Navigating legal issues in the funding gap

A few weeks back I was thinking about the problems with developing sustainable finances for social businesses while reading Tina Rosenberg’s article about KeBal. This week I am again reminded of a FIXES blog article with our focus on locating funding for social enterprises and developing metrics for measuring changes in social value (which will effect whether or not social enterprises can find funding). Chertok, Hamaoui, and Jamison’s article discusses the legal problems facing new social ventures. Non-profits cannot legally be profit driven while companies are obligated to create the highest returns for their shareholders. They mention that some legal change is needed to deal with the “in-betweenness” of many social ventures. For example, in the UK, a new category has been created, “community interest company (CIC).” CICs are legally obligated to take into consideration the interests of the community as well as shareholders. We’ll have to wait to see whether US law will move to match the CIC model.

Meanwhile, a not-for-profit organization is trying to harness the diversifying definitions of “value” and use the power of an increasingly socially conscious market to encourage business with social responsibility. B corps, which stands for “Benefit Corporations” are companies that change their bylaws and business plans to meet a number of socially responsible qualifications and earn the label “B Corp” on their products. The not-for-profit group B Lab develops the socially responsible assessments. Additionally, they help companies alter their regulations and get agreement from shareholders that the company can dedicate itself to more than one bottom line.

In her blog articles on B Corps, Tina Rosenberg discusses the profit and altruistic motivations for pursuing this new label. Because the B Corps label is not as widely known as others (USDA, Fair Trade, Slow Food) its not yet clear whether consumers are making choices based on these criteria. However, many B Corps companies believe that eventually the B Corp label will be profitable, as consumers seek products that do less harm. Some already find signs of profitability and growth in the label. For example, for the executives of IceStone, an environmentally friendly countertop company, entering the market would have been much more difficult without the unique B Corps angle.

But for now, B Corps membership provides a network. Many B Corp companies will purchase services from other B Corps companies when possible and provide discounts to each other. In this way, the label is already effective in improving socially responsible practices and providing new opportunities. Rosenberg doesn’t mention it, but I wonder if there is an element of trust. If you are a business leader who believes in the values of B Corps, you may assume similar values in other B Corps leaders and have high expectations for what their organizations can deliver, removing an element of worry or distrust from new business relationships.

Additionally, B Corps is providing what Ted London’s and Geoff Mulgan’s articles are pushing for—better methods for understanding the true impact and added social value of social ventures. B Corps has an extremely strict grading process on multiple issues such as environmental impact, diversity in management, transparent business practices and buying local. Investors have a clear idea of how these companies are making a social impact. Because they are still traditional companies, they will also have information on their financial returns.

B Labs charges B Corps fees for belonging to this network. I think the next major step, which B Labs has begun, is branding the B Corps label and getting the name out there. B Labs is only four years old. In the coming years, I think B Corps could be influential in proving how changing the classical laws governing businesses and non profits can be altered to foster greater social benefit in the USA. Also significant is that the B Corps model has grown during our economically troubled times, signaling that social responsibility doesn’t have to go out the window when faced with down economic times. Do you think this model can grow? Does it depend on the products? Is B Corps limited to smaller companies who can afford to target the socially educated market?

http://www.bcorporation.net/

http://opinionator.blogs.nytimes.com/2011/04/11/a-scorecard-for-companies-with-a-conscience/

http://opinionator.blogs.nytimes.com/2011/04/14/ethical-businesses-with-a-better-bottom-line/