Review of Five Socially Minded Legal Forms for Companies

There are a host of different legal options and requirements for companies who wish to be socially engaged. As reviewed in a May 25 Forbes article, here is a summary of five legal forms available to socially-minded companies. They include Benefit Corporations, California's Flexible Purpose Corporations, Maryland Benefit LLC, L3Cs and B Corporations:

1. Benefit Corporations

This is a new class of corporation, pioneered by the Berwyn, Pa-based nonprofit B Lab. B Lab is a nonprofit organization dedicated to using the power of business to solve social and environmental problems. It is already law in seven states most recently Illinois and Louisiana. This legislation mandates that companies and their boards take into account public benefits that impact society and the environment when making decisions. These companies also have to issue an annual third party audit report that addresses their social and environmental goals. The goal is to give companies legal protection to take certain steps that benefit their non-financial objectives, even if it’s not so good for the bottom line. It is also reassuring to shareholders who are looking for greater corporate responsibility from the companies they invest in.

For more information on Benefit Corporations click here.  

2. California's Flexible Purpose Corporations

This was passed into law in California last October. Flexible Purpose Corporations also allows for Benefit Corporations. Flexible Purpose Corporations, unlike the Benefit variety, don’t have to meet general public benefits. Instead, they can specify at least one “special purpose”–addressing environmental sustainability, for example, or building a park. So the social focus is a lot more narrowly defined than it is with Benefit Corporations. Ultimately, the Flexible Purpose is designed for larger, more traditional companies that want to consider matters other than the financial bottom line, but aren’t “mission driven at their core,” according to Heather Van Dusen, a senior associate at B Lab.

For more information about Flexible Purpose Corporations click here.  

3. Maryland Benefit LLC

 In addition to allowing for Benefit Corporations, Maryland also permits companies to do the same thing but as a Limited Liability Company. That way, businesses already registered as LLCs don’t have to convert over to a corporate structure. The designation was created by legislation signed on May 19 by Gov. Martin O’Malley. The new law protects benefit LLCs from lawsuits by their members if they make decisions that put the environment, community, or social causes over making a profit. It is aimed at firms that want to make social activism part of their corporate mission.

For more information about Maryland Benefit LLC click here.  

4. L3Cs

They’re low-profit limited liability companies with a charitable or educational purpose. There are about 600 such companies in nine states. Proponents created L3Cs to be entities that can be treated as Program Related Investments (PRIs) by foundations. By law, foundations have to direct 5% of their assets to charitable purposes every year. They can do that through PRIs, as long as the organization they’re investing in has a charitable or educational purpose and doesn’t include making a profit as a significant goal. Plus, for-profit investors can put money into an L3C and, as a result, companies potentially can attract considerably more funding. Foundations have been slow to adopt PRIs. But, with new rulings from the IRS, that could change soon.

For more information about L3Cs click here.

5. B Corporations

This isn’t a corporate structure, even though that word is in the name. It’s a certification from B Lab, which rates triple-bottom-line companies. (Think of Fair Trade USA, which certifies Fair Trade companies). Started in 2007, there are now 530 such businesses. Ratings cover five areas–society, environment, employees and so on–with 130 to 180 factors depending on company size and industry. Businesses have to score over 80 out of a total of 200 points. There also are unannounced audits of about 10% of all certified companies every year.

For more information about B Corporations click here.

© 2012, Richard Matthews. All rights reserved.

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UN Decade of Education for Sustainable Development

For more than five years, the UN has been behind efforts to broaden sustainable development education initiatives around the world.

Sustainable development is defined as development that meets the needs of the present without compromising those of future generations. This simple definition encompasses a complex dynamic that implicates values and value systems as well as interdisciplinary knowledge and experience, and stresses the interdependence of the environment, society and the economy.

In December 2002, the United Nations General Assembly adopted resolution 57/254 to put in place the Decade of Education for Sustainable Development (DESD), spanning the years 2005 to 2014. UNESCO was designated as the lead agency for the Decade.

The overall goal of Education for Sustainable Development (ESD) is the integration of the principles, values, and practices of sustainable development into all aspects of education and learning.

The Decade’s four key objectives are facilitating networking and collaboration among stakeholders in ESD; fostering greater quality of teaching and learning in ESD; supporting countries in achieving their millennium development goals through ESD efforts; providing countries with new opportunities and tools to incorporate ESD in education reform efforts.

The role of the ESD is to help people develop the attitudes, skills, and knowledge to make informed decisions for the benefit of themselves and others, now and for the future, and to act upon those decisions.

ESD is an approach to teaching and learning based on the ideals and principles that underlie sustainability – human rights, poverty reduction, sustainable livelihoods, peace, environmental protection, democracy, health, biological and landscape diversity, climate change, gender equality, and protection of indigenous cultures.

The UNESCO World Conference on Education for Sustainable Development – Moving into the Second Half of the UN Decade took place in Bonn, Germany from March 31 to April 2, 2009. The Conference was a forum for sharing experiences and best practices, bringing together close to 700 participants representing UNESCO Member States, UN agencies, civil society organizations, youth, and the private sector.

UNESCO’s major areas of activity under the DESD include education, natural and social sciences, culture, and communication.

UNESCO believes that education is a human right and the primary agent of transformation towards sustainable development. To implement education for sustainable development, UNESCO seeks to promote and improve basic education, reorient existing education programs at all levels to address sustainable development, develop public awareness and understanding of sustainability, and provide training.

UNESCO's goal is to promote multidisciplinary and interdisciplinary approaches for the wise use of natural resources and to improve the understanding of human–environment relationships, as well as to promote principles, policies, and ethical norms to guide scientific and technological development that is sustainable.

Culture is also important to UNESCO because it is concerned with the identities and values that shape the way people live, their responsiveness to educational programs, and the degree to which they feel involved in preserving for the future. UNESCO encourages an approach to sustainable development in which people are addressed with a discourse linked to their immediate concerns.

UNESCO acknowledges that communication is virtually instantaneous and this serves as a powerful driver of social transformation. In this context, UNESCO acts as a broker for effective sustainable development by encouraging the sharing of knowledge, information, expertise and best practices, producing and disseminating scientific knowledge, and sensitizing the media to sustainable development issues.

The UN effort to implement education for sustainable development is a long-term process that calls upon all stakeholders, including governments, educational institutions, business and industry, communities, civil society, and individuals to play a role and to embrace the ideas of sustainable development.
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Global Social Benefit Incubator

On August 26 Santa Clara University is host to the 2010 Global Social Benefit Incubator (GSBI) which is receiving entrepreneurs from around the world. The day will feature business plan presentations that showcase innovative adaptation of technology and models of social change.

The (GSBI) program at Santa Clara University supports sustainable social ventures. It combines classroom instruction in finance, marketing creation, organizational development and business planning. The program also includes case studies, best practices and carefully matched Silicon Valley mentors.

In 2010, the STS Center launched a three-year initiative to focus on “Renewable Energy for the Underserved.” This initiative will explore several segments of the clean energy field including off-grid power and light, energy saving devices , value chain organizations, financial services, second generation bio-fuels and distribution. This year, there are 12 social entrepreneurs that are representing the Renewable Energy Sector in the GSBI class of 2010.

Social entrepreneurship can be of great benefit to the environment, the economy and to all of humanity.

To RSVP for the event go to GSBI's registration page. For further information call the Center for Science, Technology, and Society, Santa Clara University, (408) 551-6027, or email sdale@ scu.edu.
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Green Investing Part 2: The "Green Wave"

According to an article entitled, Finish Rich, "the financial consequences of a changing climate and the global crisis it is presenting are staggering in their implications for both corporations and consumers. Those that adapt to become “eco-conscious” will flourish financially—and those that don’t may be financially devastated. The fact is, companies are already dedicating billions of dollars annually to becoming eco-friendly, and many of these companies are quickly returning millions of dollars.

As (bestselling author) David Bach points out in GO GREEN, LIVE RICH, the emerging “green economy” presents the single greatest investment opportunity of the 21 st Century. “Green investing is finally coming into its own, which is great news for the environment—and your ability to build wealth,” he says. “Green investing is simple, it’s about investing in opportunities, companies, and services that both support and promote efforts to reduce CO2 output, improve the environment, and turn the tide on global warming.”

To catch the “green investment wave,” Bach suggests investing in the new breed of SRI (Socially Responsible Investing) index funds and exchange-traded mutual funds (ETFs) that screen out companies that engage in ethically and environmentally destructive practices and screen in those that have embraced sustainability and have demonstrated a strong sense of environmental and social responsibility. While the number of “green funds” available will explode in the coming years, many of the funds already available have outperformed the S&P 500, proving that investing green is a viable strategy."

Next: Green Investing Part 3, Finding and Assessing

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Creative Capitalism: Market-Based Social Change

To be sustainable a business must also be profitable. Readers of The Green Market know that I am an earnest advocate of viable socially responsible business. This philosophy is put into practice in my firm's Green consulting projects with the small business community. Implicit in this philosophy is the marriage of market forces and social responsibility.

This is not a new idea. Almost half a century ago David Rockefeller, the president of Chase Manhattan Bank, said, "The old concept that the owner of a business had a right to use his property as a he pleased to maximize profits has evolved into the belief that ownership carries certain binding social obligations." In recent years Microsoft's Bill Gates has joined the ranks of a growing number of people who share this view. For the past 20 years, Microsoft has used corporate philanthropy as a way to bring technology to people who don't have access. They have donated more than $3 billion in cash and software and perhaps most importantly shown people how to use technology to create solutions. In a January 24, 2008 speech at the World Economic Forum, Gates outlined sensible solutions to the challenges we face.

Gates used to believe that technology could solve all the key problems and although this is true for billions of people, "breakthroughs change lives only where people can afford to buy them—only where there is economic demand. And economic demand is not the same as economic need." Technological innovations are important but insufficient to address the myriad challenges we face. To truly improve the fate of the planet and its inhabitants we require what Gates has called 'system innovation'.

We have reason for optimism, we have seen significant improvements on many fronts from the status of women and minorities, to radicaly increased life expectancy. And political, social and economic freedoms have never been enjoyed by more people around the world. However, like Gates, I am an impatient optimist who seeks expedient solutions to the problems we face.

A major problem with capitalism is that market incentives often cause people and the environment to benefit in inverse proportion to their need. Capitalism that serves large corporations and wealthier people must be made to serve poorer people and the environment as well. We need to refine the capitalist system so that it benefits the environment and all its inhabitants. "The great advances in the world have often aggravated the inequities in the world. The least needy see the most improvement, and the most needy see the least. Not only do these people miss the benefits of the global economy – they will suffer from the negative effects of economic growth they missed out on. Climate change will have the biggest effect on people who have done the least to cause it."

Capitalism may be flawed in some important respects but they are fixable problems which do not detract from its many positive attributes. "The genius of capitalism lies in its ability to make self-interest serve the wider interest. The potential of a big financial return for innovation unleashes a broad set of talented people in pursuit of many different discoveries. This system driven by self-interest is responsible for the great innovations that have improved the lives of billions."

Capitalism harnesses self-interest in helpful and sustainable ways, but only on behalf of those who can pay. And environmental, philanthropic and governmental organizations are inadequate to meet the needs of the earth and its poor. We need a system that is capable of providing rapid improvements, a system that integrates creative innovation and market driven business.

A social mission is compatible with profits. In Gate's own words "To make the system sustainable, we need to use profit incentives whenever we can." When profits are not possible, recognition is a powerful market-based incentive for socially responsible businesses. "Recognition enhances a company's reputation and appeals to customers; above all, it attracts good people to the organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive. The challenge is to design a system where market incentives, including profits and recognition, drive the change." Consumers then reward companies who do good work by buying their products. To help us to recognize those who have made contributions to social causes like Green, we need to invest intellectual capital to find ways for businesses, governments, NGOs, and the media to develop tools to measure social responsibility. "[R]ecognition brings market-based rewards to businesses that do the most work."

According to Gates, "there are two great forces of human nature: self-interest, and caring for others. The system innovation proposed by Gates is nothing less than a paradigm shift. He calls this innovation creative capitalism. "This is an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world's inequities." Helping others and the environment is not as far removed from the core of capitalism as some might think. The father of capitalism Adam Smith opened his first book with the following lines: "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it."

"Creative capitalism takes this interest in the fortunes of others and ties it to our interest in our own fortunes—in ways that help advance both. This hybrid engine of self-interest and concern for others serves a much wider circle of people than can be reached by self-interest or caring alone." We must give our most innovative thinkers the time and resources to come up with solutions to the challenges of environmental degradation, poverty and disease. "This kind of creative capitalism matches business expertise with needs in the developing world to find markets that are already there, but are untapped. Sometimes market forces fail to make an impact in developing countries not because there's no demand, or because money is lacking, but because we don’t spend enough time studying the needs and limits of that market."

There are numerous examples of creative capitalism in the world today. One of the most accessible approaches employs tiered pricing. When the World Health Organization wanted to expand vaccination for meningitis in Africa, it first ascertained what people could afford to pay. Then they challenged their partners to meet this price. Another is Bono's RED Campaign which has demonstrated that people will pay a premium for the chance to be associated with a cause they care about. One of my personal favorites is Muhammad Yunus' now worldwide movement in microfinance. And cap and trade systems of greenhouse gas management are yet another well known example of creative capitalism. The potential ways in which creative capitalism can serve socially responsible causes are limitless.

Creative capitalism includes a direct role for governments in funding research and setting policy (legislation). Governments should disburse funds in ways that create market incentives for sustainable business activity. "What unifies all forms of creative capitalism is that they are market-driven efforts to bring solutions...As we refine and improve this approach, there is every reason to believe these engines of change will become larger, stronger, and more efficient. There is a growing understanding around the world that when change is driven by market-based incentives, you have a sustainable plan for change—because profits and recognition are renewable resources. These are not a few isolated stories; this is a world-wide movement, and we all have the ability and the responsibility to accelerate it."

There is a place for business, government and the non-profit world. Creative capitalism stretches the reach of market forces to help push things forward. From foreign aid to charitable gifts, we must find ways to put the power of market forces behind the effort to reduce our environmental impact.

We are living at a pivotal moment in human history, the paradigm shift proposed will enable us to find approaches that address the environmental and social problems we face. We need to understand that sustainable solutions entail projects that generate profits and where profit is not possible, recognition that enables consumers to reward these companies by buying their products. We can change the world and creative capitalism is key to the growth of socially responsible movements like Green, because there is no Green future without profitable Green companies.

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