive advantage really. Do we want social enterprise to be relegated to a special corner of the business world where only the overly idealistic entrepreneurs go? Seems like instead we should be working towards in the not so distant future SE is the new business as usual. Instead of creating dividers and special provisions for business (bad things tend to happen when the government steps in to create special provisions for any sector of business) There are plenty of ways to be competitive with out them and from what we are seing doing the right thing in business actually does lead to more profits perhaps that what we should focus on.

Martin-
Glad to hear the thoughts of a fellow Austinite! As someone who's been one of your Twitter followers for a while, it's great to get your thoughts in more than 140 characters for a change!

I think you bring up some great questions here. This one is of particular concern: Do we want social enterprise to be relegated to a special corner of the business world where only the overly idealistic entrepreneurs go?

It's the same issue we talk about here at Intellecap with the word "social" itself. We describe ourselves as a social advisory firm. By labeling our work social, are we automatically qualifying what we do in a way that breaks down and segregates, rather than building up and integrating?

Would we better off, in this movement, to work towards better business overall, instead of creating a new category?

Lindsay,

Glad you like the twitter stream. It is a bit better to use more that 140 characters. Yes the more I look into this the more I think maybe we are better off just joining the rest of the biz world. If it's systemic change we are after we must play on the same field as the rest. we must show this is possible with out all these handi caps. If we want the mainstream to adopt this way of doing business we must show that it is profitable and better than what we currently have. BTW Beyond Profit rocks!

My List of Five Things That Need to Change to Grow Social Enterprise Outside its Current Niche:

First, modify the doctrine of fiduciary duty in the for-profit arena so that shareholders and owners of business could define their own interests, financial and social, and the Directors would then be duty-bound to pursue the interests of the owners as so defined. Smaller companies can do this to some extent (except in Delaware!), but publicly-traded companies cannot.

Second, allow 501c3 nonprofits to enter freely into joint ventures and other kinds of business arrangements with for-profits, even if the arrangement results in substantial profit on the for-profit side, so long as the 501c3 is acting in furtherance of its exempt mission.

Third, eliminate the popular notion that no one should make any money working for a nonprofit. Better yet, level the compensation playing field by applying a "reasonable compensation" standard to for-profit entities.

Fourth, allow "social enterprises" (a term that has to be defined) to raise money from a large number of unaccredited investors through public solicitation so long as the maximum investment by any one investor is kept below certain limits.

Fifth, bring back the Community Reinvestment Act and apply it to all manner of financial institutions, not just banks.

I would tend toward the highly skeptical side, as well...Much in agreement with the others who have thus far posted comments.

"Is splitting a venture into for-profit and non-profit actually just a crafty way of getting around the fact that your venture is NOT economically self-sufficient?"...is exactly the question we should be asking.

Here is my SocialEarth post on the topic - http://www.socialearth.org/[…]prise-ethical-or-even-legal

I actually found this question silly and an example of framing along the lines of "have you stopped beating your wife lately?"

One good reason for setting up such a hybrid structure is exactly because the complete venture is not economically self-sufficient. But, what if someone has found a way to take charitable dollars into the nonprofit and make five times the impact (compared to the best available charitable option, BACO in Acumen Fund speak) when combined with an enterprise that makes money? This is a smart solution to delivering more bang for the social buck, without being cast as being a facts avoiding crafty maybe-dishonest person.

Another good reason is to protect your parent nonprofit when its nonprofit mission would be threatened by making too much revenue from an unrelated business. That's the reason we set up a wholly owned for-profit subsidiary that was "too" successful in making money: enough revenue that would have led to us having the majority of our nonprofit's income in one year, which puts your nonprofit mission in jeopardy in the U.S. (and probably other countries).

But, there, I owned up to it. I'm focusing on the social, not making money, and betraying all of the shareholders I could have been tricking if I took any of their money. Guess I foxed them!

Good points, Jim. And thank you for pointing out my mis-use of the quote from the post. I was a bit quick on the draw.

To be clear, my current skepticism revolves not so much around hybrid structures (which I am eager to continue learning about through the examples shared in this conversation) but rather around the new legal structures, such as the l3c, being created. I wonder, like others, whether they are truly necessary and also whether they might 1) slow down change in mainstream business; and 2) become crutches for social enterprises that, due to weak business models or poor management, just aren't economically viable.

I both think the L3C is not as big a deal as it's often made out to be, and that it's not going to hurt the cause of social change and is probably helping it.

My understanding is that an L3C is primarily touted as a way to mobilize private foundation capital for investments that have sub-market returns: it's a requirement for a program related investment(PRI). So, it is intended to tip a nonviable venture into perhaps being viable (otherwise, why go through the pain of trying to get an investment as a PRI? If you could offer a market return, it would be a lot less hassle to get regular investors). So again, it's probably the point of an L3C (just as the point of a hybrid venture is generally to take on something that doesn't make sense as a pure for-profit). Calling it a crutch is negative framing.

That being said, we (at Benetech) operate almost exclusively in the zone of responding to market failure where break-even is a big win, and I can't figure out how an L3C would help us do a better job. But, I'll keep my eye on social entrepreneurs who try it and see if their example can make this clearer to me.

Jim-
Thanks for commenting. (And thanks for sharing your perspective in the last issue of Beyond Profit!

I've asked the question about being "crafty" because of the insistence on financial sustainability in this space. Non-profit models are sometimes criticized because they are often grant-dependent. For-profit social models are often hailed for their financial sustainability. I've had a few for-profit social entrepreneurs tell me that they've started a non-profit arm in order to take advantage of the funding opportunities from grantmakers. If they NEED to do so, then they are NOT actually financially sustainable. If the WANT to do so, then they're just using the system in a crafty, or perhaps innovative (depending on the way you look at it), way.

This question came about because of a trend we're seeing in microfinance. MFIs are starting nonprofit arms to attend to community development or "ultra poor" services, so that their main business arm can continue doling out microloans quickly and efficiently (and sometimes recklessly). By dividing the two operations, a proprieter is splitting business and social. Isn't this like a multi-billion dollar company creating a CSR wing? Shouldn't we advocate for sobiz instead: fully integrated social businesses?

Lindsay
www.beyondprofit.com
@beyondprofit

Yes Lindsay,

As I've related here and before in comments on the Beyond Profit blog, fully integrated social business was our starting point for advocacy in 1996, putting it into practice since 1999. The first instance being a self-funded project to source microfinance and emergency assistance in the wake of Russia financial collapse.

For the last 5 years investing own funds into the delivery of advocacy and strategy papers, we've been able to influence a government to adjust childcare policies and for another to create a new foundation to promote sustainable community development.

So why is it something nobody wants to discuss?

I know that financial sustainability is important, but it's not something worth being insistent on if your goal is primarily social. I'd love to hear what the money-making profitable angle is on human rights work.

Perhaps there's a bigger focus on financial sustainability in the microfinance space. But, that's a progress indicator rather than a problem. In many countries, there wasn't a functioning credit system for anyone but the elite. If nonprofit MFIs pioneered an area of market failure and proved there was a market for credit for lower income people, that brings a lot of resource to bear. Just re-segment the market into those borrowers that can sustain a profitable lending business and those that can't (the ultra-poor by your labeling). But, the idea that you must insist on making money off of everybody is counterproductive: it pretends that there is a market solution to all social problems. I don't think we're there yet!

The protection element is one many NPO leaders fail to take seriously enough. However, in building the Acoustic Vortex, a non profit that seeks to preserve American roots music and use music to raise funds and spirits of non profits and people, i ran into it full force. Before we incorporated as a NPO we were just people giving house concerts, collecting money at the door, paying musicians and donating the rest. But royalites,local licenses, city and country regulations, etc, etc.popped up - threatening to shut us down. Obtaining a c3 and restructuring solved these problems and allowed to continue as a hybrid generating revenue from performances and sales and meeting our NPO mission. The move was required because our informal board could not take the risk of being either sued or fined...creating a FPO would not have solved it; a hybrid NPO did.

Hi Lindsay

Interesting questions, and relevant enough for me to make my first comment here for a long time.

I've been working in Scotland with the Nordic Enterprise Trust - a 'Not for Profit' constituted as a Company Limited By Guarantee (ie no share capital).

We've had a little funding from the Norwegian government to develop new partnership-based financing models using the new (2001) UK Limited Liability Partnership (LLP), (which has recently been introduced in India, as you may know). We are currently working on prototype partnerships in several countries, including cross-border initiatives.

The LLP is the simplest corporate form ever invented, and in fact the governing agreement does not even need to be in writing, since one page of provisions based on partnership principles applies by way of default.

There have been well over 50,000 LLPs incorporated in the UK but no-one has any idea what these are doing (although many are used by the professional former partnerships for whom the form was introduced), since there are minimal reporting requirements.

NET specialises in using LLPs not as organisations, but as frameworks for development and for the financing of enterprises of all types.

Public (eg Municipal - the Scottish City of Glasgow has four) or Private in ownership; commercial, social or charitable in aims; irrespective of legal form; it is possible for an enterprise to share production (eg energy) or revenues with investors in a simple but radical new way we call a 'Capital Partnership'.

This presentation should help understand the model

http://www.slideshare.net/[…]/social-investment-mechanism-12-03-09

We believe that for a co-operative of users of capital to share with a co-operative of capital providers the production or revenues from a productive asset held by a Custodian (very much a Gandhian aspect) is arguably an optimal enterprise model. In fact we think that it is because it works better than anything else that this model is emerging.

In our view any enterprise which does not participate in partnership frameworks in the future will be at a disadvantage to those who do. This is because the stakeholders benefit from the Co-operative Advantage of not having to pay returns to investors interested only in making money from money.

We believe that what we call Peer to Peer Finance is capable of spreading virally.

http://www.policyinnovations.org/[…]/000085

Best Regards

Chris Cook

cojockAThotmail.com

Hi Chris

If there are 50,000 LLPs with limited reporting (and I know a couple of professional people who really like this aspect), doesn't this suggest that it is not the right model for an organisation which is claiming to be doing something specific with its profits? The Charity Commission and FSA (supposedly) keep an eye on charities and 'bencoms'. How are office costs paid to spouses, wage bills and expenses controlled in a LLP which has been set up to produce a blended return of social and financial outputs?
This is a genuine question. I could probably Google it but it feels complicated. Often, this sort of thing can be drawn up and signed but there is nothing (in law) preventing this being changed.
I know of a 'social enterprise' that has, historically, received large amounts of funding and has gradually become increasingly opaque in its money-dealings as the original members approach retirement. Authorities and Government don't seem to have noticed but other local SEs certainly have...

Sean

I am not proposing the use of an LLP as an organisation, but rather as a framework which connects the various stakeholders in respect of the fulfilment of a common purpose.

Transparency is a key issue, but you should not confuse transparency for the world outside the LLP with transparency for LLP stakeholder members. Funders as stakeholder members have every interest in what happens to their funding, of course, and one of the key roles in the generic structure we have developed is the 'custodian', who safeguards assets, revenue flows, and of course, the purpose of the enterprise.

Conventional social enterprises are riddled with conflicts which are inherent in the structures they use, and in particular the relationship between 'owners' and management, and between funders and users of funds.

"How are office costs paid to spouses, wage bills and expenses controlled in a LLP which has been set up to produce a blended return of social and financial outputs?"

See the presentation - in particular the proposed Albion Trust architecture.

A proportional share of GROSS revenues is agreed for a Manager/Developer Member of the LLP which will cover such expenses. If these individuals make efficiency savings, these may be shared in the same proportions. Likewise increasing revenues are shared as agreed. The interests of all developer/managers as users of funds is now aligned with the interests of funders. Both are on the same side.

In this 'capital partnership' model social entrepreneurs need not be disempowered if they need to be paid - as they typically are, unlessprepared to starve in a garret. I have seen many social entrepreneurs ejected from the social business they started and developed over years - I saw a sad case the other day of an individual who put ten years of his life into building a social enterprise only to fall foul of a ruthless new manager and local politicians. This is not dissimilar to the way that VCs will frequently eject inventors from the Company that develops their invention.

I believe that a Capital Partnership framework uniquely enables an optimal networked 'co-operative of co-operatives' enterprise model, and am working on prototypes aimed at proving it.

Chris-
Thanks for sharing this model with us. I took a look at the slideshow you sent and found it useful in explaining the "Capital Partnership." I think that Sean brings up an important point below--these "frameworks" suffer from a lack of transparency, since there's nothing required on paper. Do you see this as a challenge?

By the way, you're right that India has recently adopted (2008) the LLP as another legally acceptable for profit business model. As I understand it, it was only put into actual this year in April. Thus far, I am not familiar with any social enterprises that are using this model--do you know of any by way of example?

Lindsay
www.beyondprofit.com
@beyondprofit

I think that "For Profit" is a bit misleading when talking about an LLP.

Companies are operated to generate profit for otherwise unproductive shareholders.

The LLP is almost invariably a stakeholder owned and operated entity, and I think operates "For Mutual Benefit" of the stakeholders who share the surplus - if any - generated.

Since the LLP is so new in India I am not aware of any examples of social enterprises using one.

Nordic Enterprise Trust has in fact entered into a UK LLP the other member of which is a Pakistani charity.

One of the most interesting aspects to me - I used to be a Director of a global energy exchange - is the way that LLPs may link enterprises across borders. This is capable of completely changing the global supply chain.

For a slide show on how to decide if a hybrid is right for you and how to set one up in the US, go to http://www.slideshare.net/[…]/hybrid-for-profit-and-non-profit-models

Patrick-
Thanks for sharing this presentation. Really useful! I would recommend it to our other forum visitors who are interested in seeing some examples of real-world hybrids.

Lindsay
www.beyondprofit.com
@beyondprofit

I enjoyed the slideshow, but one quick content note. In the show you indicate that NGOs are not familiar with business competitiveness. In my experience, the NGO world is at least as competitive as the business world. Business can grow from year to year, but grant money is predetermined and seems to be on the decline so much of the time. NGOs are very competitive worldwide for developmental dollars.

The challenges we face is that we come from a bipolar world, where you were either a profit-making machine (the business of business is business) or a charity giving away resources.

But, take a social problem and the odds that you'll solve it with an entity at either of these poles is low. The business can go as far as it can making money, but many social issues need more than the pure profit motive. And the charity approach most easily can treat symptoms, but has a harder time directly tackling root causes.

So, most organizations fall somewhere along a spectrum, but are stuck with a corporate legal world that is still mainly rooted in the bipolar world. As noted, in some countries, business enterprise can only be conducted by a business. In the U.S., we bend the two forms towards the middle, although eventually we have to choose one or the other and take on some baggage we probably didn't want.

I'm most excited about the kind of reforms that make it easier to integrate social issues into a regular profit-making business. It's still difficult for the board of a for-profit company to incorporate social issues and stakeholders other than the shareholders into their decision making. B corporations can't be incorporated in many states and meet the requirements of the B process.

And, I think that reforms that did this would help mainstream business move in a more social direction.

Hi all,
The way we structured our social business (www.neoaid.com) is through the use of a Limited Liability Partnership in the UK. http://en.wikipedia.org/wiki/Limited_liability_partnership. This structure can be set up in so many ways that it allows for a very wide range of social businesses.
There are some major tax advantages especially if your aim like us is to donate a portion of profit. My advice is to get in touch with a good accountant / lawyer to assist you.

"Is splitting a venture into for-profit and non-profit actually just a crafty way of getting around the fact that your venture is NOT economically self-sufficient?"

I think there might be BIG problems in the future if we keep trying to push social entrepreneurs into thinking that ALL parts of what they do have to be "economically self-sufficient". What about Grameen? They are a bank. They make loans. It makes money. Good for them.

But a LARGE part of their positive impact comes from Grameen Foundation, aimed at educating lenders and creating training/education groups and methodology for the women taking out loans, (this is my interpretation of some of the ways they use non "economically self-sufficient" funding). If they DIDN'T do those things, and if they just gave loans without investing in educating both lenders and borrowers, they would not be as successful. Do they have to incorporate that training and all of those costs into their business model? Sometimes, the way this group via Skoll or Echoing Green et al talk about financial sustainability and social ventures, it would appear so. Even programs such as The Unreasonable Institute and other training programs within this growing sector ask that you prove economic sustainability in order to qualify.

I think the reason Grameen is viewed as a role model is BECAUSE it ISN'T just trying to be economically sustainable. If they tried to push all of their training into the same business as the loans, there is no way they could break even and perhaps to do so they would have to dilute the efficacy of their educational programs. Instead, they went "hybrid" and Grameen Foundation does the bulk of what makes Grameen great OUTSIDE of the income generating business model.

SHE (www.sheinnovates.com) - now how can you get a better social venture model then that? They are using locally available materials which were once considered waste and giving those things value. They are solving needs locally, through training and business creation. They are targeting needs identified from within the community. Each of the businesses can, hopefully, make money in the future. Each group of women can buy and own their own factory. BUT, what about the technology behind the manufacturing? Can't that be improved upon and developed further?

In organizations like this, one might argue that people or companies could "volunteer" to help do those things, but isn't that just a way of changing the facts to try to "appear" financially sustainable because the outside world, and now even more strongly the INSIDE world of social entrepreneurship, is telling people they have to be? Why shouldn't SHE be able to take donations to cover R&D costs? I for one know that my investments would be used a lot better there than in many traditional non-profits without the income generating arm.

Plus, SHE wants to educate women about health issues and encourage them to use their products, not just so that they can sell more products, but because they want to promote women's health! Does that advocacy and education need to be included in the same budget as that of the factories? Or should that be funded as a separate NGO allowing the education portion to grow beyond what the company can afford? Yes, that NGO could be an entirely separate NGO not associated with the for-profit arm, but what about the cases where the appropriate NGO partner doesn't exist? Does giving SHE the freedom to have an NGO arm open Proctor and Gamble up to do the same thing with their products? Slippery slope, yes, but I think we had better start talking about this, as the focus on "economic sustainability" from within this community might kill momentum for projects that ARE successful because they are NOT economically sustainable. They want to be more than just a micro-finance bank or a sanitary pad manufacturing plant. They want to change the way people think and interact with these products, so for them, their "marketing" becomes a social service in and of itself.

Would love to hear other thoughts on this but, my vote overall is "It's complicated". Being hybrid is not "just a crafty way of getting around the fact that your venture is NOT economically self-sufficient" but instead a crafty way to add value to social sectors which are not able to include all of the social value potential with their business model constraints. And sometimes, if you look at the groups making the most impact, if you took the "non-economical" parts away, you would end up with a non-exceptional product.

First of all, Daniela, I loved your comment! Thank you for posting it. It covered a lot of topics that I would love to chat with you about. I will try to focus on one.

Grameen and microfinance in general could not have reached such a amazing amount of people so quickly if every time a new customer needed to be served or an existing customer needed a new loan the MFI needed to acquire a donation. Hence, the importance of being financially self-sustainable.

What the Grameen Foundation does is equally (if not more) important than what the Grameen Bank does. But the Grameen Foundation has staying power and such an extensive reach BECAUSE the Grameen Bank is profitable.

For us at the Unreasonable Institute, we require that you have a plan to become financially self-sufficient (not that you are already financially self-sufficient) for one main reason - this leads to rapid scalability which leads to large-scale impact. What you do with your profits (if you have any, b/c all we require is that you have a plan to cover your costs, not make market-rate returns) is up to you. You could start up a Grameen Foundation style training program (making you more of a hybrid), you could plow them back into your organization to grow (for-profit), or you could return them to investors (for-profit, helping to prove to investors that you can make $ investing in social orgs and thus helping attract more investment $ to other social orgs).

Again, your comments were great and made me contemplate a lot!

Tyler from the Unreasonable Institute

PS. Lindsay - such a great post. Keep 'em coming! Can't wait to have you out to UI to mentor our Fellows!

Dear Tyler and Daniela,
Great comments from both of you. I agree that "it's complicated." In fact, this sentiment was echoed during a conversation I had just today with a social entrepreneur who runs a for-profit company in Mumbai. He is thinking about launching a non-profit arm in order to better serve the community he works within. He made a similar argument to the one Daniela made with SHE and Grameen--he can provide MORE social value by creating the non-profit arm. Particularly because he is in start-up phase, he isn't making much profit yet, and if he were to use that profit to do the trainings and community services he would like, the company wouldn't take off. So, the non-profit serves a specific and well-intentioned purpose in this instance.

What worries me, and I know is a concern to others, is that entrepreneurs might be exploiting the system by using dual structures--using the nonprofit to gain access to grant capital to make up for the fact that their for-profit doesn't cut it. I'm curious if anyone has any further thoughts on this.

Also, I have to agree with Tyler, that Grameen and many of the other Tier 1 MFIs have run successful foundation arms because their for-profit has been so successful. My question is, what's so different about this than a mainstream company starting a foundation or a CSR wing to do its good work? I am of the opinion that, in an ideal world, a company should incorporate socially responsible practices from the start so that social and environmental contributions aren't a "make good" after the fact. How is this different from what we see when for-profit social enterprises set up non-profits to handle their social initiatives?

Lindsay
www.beyondprofit.com
@beyondprofit

PS. Tyler, looking forward to meeting the UI Fellows!

Hi Tyler and Lindsay -

I have been away on one of our bike trips for a few days, and I am glad to see that this conversation is still alive :-)

I wrote some really loooooooooooooong thoughts at the bottom of this whole chain, but I wanted to add two bits of love for the two of you.

Tyler - You said: "What you do with your profits (if you have any, b/c all we require is that you have a plan to cover your costs, not make market-rate returns) is up to you. You could start up a Grameen Foundation style training program (making you more of a hybrid..." - The point being here and the subsequent example below by Lindsay about her friend is that Grameen Foundation is NOT funded just off of profits of the banks. Instead, is it funded by a traditional donation model (see their monthly emails asking for donations). In other words, if you looked at what they do as one whole entity, they are not "break even". They rely on donations to create the type of impact we have all looked to recreate. If we hold the whole project collectively overall to the standard required: "financial sustainability", then Grameen would not be eligible. I argue it is semantics to say that GF is a "different entity" as, if you took the banks on their own, you would end up with these banks here in Cambodia not educating anyone about what loans mean and without trained staff who know how to vett financially sustainable businesses in which to invest. My point, the fact that they are not, overall, financially sustainable is not a bad thing. The fact that they have financially sustainable bubbles within their program is of course very good. The fact that they put the QUALITY of what they offer above and beyond their desire to turn a profit is great.

More of my thoughts on how sometimes an NGO is needed to oversee and improve the growth of social ventures as they scale: http://lessonsilearned.org/[…]/

Lindsay - You asked: "How is this different from what we see when for-profit social enterprises set up non-profits to handle their social initiatives?" I think that the concept of "social venture" is when something is designed to fill a social need just as much if not more than to make a profit. When Patagonia gives "1% to the Earth" we applaud, as we should, but we don't label them a "social venture". It is very different than Grameen Foundation, because GF is designed to support the work of GB. In other words, if we want to quantify the social impact of Grameen Bank it is impossible to separate the work of GF. In fact, Grameen Bank's products are better and are more successful BECAUSE of the work of GF. I disagree with the statement "Grameen and many of the other Tier 1 MFIs have run successful foundation arms because their for-profit has been so successful." In my opinion we need to change the way we look at social ventures and see that "Grameen and many of the other Tier 1 MFIs have run successful MFIs because their FOUNDATION work has been so successful at doing the good work that is needed to MAKE MFIs successful!"

From what I have seen in Cambodia, there are many MFI's that are NOT doing great work. Perhaps they got into the business because "it is popular and it can make money." Those starting up the MFIs which are sprouting up around Cambodia can see that they can get low interest or even interest-free loans, so Cambodia's MFI scene is shaping up to look like America's mortgage crisis. People are giving out loans without vetting businesses and accepting a higher rate of default than they normally would if money wasn't so easy to come by. Why are they doing this? Because even though we put them in the "social venture" category by nature of their business, they are not caring about the social side - they are in this to make money.

More thoughts below. Thanks for giving me something interesting to think about when getting back into the office today! I hope to sit down with you both to discuss these things more at some point. I'd love to hear more opinions and examples as I am playing the devil's advocate here based solely on what I have seen in Cambodia.

Happy New Year!

Love all the comments and thoughts. Although I have no current time to reply please know that I am reading them all - great stuff! One day, we will have to round-table this :) My best to you all.

Tyler, this onward investment to social orgs was an argument put forward in the P-CED paper delivered to Bill Clinton's re-election committee, which I'd described earlier, i.e.

"This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a non-profit organization. The only restrictions are the normal terms and conditions of free-enterprise. If a corporation wants to donate a portion of profits to its local community, it can do so, be it one percent, five percent, or even fifty percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no one will object. The corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of employees and community leaders."

Subsequent impact was in the recommendation for a community bank in the Russian city of Tomsk, The approach proposed was based on the Grameen model, one of loan circles and 'moral collateral'. USAID engaged FINCA for the task and replicated in Novisibirsk and other cities. The P-CED model had been deployed to source the project. With the result of around 10,000 new small enterprises over 5 years, it compared favourably with subsequent charity based efforts. For example Oxfam who from 2003-2008 had leveraged around 5000 businesses.

The Russian Microfinance Centre was established in 2002, with Tomsk having provided the first or at least one of the first successes.

http://www.rmcenter.ru/en/about/

This influence of the Grameen approach is possibly something even they don't know about. Meanwhile the application of business driven social investment leads on 2006, to the concept of a social innovation in a social investment fund as one part of national strategy for social enterprise.

http://en.for-ua.com/analytics/2007/08/09/110003.html

Most components have since been deployed, with adjustments. The notable exception being the microfinance component which given the earlier success in Russia, might well have made a considerable difference to a country now on the brink of economic collapse.

Jeff


      

a newbie to this forum..hope still i can make a comment.
Yes, this hybrid model is with its own challenges.
As you pointed out, in the factor - 'Positioning to investors and donors' am including one more actor - the beneficiaries. This type of actors should also be considered when we position our venture. It takes time for a hybrid model venture to communicate the real vision of the organisation and make the beneficiaries feel comfortable to participate in the intended change, rather positioning a non profit to them.

Most people think "non-profit" means "unable to make money." Whereas, I work for a nonprofit hospital with a multi-million dollar annual budget. We charge for our services and make an annual profit. We don't divvy it up with shareholders as a for-profit would do, but instead put it back into the community via equipment upgrades, indigent services, our organization endowment, etc. It's a matter of mission; our mission is to provide a community service. I write the gigantic SB-697 report every year (required by the IRS to prove our community benefit) so I know how we explain ourselves. Making a profit is necessary to provide services. Given that ours is a widely employed sustainability structure for a nonprofit, I'm flabbergasted to learn that other nonprofits aren't allowed to run a profitable business to support community services. Why are we allowed and they're not?

Megan -
Thanks for your comment! You bring up a relevant point that some of us sometimes forget. "Non-profit" does not mean that you can't generate income. In fact, there are quite a few organizations that traditionally have operated this way including hospitals (as you mention), affordable housing organizations, museums, and educational institutions. I think that sometimes we think of non-profits as purely dependent on grant income, but they actually have the scope to do much more--whether it is through charging for services, or by creating UBTI (unrelated business taxable income). What is important in either case is how the non-profit handles the surplus income.

Lindsay
www.beyondprofit.com
@beyondprofit

Hi Lindsay et. al.,

Great group, great discussion.

I want to go back to your initial concept that hybrids “are, in essence, stopgap measures” to engage while we are waiting for laws to be created to support an “entity that exists to provide social good and yet makes a profit.”

This concept blends two concepts and does them both disservice. The two concepts are “Hybrid Projects” and “Triple Bottom Line Companies.”

There will always be need for hybrid projects. My definition of a Hybrid Project would be: Any legal operational agreement between at least one FPO and at least one NPO, enacted to allow mutual programming to be created and implemented.

There will always be NPOs, which although they can make money, also thrive through donations being a part of their bottom line and carry the restriction that no individual benefits from the profit (except of course for the NPOs’ executives’ salaries and benefits).

There will always be FPOs, and every incarnation mentioned above (LLC, LLP, L3C, etc.) is clearly distinct from the NPO.

There is a revolution happening, but it is more a revolution of concept and understanding than a revolution of laws. Legal frameworks will follow (and are following in places like the UK and USA), but many countries already have the availability to form LLCs, and this structure can work just fine for a Triple Bottom Line (TBL) company. I know this, it is the structure that I operate in the Dominican Republic.

I look at the TBL as the bridge between the FPO and the NPO peaks.

The TBL fits into a traditional business perspective in that the product or service (dare I say, “The Widget”) that is offered is ecological and/or social development. A TBL offers the most business savvy, potentially profitable products and services that benefit the society and/or environment.

The TBL is not in any way in competition with the NPOs in the TBL’s area of service, because the TBLs are not seeking donations. In fact, it is often the business of the TBL to provide services to the local NPOs including marketing, materials and fund raising. Some of these services can be donations from the TBL, and some can be offered to the local NPO for a reasonable fee.

The TBL may also have the beneficial effect of helping the local NPOs work better. Let me give you our example. We offer GeoTours to various locations in the Dominican Republic and Haiti. The local Fair Trade cocoa cooperative would like more people to visit their location, but they don’t have the marketing resources that we have. So, we put together the tour, at no cost to the NPO; they benefit financially from our visitors, and international visitors can learn first hand the direct benefit of Fair Trade through an immersion trip in a developing country.

The European Union has developed the concept of an FPO and an NPO working together as “Associates” on projects, where if two NPOs are working together, the EU calls them “Partners.” I think there could be any number of Associates and Partners working together on a single Hybrid Project.

Let me take the concept one step further. We are work with Grupo Jaragua (GJ) in the poorest area of the DR, near the Haitian border, distributing Sun Ovens through a donation based program. The donation / grant money flows to GJ who operates the program and chooses which local residents will receive the solar cookers to help fight deforestation and provide healthy traditional food cooked by the sun. We provide GJ logistic assistance at-cost as part of our community development activities. The economic engine of our work is the tourists that we bring to help volunteer and learn about the program. The one step further that we go in our Hybrid Project with GJ is that we are actively seeking additional NPOs in the area to join the Sun Oven Project. There are many NPOs working in the area, but they often had no need to work together to meet the goals of their Boards of Directors or of their Donors. However, our tourism clients give us market-based incentive to know about all of the programs that are going on in the region. Now we are finding ways that existing NPOs can better work together including administratively, regarding transportation, and in achieving international exposure. This is one of the huge advantages of introducing a TBL company in the region. Everybody wins.

It’s exciting to be discussing these concepts in a forum of do-ers. Developmental concepts are discussed in universities, on websites, though social networking, but it’s amazing how few people taking action do we see working in countries and locations where they could potentially do the most good. I’ve been reading the bios of the participants in this forum, and it’s great to see people bringing the concepts to the actual global marketplace to take the action that so many people are only reading and writing about.

Kevin

Lots of details are up at www.elfuegodelsol.com

Dear Social Entrepreneurship Thought Leaders -

You are likely the types to always pick holes in things and seek to improve all aspects of your work, so I hope you all wont be offended by this opinion: we are still very far off the mark with how we quantify a “social enterprise”.

The best awards and programs available to people in our sector are asking for these things:

- Proof of financial sustainability
- Ability to scale to “one million people” or other “large” numbers

It’s hard to measure “impact” across a broad range of social programs, I get that. But we still need to consider what the metrics we are putting out there to track “success” are saying. We are rewarding people who “reach more people” and “bring in more money”, but not necessarily those who “improve their offerings the most”. We need to find ways to start rewarding those who choose IMPACT over income and who choose SUCCESS over scale when they are faced with those dichotomies.

With business, we all “get it”. Businesses make choices which ensure future income. With “social” ventures, you will be faced every single day with a conflict of interest: should we choose more impact or more income? There will ALWAYS be conflict. I agree that market forces shape our world and that what is demanded will be created, but we don’t want to be a sector just filling demands! We want to be a sector creating NEW and unimagined possibilities. So, in order to do that, we need people who are focused on the QUALITY of what they are doing, looking to improve the quality of their impact to the point where they create new demands and new realities for people who never thought their needs could be filled so well, so they never knew to demand it.

Lindsay wrote “Grameen and many of the other Tier 1 MFIs have run successful foundation arms because their for-profit has been so successful.” I think this statement embodies a flaw in our collective mindset around social ventures. In my opinion “Grameen and many of the other Tier 1 MFIs have run successful MFIs because their foundation work has been so successful at doing the good work that is needed to MAKE MFIs successful!" It does not matter if it is a separate foundation (hybrid model) or built into the same non or for-profit entity. What matters is that the people running the project care more about the QUALITY of their impact than the bottom line of their bank account.
  
At Grameen, they realized that they can make a profit making loans. But that making LOANS was not what they were trying to do. Making the right loans, to people who understand the financial implications of those loans, who have support and connections to improve their ventures, so that their lives can be improves: THAT is why they exist. You can argue “if they help people’s businesses become better they will get better repayment rates”, but from having heard Yunus speak, we all know that his motives were not to make more profits. They are to reach more people with more QUALITY impact and IMPROVE more lives (not ‘give more loans’).

We are gearing up for a micro-finance fall-out in Cambodia similar to the mortgage crisis in the US. In the MFI world in Cambodia, where new banks are popping up on every corner, some business entrepreneurs are realizing that they can have access to low-interest or interest-free loans due to the popularity of micro-finance right now. They can make a lot of bad loans and still make a profit. And they can skip the education of the lenders and the borrowers, which has been key to Grameens success, because those are not the metrics the social entrepreneurship community is holding them to. We are allowing them to “reach more people” and “make more income” while doing really poor work. That is not the social venture movement I want to be a part of.

Let’s change this! We need to realize that, in a lot of areas, the biggest impacts WILL come at a loss of profits. We need to change our reward system!

Here are two examples of companies which have been put on pedestals as model "social ventures" - and both cases, they fit the criteria of making profits but that has come at the detriment of improving their impact:

a) There are many in the "we want to do good, but are willing to do less good to make more money" category. To a point, we all have to agree that we are doing that, but where we draw the line determines the quality of our offerings. Some of the most compelling proof I have seen that sometimes NGO oversight is necessary in this sector is with ceramic water filters here in Cambodia. This is a look at two ceramic filter companies:

The first group that started making them in Cambodia was run by an NGO. The business itself was designed to be "sustainable" - meaning it completely covered its own costs. All aspects of impact were considered: plastic is made in Cambodia, the first of its kind here, the testing has been very thorough, each filter is tested, flip charts are made to educate potential buyers about using and cleaning the product, people who sell them are trained, etc. One of the keys to making the filter 99.99% successful is painting the filter with a light coat of silver diluted in a liquid which kills viruses. This addition clearly costs more money, but the system is managed by an NGO that cares more about the "social" part than the “venture” funding. They want it to break even, but they are happy to invest all of the profits into making the filters better.

These filters were then copied by a larger organization. At first the NGO thought "Great! More filters to help more people!" But, I have been to both factories. The other organization had very little oversight, poor to no testing, and completely cut out the silver coating stage. Why? It's cheaper. All of the rest of that stuff costs money and time, and they are interested in turning a profit.

In the first case, it would be a "hybrid" organization, a business which covers its own costs but with an NGO partner who manage the oversight. Sales people make money the more they sell, but there is no one at the top of the system who has control over the product design who stands to make a lot of money if the company does very well. They measure success by the quality of their filters as well as the reach of their impact, so they don't have an incentive to cut corners on price. Actually, the man who ran the NGO that started it, was not doing this to make money, as if he were, he too would have skipped the silver coating and the costly R&D. The filters that make a lot more money are less effective and are diluting the efficacy of the whole ceramic filter movement as people will stop trusting the whole concept if they use one of their poorly tested filters.

By turning more profit and “reaching more people” they are decreasing the quality of their product and in some cases actually causing harm to the people they claim to be trying to help.

b) There are many companies out there who claim to be “social” ventures, but really their decisions are ALL about profit. They have even entered the sector in the first place simply because they see how popular it is and they think that by aligning themselves with a social movement they have more chance to make a profit (as in the MFI examples above).

A friend of mine here started a project making a product from local recycled materials made by a traditional craftsmen. His goal was to support these men and others like them and to make a cool recycled product. When a US-based company recently bought the concept and decided to take it to market, he said that in the final meeting the person running the new company said "I don't care at all that this product is recycled or providing jobs and doing any good, I just know it's going to be really popular and make us a lot of money." His "social venture" is now having the products made here in factories, skipping over the traditional craftsmen, because it’s cheaper. It’s “social venture” by name, but not by actions.

The world of "social venture gurus" out there (yes, all of you reading this) who set the "rules" need to stop focusing on rewarding people who "break even" after X number of months, but those who can prove that they are making decisions which improve the IMPACT of their work even if it means profits decrease. Tyler, that is a question you all could be asking your potential UI people: “Give us an example of when you choose profit over impact (we all have to have times when we have done this). Give us an example of a time you choose impact over profit. “ THIS is how we need to judge the quality of a venture, not by how many people they “reach” with their cheaply designed water filters.

Running a hybrid organization myself, I can easily see all of the ways that having an NGO and FPO partnership can create a lot of gray areas where one is using the other too much as a crutch. A good thing though about having an NGO partner is that, at least NGOs have to report their spending in the US. At least there is SOME government oversight. No one is checking to see if all of these Social Ventures we all speak so highly about are really doing the good they claim to be setting out to do. I don’t think having an NGO partner is the right answer either – as having lived in Cambodia for five years, I have surely seen my fair share of NGOs which are “non-profit” by name only. It’s not about the legal status, the hybrid-ness or not. It’s about the integrity of the people who run these ventures, and the standards WE set as a movement for how we rate these. From what I have seen, doing good often comes second to getting rich, and THAT is causing people to have less-clean water and products which are "social ventures" by name only.

For a social venture to be really great and to put the social side over the profit side when it comes to improving their offering, the program needs to be run by someone who cares more about doing good than making a profit. Before I spent nearly 5 years living in Cambodia I probably would have erred on the side of the "people are inherently good" argument, but from what I have seen in both NGOs and social ventures I would now disagree and say a LOT of people get into this work because "it is popular and it can make money." If we hold the social venture bar at financial sustainability, I assure you, in many cases, you will be letting a lot of the WRONG groups into the social venture club and keeping a lot of the right groups out.

Let’s start asking different questions!

This conversation becomes more inspiring every day. Daniela, I totally agree with your post, and I think it brings up great issues. Concepts such as the ones Daniela discussed further encourage development of the concept of the Triple Bottom Line (TBL).

Both NGOs and FPOs go through thorough economic audits annually. I think one of the best requirements that we can agree to is that in order for NPOs and FPOs to be considered social enterprises (or TPLs) the organizations should be willing to open their financial statements to public scrutiny. Transparency can show interested parties who is and who isn’t keeping social interest in mind. But I think that TBL companies should go further. I think each year TBL companies should produce their own analysis as to what impacts their organization had on a the social conditions of their project area, as well as a separate report on their ecological impact. The results will be three separate sections of the organization’s annual report. In the social section of their report, the TBL company should list their own accomplishments of the year and how it relates to previous years. They should also list other organizations working in their geographical area for social development, both FPOs and NGOs. Additionally, the social section should address what the organization's principals think are the main social concerns for the area and potential improvements for those concerns. The ecological section of the annual report should follow those same steps regarding the organization's local ecological environment and impact

Now, after working for five years in development in the Dominican Republic, I am more convinced than ever that it is a mistake to lump social and ecological metrics together. Not all socially benevolent actions are necessarily ecological (i.e. low income housing). Not all ecological causes are obviously socially beneficial (i.e. removing “squatters” from protected forests). But TBL companies should be able to explain why they prioritized their actions as they did on each of the three scales.

I also think it is a mistake to force social and ecological metrics into “monetization” models. There are times when beneficiaries should pay a fee for services, and there are times when clients’ volunteer hours can be credited for additional benefits. This type of monetization can be very effective. But social benefits should be compared and measured with other social programs offered in the area, and with other TBL companies internationally. Ecological benefits should be compared with the ecological impact and need, locally, regionally, nationally and internationally. Each sector has its own peculiarities and should be separately addressed with its own metrics. We need more people out creating projects and working on existing ones internationally. There's much more talk and thinking about concepts than people out actually working with local populations to make a difference. Let's get out there.

That way, to engage Daniela’s concepts, we will be the innovators who prioritize “IMPACT over income and who choose SUCCESS over scale.” This will lead us to be the international innovative collective force that will “be a sector creating NEW and unimagined possibilities.”

Kevin Adair
www.elfuegodelsol.com

Great post. Where do we find leaders who think like this? How do we grow more of them? Here's an article I found a while back, titled Catalytic Philanthropy, that describes the type of leadership we need from CEOs (or future CEOs). http://www.fsg-impact.org/[…]/catalytic_philanthropy.html

Daniel,

Great connection. I watched the FSG video, and I think that they are clearly active in the type of creative, beyond the norm methods that can have real long-lasting impact. It is forums just like this one and uber-efforts such as social edge that can attract the key people who can make all the best connections.

Kevin

I loved that article too! Thank you for posting it and reminding me to read it again! :-) How do we find them? We invest in quality people, who are self-reflective, are not afraid to make mistakes and talk about them, and who have a proven track record of making decisions which get to the core of a problem (rather than get more "scale" or more "income"). We invest in people who turn down funding if they feel it has strings they don't believe in and who are looking to increase "impact" - not increase "scale" for the sake of more numbers on their website. We get to know them and their work by asking around, checking with the local communities and people in the area, not just checking pretty websites, because they don't always have them. And we too have to be willing to make mistakes. We stop investing in people and ideas if they prove to be the wrong choices.

Dear Daniela and Crew--
Thank you for your ongoing thought-provoking comments and questions. I was traveling through remote parts of India for a week, and I came back excited to find the discussion still going, and the commentary even more robust.

You've brought up some interesting points above that I want to reflect on. Several of your examples above point to the bastardization of the term “social.” This reflects the need for more oversight—which will only come as the social enterprise ecosystem in each country develops. The examples you gave (e.g., the profiteering water filter company that doesn’t use silver) are illustrative of the fact that it’s hard to find out what is truly social versus what is social only in name. In this case, what B Corp is doing is excellent, and providing companies with third party verification that the “social” side is bona fide. But, these “bad eggs” you mention are not reason enough for any of us to stop encouraging entrepreneurs to seek out financially sustainable models.

What is amazing about many new social enterprises (particularly the ones that seek and prove financial sustainability) is that they are doing what an NGO can do—but often doing it quicker, more efficiently, and self-sufficiently.

You have stated, "We need to find ways to start rewarding those who choose IMPACT over income and who choose SUCCESS over scale when they are faced with those dichotomies." I hear you on this. We shouldn't overlook the work of those leaders who are changing the world one life at a time—like your example below in Keokjay. That is what many nonprofits have been doing for ages. Slowly, but surely changing the world.

But, many of us are drinking the “financial sustainability” Kool-Aid because it means that the grant funding can go elsewhere—-to spaces where it the private sector and the government won’t go—-and it often goes hand in hand with a vision of helping even more people, and changing even more lives. This doesn’t mean that we should discount the work of those who aren’t scaling. But, it does mean that they may not get as much recognition and probably won’t have access to the same kinds of funding.

You can be successful by employing 9 women in Cambodia who have HIV, which is what Keokjay has done. Keokjay has changed their lives, and the lives of their families. But, what “financially sustainable social enterprise proponents would say is this: wouldn't it be amazing, and arguably MORE successful, if this organization could employ 90 women with HIV, or 900 women with HIV? There would be that much more employment, that many more eco-friendly products, that much more recycled material. Small is beautiful, but scale is far-reaching. Can you fault anyone for wanting MORE change, MORE impact?

What several entrepreneurs have told me is that they can make more profit and more impact by splitting their operation into for-profit and foundation arms. Which is great. But, the idea of a self-supporting business that provides social value in and of itself continues to be alluring, and I don’t think that’s going to change anytime soon.

One final point. I agree with you that scale should not be automatically equated with impact. Just because you've given one million people loans doesn't mean you've changed their lives. This is where creative, innovative impact measurement comes in...which is a conversation for another day!

Lindsay
www.beyondprofit.com

Thanks for the comments Lindsay. Goodness, this commenting system can get confusing. I had not noticed this comment until just now.

I AGREE! 90 women or 900 women would (or will!) be MUCH better. We need to invest in Rachel and in Keokjay, because she, and people like her, are not the first ones to jump up and down and wave their hand when people throw investment carrots in front of them. They are skeptical of scale for the sake of scale, because they value quality over quantity. They don't want to turn into the filter company which is scaling, and producing cleanER water, but not the MOST clean water possible. Some times, like in that case, losing a little quality for the sake of quantity is NOT worth the trade off.

I agree, we do need to find ways to invest in organizations who can reach more people, in more places, faster. But, just like when I worked for a consulting firm with a management team who would over commit to impossible feats just to get a client, there are social enterprises trying to scale "because the money is there", "because people want to invest in them", because they "sold out of everything on their site so they better find ways to get more up there." Too often, when the demand for our work is increased, we all try to increase what we can supply when perhaps we should be sitting tight and growing at the scale where we can keep quality in check.

This happens in development work ALL the time. I met with a hotel here in Cambodia which allows their guests to "help poor people" by picking from a list of things they can donate (food, school supplies, a well, a house, etc). When I asked how they decide what projects to support, they said the do so by what the clients want to buy. They want to buy this person a house, or they want to fund 200 wells with their name on it. A hotel or an NGO or a person who will allow their development projects' scale and scope to be dictated by the funders' demands is looking to scale for the sake of scale, often at the expense of quality. This is the same as a social venture taking funding because it's on the table - a micro-finance organization frantically seeking out more places to give loans because more people want to fund them - a voluntourism program looking for more places to put English teachers and begging NGOs to take them because that is what people are looking to pay for. It's backwards!

YES, let's invest in scale and scope and more people and more numbers... but ONLY if they can be tied with more impact! Dilution due to scale in the social venture world can cause harm AND can take support away from the great leaders who are growing more slowly because they believe that quality is the most important part of their work. They are committed to changing lives. They are not willing to dilute the "social" side of what they do.

The "other water filter company", the one not using the silver, is not really "social-washing", shall we call it. They ARE producing filters which produce water which is MUCH cleaner than what comes out of the pumps and taps. They just aren't producing the CLEANEST water, because in order to do so, they would have had smaller margins and perhaps had to scale slower than the big funding organizations would have liked. Maybe the first group wouldn't reach "1 million people in three years" - maybe it would take 10. We shouldn’t turn a blind eye to them because they are more realistic or afraid of diluting their quality. We should though, as you imply, help them to consider other ways to scale which will keep the quality they are looking for. Our carrots can’t be “we will give you money if you prove you can reach more people.” They should be “we will give you money if you prove you are committed to quality and we will help you find ways to reach more people while keeping that quality intact.”

Thoughts? Welcome back from India :)

A very interesting discussion and thank you for all the knowledge.

As more nonprofits jump into the fray of generating revenue, we'll need to figure out how to allow them to continue to do social good.

I think an important part is leadership in how you bring in funds. Key items for CEOs and Executive Directors:

1- Do you feel donations are a part of your culture?
2- Do you enjoy fundraising?
3- Are you happy receiving revenue from services, from paying sources?
4- Do you enjoy the sales aspect of being paid for a service?

These are important questions to ask as per the legal structure and culture of your organization.

My ideal world is to:

*Have a pure brand with a focus on being a nonprofit. We exist to provide social good.
*Generate revenue from companies. They foot the bill for our public service.

So ideally I'd like to be a nonprofit that primarily funds itself through corporate services. The companies actually allow us provide our service for free to the public. I don't think we have the proper legal structures ready for this type of mindset in abundance.

Sincerely,
Pamela Hawley
Founder and CEO
UniversalGiving

phawley@universalgiving.org
www.universalgiving.org

Living and Giving blog
www.pamelahawley.wordpress.com

Pamela,
I think your concept is excellent. The free to the public, charge for business has a huge potential in the NGO realm. An example of it working in for profit business is in anti-virus programs. The free public service can actually increase corporate awareness of your NGO brand, and can increase the corporate support as well.

Thanks for introducing the concept here.

Kevin

Dear Kevin, that's an interesting comparison on the anti-virus model. I appreciate hearing the different business model comparisons, so thank you. Thank you, too, for your of your experiences in the hotel realm, the Dominican Republic and service. What great diversity in helping others!

All my best,
Pamela

Pamela-
Thanks for joining the discussion and sharing information about your organization. I'm curious...have you explored the model you mention: "I'd like to be a nonprofit that primarily funds itself through corporate services. The companies actually allow us provide our service for free to the public."

Lindsay
www.beyondprofit.com

Lindsay, thank you for your message. That's exactly where we're headed as social entrepreneurs. For me, it's one of my most significant definitions of social entrepreneurship and here are a few others:

*Nonprofit or forprofit with socially conscious product
*Can have free service, but generates revenue

In UniversalGiving's case our public service is free -- anyone can volunteer or donate, and we don't take a cut on the donation. It's not a part of our business model. Then, we package up our service for companies and their CSR programs. Companies pay us for this service which helps increase employee giving and volunteer rates, increases employee retention and attraction; increases their global brand.

Some nonprofits, true, may not have easy ways to generate revenue. Sometimes they can only offer a free service. However, I hope effective brainstorming encourages them to see both how their value can be free, and, monetized. Some for profits don't have a free service, obviously; but they, too, can be encouraged to offer both. We need to think in terms of "layered services."

When I left VolunteerMatch in 2001, we were 43% sustainable from the corporate service. At UniversalGiving, our range has been anywhere from 25-90% sustainability per month, to date.

I hope this helps and look forward to more discussion!

Hi Lindsay and crew,

I've read through the 23 pages of the conversation (so far) and am really enjoying the commentary. It's incredibly pertinent to a policy project I'm working on in Canada - researching the potential benefits of a legal structure for social enterprise in Canada.

With the US and UK so close to home, it is hard not to want to develop our own option. Currently, charity law within Canada is not very robust and is operating on 400 year old principles. Non-profits in Canada must follow the hybrid structure when dealing with surplus income. (Particularly income that is not related & subordinate to their mission.)

I'm increasingly interested in the conversation around writing the "social" into a corporate charter - however, I have to ask if that is actually likely? When pulled between profit and social - will the wording be watered down?

The question was asked, "Would we be better off, in this movement, to work towards better business overall, instead of creating a new category." My answer is "yes", but haven't we been doing that already?

I don't think creating a new legal structure will be the silver bullet, but I don't agree we should automatically relegate it as a "special corner where the overly idealistic entrepreneurs go".

Getting a legal structure pushed through public policy is not for overly idealistic entrepreneurs anyways - its long-term and tough work. Let's not discount its effectiveness before we even get going.

Look forward to hearing more!

Cheers,

Michele

 

Michele-
Thanks for joining the conversation!

You mentioned the issue of working towards better business overall--which, you're right, we have been doing. But, perhaps it would be good to figure out how to work "social" into more corporate charters because I think there are many businesses out there that won't do it until provoked or mandated.

Lindsay
www.beyondprofit.com

Even though I have lectured and writen about hybrids and thought I knew the field pretty well, I have been thinking that I - and perhaps we - are missing new models for hybrids that are in front of our faces. Next week i am posting a blog profiling a woman who is a terrific entrepreneur in the food service business, but who has women social entrepreneurism and social change into her company in ways I have not seen. The point is that the discussion of hybrids, L3c's and other formats may be missing the most important element of a social entrepreneur - relentless creativity. I just started the interviewing so check out Dr. O next week. I may also ask her onto my radio show, The Fairness Doctrine on WDIS-AM, Boston.

sorry for the double post - tried to correct a typo and got two posts

This discussion about regulatory structure is fascinating. However, I am trying to set up a non-profit working within the existing 501c3 structure. The modeling challenge is that it is a spinoff of a public utility. Are there business models out there for this kind of dual structure? If not, are there business models for dual structures with for-profit companies that might be of use. The idea of the non-profit is to share our technology and expertise with a larger audience and maybe tap into grant money to do so. How do you model a 501c3 with a close relationship to its parent?

Thank you, this topic and your expertise make for great reading.

Even though I have lectured and writen about hybrids and thought I knew the field pretty well, I have been thinking that I - and perhaps we - are missing new models for hybrids that are in front of our faces. Next week i am posting a blog profiling a woman who is a terrific entrepreneur in the food service business, but who has woven social entrepreneurism and social change into her company in ways I have not seen. The point is that the discussion of hybrids, L3c's and other formats may be missing the most important element of a social entrepreneur - relentless creativity. I just started the interviewing so check out Dr. O next week. I may also ask her onto my radio show, The Fairness Doctrine on WDIS-AM, Boston.

I couldn't agree more. Relentless creativity matched with a sincere and actualized drive to increase impact (over income, when necessary). One of the best examples I have seen recently of a social entrepreneur is Rachel, the founder of http://www.keokjay.org . I am impressed with her and look to her as an example in the field because she:

a) has, above all, a commitment to the women she is working with and has their best interests in mind (from supporting their creative thinking and creativity, to connecting them to health information via weekly group discussions, to creating the most positive and respectful working environment possible, etc)

b) she is determined to do her work in the for-profit field, creating products worth paying for and not looking for donations to support her work

c) her relentless commitment to recycling everything, using the most responsible dies, glues, and materials, and educating her customers about how to be more eco-friendly in their own actions through connecting them to local recycling and green options in their in-store newsletter. She takes things which have little to no value and shows women how to make them into products people will pay to have shipped around the world.

She embodies relentless creativity, but not just in the artistic or purely entrepreneurial way, but in a creativity woven around maximizing impact. It is something which, if we all adhered to, would change every industry we work in.

I look forward to hearing more on your radio show!

Hi Patrick,
Thanks for your ongoing contributions to the discussion. Please share the link with all of us when the interview is up. I'm really curious to learn more about this woman and her model. Sounds great!

Lindsay
www.beyondprofit.com

  My background training was in Electronic Engineering while gardening was my hobby, but in 2005 I chose to concentrate in Organic farming as an occupation. I registered my farm- Green Empire Farms with the Kenyan government in 2007 as an enterprise. My farm has been considered as a demo farm by several organic stakeholders in Kenya, also 10%(tithe) of our production goes to orphaned & elderly. From 2006-2009 I've positively influenced youths & volunteered training locals on two projects; 1) banana production harvesting value addition & marketing. 2) Indigenous vegetables for rural wealth and health.
  Recently my old computer broke down & couldn't qualify for a donation or grant as I'm not registered as a non profit.
  My organic production demo farm on family land was grabbed (common in Kenya due immense corruption) and still can't access funding to purchase my own land despite doing so much for the community simply for my registration status.
  Registering as an NGO for funding is unethical, not my vision.

Hi All,

Interesting discussion and one on which I have debated considerably before making the decision to go corporate. It does make life difficult in terms of "financing" as I am out of the ambit of grants and not enough margins and a high rate of return and turnaround for the corporate funding sector. Despite that I am glad to choose the "form" of organization/establishment that I have.

I started a website www.eyaas.com as a marketplace for non-profits, artisans, co-operatives etc. Its a platform for direct interaction with their consumers through an online store/marketplace. In some cases we stock the products (craftsmen and artisans who would rather have cash in hand) and on another we are happy to provide a marketplace and create our revenue on commission on sales. As part of our business we give 10% of the profit on goods back to the artisans or craftsmen we have stocked from. This is over and above the buying rate we pay them when we buy the stock. We also support organizations for children and assist in their fund-raising or promotional aspect. But yes in structure we are a "for-profit" business. In ethos and operations, far from it.

Which basically brings me back to the issue of hybrids and the purpose they serve. As Martin said at the start of the discussion, do we want to relegate "social entrepreneurship" (read as social development, societal benefit) for the idealist few or do we want this to become a main-stream business & economic activity. At the end of the its about taxes....

Pallavi Keshri
Founder
www.eyaas.com

Correction in the last sentence

At the end of the day, structures and forms are more about taxes than any other perceived benefits

Dear Pallavi,
Great to hear about your company. The products are gorgeous, and it sounds like you're doing good work. I'd love to connect directly to see if Beyond Profit can help you gain additional visibility.

Your post is interesting...because you say that it's all about taxes more than anything else. It's about taxes, sure (and funding sources, as well). But, from this discussion, I have also concluded that a lot of it is about perception, i.e., brand image related to your business model. I think it's safe to say that many of us have ingrained biases about non-profit organizations and for-profit organzations. This goes back to a discussion that happened earlier about the desire for scale and growth. Many of us are inclined toward for-profit models (like yours) because they are "financially sustainable" and can achieve scale. But, several folks have reminded us that there is a definite need for non-profits to take on the really tough issues. All this to say, that it's about taxes...and a whole host of biases we have about certain types of organizations.

Lindsay
www.beyondprofit.com
@beyondprofit

Dear Anthony,
Thanks for sharing your story. Your farm sounds like a lovely place! However, the challenges you present point to the difficulties many entrepreneurs have in countries where corruption looms large. I would imagine that hybrid or not, non-profit or for-profit, it is a challenge for any social entrepreneur to make a difference when at any moment, your land can be snatched, or your work can be undermined.

I wonder though about your statement that registering as an NGO is unethical. Is it? Or is it just strategic? When a social entrepreneur does something out of the box, we question it, but when a mainstream business does something out of the box--like set up a holding company in Mauritius--it's called strategic.

Lindsay
www.beyondprofit.com
@beyondprofit

Wow! Great posts since my initial thoughts.

As promised, here are some additional thoughts. Given their legth, I've broken them into three posts: (1) My Disclaimer (here), (2) Five Friction Points, and (3) California's Flexible Purpose Corporation.

First, a disclaimer in its own multiple parts:

Disclaimer

1. I only know about the US. Sorry, I don't have anything much to add for other countries.

2. I am not going to have any useful or helpful views regarding non-profits. To me, there are a host of issues regarding the present “philanthropy” model that show it to be broken, beginning with:

· The public policy behind present U.S. tax policy on using tax subsidized dollars to accomplish certain items seems focused less on stimulating dollars for good, and more on providing tax deductions for the wealthy. For example, does anyone really believe Harvard would have a hard time building its next building and naming it for a donor if it couldn’t offer the donor a tax deduction? We have gotten so far away from the original concept of “charity” and, as a matter of public policy, we have instead employed a system of tax subsidies for the rich, so that over time, while philanthropy increases (measured as total aggregate dollars of tax deductible contributions), the gap between the rich and extremely poor continues to grow.

· Much (perhaps most) of what is done through non-profits, could actually be accomplished through a business model, but it would be harder to raise funding. Instead, someone begins selling tax subsidized and donor subsidized water pumps in Africa, because it is easier to raise the funding through tax deductible donations rather than through the rigors of proving out the business model to investment dollars, with the great result of increased deployment of inexpensive water moving technology in the developing world to aid rural farmers, but the negative results of (1) killing the market for future indigenous entrepreneurs attempting to sell water pumps at a profit and (2) locking a potentially valuable distribution channel in a non-profit, making it difficult for other for-profits to use.

· And that’s before we ever get to the issue of underpaying talent in the developed world, over-paying talent in the developing world (creating non-sustainable NGO economies there), and the brain drain that NGO’s create by attracting the best and the brightest (and the real entrepreneurs) in the developing world, to work for NGO’s, where instead of developing innate entrepreneurial skills, they are paid to be drivers and, perhaps one day, project managers.

Ultimately, I seek a vehicle when I go on a long drive that doesn’t have to stop every few miles and seek fuel (the way a non-profit does), but that can fuel up once or twice and then drive forever thereafter because it generates its own fuel. I want a real, honest to goodness, sustainable solution. And so do investors.

3. I’m also not interested in government-funded solutions. Long-term, that’s a complete dead-end, IMHO. Now don’t get me wrong. I’m not saying that the government cannot play an important role. Governments can be good initiators, but there always exists the risk they become a “stakeholder,” at which point the initiative will become corrupted from an entrepreneurial perspective.

Not because governments are bad, but because the people who work in government are conditioned to pursue one thing and one thing only – the avoidance of risks. Performance, promotion, and success within government require that government dollars be spent in a manner that avoids the risk of criticism. This, in turn, means that the traits of a good government employee would be exactly opposite the trait of a good entrepreneur, who sees opportunity and is willing to take risks (sometimes great risks) to seek the opportunity, even if that means total and utter failure as a distinct possibility.

Sure, there are a few examples that buck this construct, but by and large, I believe this generalization holds water.

Finally, government is a dead end (at least in the developed world) because the economies of the developed world are beginning a trending slide that, unless drastic action is taken soon (something that will either require incredible political guts, or a mass awakening), dollars will become an ever-greater resource constraint.

If you are quick to dispute this point, consider the following:

· The U.S. Department of Defense budget is over $750 billion. That’s larger than the military budgets of all the other countries in the rest of the world combined. (Someone might rightly ask, “against what are we defending?”)

· In 30 short years, the U.S. budget will be consumed by five line items -- Medicare, Medicaid, Social Security, Military spending and interest on our debt -- assuming nothing else changes. That means no FDA, EPA, DOE, Justice Department, and Homeland Security, not to mention, Interior, National Park Service, Postal Service and IRS.

· But to mention the DoD budget and other government spending really misses the point. The global economy is some 79 times the size of our military spending. The capital markets circulate trillions of dollars a day in funds.

So, personally, I would suggest that every social business entrepreneur run as fast as possible from the pursuit of government funding and pursue, instead, investment capital. Granted, it requires a business focused approach, but capital is beginning to flow to those who are trying to do well and do good at the same time.

Ultimately, (as alluded to by other commentators, including Dr. O) the only limiting factor is the creativity of the social entrepreneur.

Which brings me (fervently, so no use in trying to persuade me otherwise), to the point of trying to figure out (wherever possible), how to make the goals of a social entrepreneur work within a “for-profit” model. For me, that means we must answer the following questions:

· How can we help social entrepreneurs seek investment funding by being sure they are prepared to put forward a strong business case of how those funds will be used for blended value (e.g.,to further the business and the mission?

· By what measure will the business be measuring the impact of its mission efforts?

· Is there a tension between the mission and its measure of impact (on the one hand), and the financial return expectations of the investor (on the other hand)?

· If a tension exists, are their ways to smooth out that tension to make it plausible to both parties (or not)?

· If there are ways to smooth out the tensions, then what will be the mechanisms for monitoring both (and the process for smoothing) to ensure that no imbalance occurs at a later time?

3. Money and mission impact do not need to present opposite ideas, nor do they need to create an unresolvable tension. But sorting out the need of each and how to make them work together for maximum impact for both (which may include telling the social entrepreneur that, “no,” he/she cannot have more money) is a goal that can only be accomplished when the right questions are asked.

How that can happen in the context of a "for-profit" corporation requires identifying the friction points that exist today. Ergo, my next post.

-- todd
@rtjohnson
rtjohnson@gmail.com

Okay, so with my disclaimer as a backdrop (see prior post: "Additional Thoughts"), what makes it so hard for a social entreprenuer to use a traditional "for-profit" business to accomplish their mission.

1. Mission Anchoring: Joy Anderson has heard me speak enough on this issue that today she and Elizabeth McCance of Criterion Ventures (http://criterionventures.com/) are hosting this weeks live discussion on Social Edge on this very topic.
http://www.socialedge.org/[…]/mission-and-structure
Although I'm sure to weigh in there with some deeper thoughts, but let me begin here.

The traditional corporate form presents risks for the entrepreneur seeking to maintain the "social" mission during the life of an early-stage corporation, without the possibility or probability that investors will shift the company away from the original mission over time (particularly at the time of a change of control), in favor of additional profitability instead. This difficulty in “anchoring the mission” represents a significant issue for entrepreneurs utilizing a blended value model. The typical vehicles for accomplishing such a “mission anchor” either tend towards over-breadth (e.g., a super-voting stock as used in Google or rumored for Facebook), meaning that investors are at risk of a “bad actor” on the part of the founders, or they result in overly narrow solutions (e.g., putting provisions in the articles, in states where that is possible, or in the bylaws) where they may be either ignored, if they conflict with a director’s fiduciary duty, or diluted or deleted by amendment. Obviously, investors seeking a reasonable internal rate of return focus both on appreciated value for their investments, and on the time period between the investing and realization of liquidity from the investment (typically through a sale of the company or a public offering of shares). This timing element (and a desire by institutional money to control the timing of liquidity events), places increased pressure on the methodologies for anchoring the mission.

2. The Constraints of Fiduciary Duties: Again, this has already been reference by Allen Bromberger. Everyone has heard the term "fiduciary duties," but even lawyers tend to get mixed up when talking about them, so let me provide a little background.

In its most general statement, directors owe a duty to do what is in the best interests of the corporation and its shareholders. Courts judge whether a director has fullfilled her duty by applying the standard of a reasonable businessperson, undertaking due care and exercising due loyalty to the company.

Courts are generally loathe to substitute their own judgment for the judgment of directors, unless there is some indication that the directors have been careless or disloyal. This has led to a presumption by the courts that the decisions of directors meet their fiduciary duties, a presumption that is often referred to as the "business judgment rule."

So, theoretically, directors have latitude in determining what's in the best interests of the corporation and its shareholders and, theoretically, that doesn't always have to mean short-term (or even long-term) profitability over other concerns such as mitigating environmental degradation, providing a livable wage for all employees, utilizing standards for process development and transparency that are voluntary and go far beyond the mandated lowest common denominator of regulatory thresholds.

Except for one big fat exception!

Back in the mid-eighties, a court in Delaware saw the risks of management and directors entrenching themselves in a takeover battle as so risky to the creation of shareholder value, that the court determined, essentially, that it would substitute its judgment for that of the directors in the context of an auction sale, if the board had decided to go with anything other than the highest bid. This has come to be misstated as follows: the "primary" duty of a director is to maximize shareholder value.

Now I say misstated, because many legal scholars (and even some courts) have taken issue with this construct of the ruling by the Delaware Chancery Court. Even the Delaware Chancery Court has clarified that such a statement is overbroad. But sometimes, the reality IS what people think.

As noted above, officers and directors are not presently prohibited from pursuing objectives other than financial return. Rather, the real and perceived limitations of the “business judgment rule” tend to create risk-averse directors, resulting in conservative advice from lawyers. The risk of litigation serves as a primary deterrent for creative and innovative blended missions for traditional for-profit corporations.

Thus, even if there were better application of the business judgment rule, it may not afford boards and management sufficient protection and flexibility to consider a “blended value” in all operating decisions and may not come into play in change of control situations when boards and management generally have a fiduciary duty to act solely in the interest of maximizing shareholder value. Because these rules are judicially created and interpreted and litigation is prevalent, even where judicial guidance exists, directors and their lawyers tend to apply risk-averse interpretations, resulting in the practical effect that a consideration of “blended value” seldom succeeds in the boardroom if it threatens the maximization of short-term or long-term shareholder value. One further note, corporations, being a product of trust law, typically do not permit entrepreneurs to alter this dynamic through the articles of incorporation, because the rules are either statutorily embedded or judicially created parts of a director’s fiduciary duty to the shareholders and the corporation.

3. Governance. Assuming the mission can be anchored and that directors have the freedom to pusue the blended value, an issue of governance still prevails. In a purely mission-focused organization, flattened management structures are more prevalent, the rule of subsidiarity of decision-making (or grass-roots ideas and empowerment) can occur, and managers are encouraged and rewarded for growing and empowering reports. Why? Because everyone is on the same page with the same mission.

In the purely "for-profit" world, there are recognized ways for dealing with different missions. For example, in the venture capital world, it is widely recognized that Series A Preferred Stockholders (e.g., the venture capital folks) have slightly different interests than regular common shareholders (e.g., founders and employees). So what do they do? They alter the governance structure when they invest.

Similarly, without an alteration of the traditional "for-profit" governance structure, the anchoring of a mission might have little practical effect, if those who are focused on financial return are in control of the day-to-day decisions, without check and transparency. Holding them accountable through the threat of litigation is both expensive and, quite frankly, dysfunctional as a form of governance, employing only a "stick" rather than a "carrot" approach.

4. Transparency. As noted above, I believe that transparency (or the lack thereof on the mission within a for-profit) presents a significant issue for social entrepreneurs and is the reason why we have so many concerns about greenwashing.

5. Exit. Finally, how an orgnaization provides liquidity to its shareholders and investors, presents the ultimate friction point for the mission of a hybrid organization. Just ask Ben Cohen who preaches, "never again!" with respect to his experience selling Ben & Jerry's to Unilever.

So there they are.

If you were designing a "for-profit" corporation that worked well from a social entrepreneur's perspective in achieving a "blended value," you would anchor the mission, protect the decision-making of the directors, alter the governance structure so that the mission was well represented in daily decisions, provide for transparency of the social return on investment and deal with the exit event friction.

Now, what form will accomplish all that and, if none, do we need a new form?

-- todd
@rtjohnson
rtjohnson@gmail.com

I would be interested in people's thoughts on John Mackey's Conscious Capitalism concept: http://consciouscapitalism.com/?page_id=59

Hi to you all.

As some of you are well aware, I have been involved in the search for an integrated SE legal structure for ever, and I have tried every combination imaginable and legally possible ... although, I have succeed up to a point, it has always been a compromise on my vision and mission.

I have now reached the stage in my life in that I have decided to create an advocacy group that will look at the creation of one single organisation that integrates both a commercial and a social vision worldwide.

Having spend the past 6 years in active and practical research, I have now reached the conclusion that the main reason that it has not happen yet is due to the fact that to do so would upset various "apple carts" ...

in fact, my findings are, that everything is being done to prevent such a legal structure from being developed ... by hiding behind various "commercial""fiduciaries and taxes", etc ... but in the end all boiling down to a loss of control by key players in both the FP and NFP markets and let's not forget the "financial "ROI maximization issue ...

We are living in age where innovation and creativity is being encouraged (depending on who and what it serves) ... how come we haven't until now been able to:

1. Find a global definition for SEs?
2. Why are SEs being pressurized into a third sector organisation when in fact we are in the 4th sector (new developing sector)?
3. Why all the difficulties in creating an appropriate legal structure when new laws to suit "large businesses""criminals"or "governments" are proliferating on a daily basis? It should make you wonder?

...

I think the time has come to stop talking and start lobbying and advocating a one-structure model.

Regards

Laurinda Seabra
Empowerment Gateway Group
Portugal

Dear Laurinda,
Thanks for your comments! You've obviously been working on this issue for a long time. But, from my vantage point, it sounds like you think there are people actively conspiring against the creation of social enterprise structures. I'm more likely to believe that it's about laziness--on the part of entities like the IRS (in the case of the US)--rather than a conspiracy by some shadowy character to put the kibosh on social enterprise. Can you elaborate on this?

Additionally, it would be great to hear your thoughts on a starting point for a global definition for SEs.

Lindsay
www.beyondprofit.com
@beyondprofit

Hybrids enable us to try new things, new technologies, new ideas for raising money and meeting social goals. We don't know yet what the result will be. Yes, some NPOs are splitting into NPOS and FPOs, but that is form, not a goal. the goal is to change the world for the better in new and more effective ways. It doesn't really matter what the form is - innovators will create, modify, sneak in what ever forms they can to meet that goal. The answer to the question is the wisdom of the social innovation crowd has just begun to surface. Let's see what it creates.