Friday Roundup ? 5/6/11: How ’Flexible’ Should Profit/Nonprofits Be?
We no longer think twice about watching cable TV on our cell phones or chatting on the phone courtesy of our TV provider. This is the way of business models, either created or destroyed, through innovation.
Just like the unrestricted flow data, video or voice in the telecommunications industry, innovation has unhinged the for-profit and the-not-for profit business models from their moorings. But instead of one model losing out to the other as in the media world, the competition to improve the lives of the poor or the environment is one in which all stand to gain, right? Or is it?
I’m referring a pair of bills that have been introduced in the California Legislature that would carve out two new business/nonprofit hybrid designations. One would create so-called “flexible-purpose corporations.” These entities would be set up to seek both profits and one larger social or environmental objective, writes Market Watch’s Thomas Kostigen. The advantage? This structure would shield such companies from shareholders’ expectations (and potentially legal claims) that these firms aren’t living up to their profit fiduciary duties.
The second bill is the formal sanctioning of benefit, or B corporations. According to Ben Gose of the Chronicle of Philanthopy,”this structure would go even further than the flexible-purpose legislation and require corporate directors to pursue a broad set of social and environmental objectives in addition to profits” – objectives that would be formally monitored and sanctioned by a third party.
Neither bill would provide tax exemptions for either proposed entity. However, Philadelphia already has some limited tax perks for B corps and four states have passed legislation carving out the designation.
Judging by the articles, there seems to be as much consternation on the part of nonprofits as there is excitement on the part of social business managers for these potential corporate structures. Kostigen concludes that “the idea of ’nonprofit’ is fading,” which on its face is disconcerting, and there are worries that investments in businesses would significantly cut into charitable giving. Still, if achieving economic/environmental good on a scale that really matters is truly the goal, then it’s worth bringing these two different worlds into competition with one another, at least in limited fashion. It’s an experiment worth trying, which is what California tends to do well.
Speaking of changing business models, if you haven’t seen Inc. magazine’s May cover story “How a Business Can Change the World” it’s an excellent series profiling several social businesses.
- The Jubilant Bhartia Foundation and Schwab Foundation for Social Entrepreneurship are seeking applications for the India Social Entrepreneur of the Year Award 2011. Applications are due May 30 and the winner will be announced at a ceremony prior to the India Economic Summit in November 2011 in New Delhi. More information and the application form can be found here.
- Financial Inclusion Forum of D.C. and Asia Society Washington DC are partnering to present an informative discussion on the history, background, and context behind microfinance in Asia, the current state and the future of the industry. The event is set for 6:30-8:30 p.m. Monday on the second floor of the Whittemore House, 1526 New Hampshire Ave, NW. Speakers include Alexia Latortue, deputy CEO of CGAP (Consultative Group to Assis the Poor) at the World Bank; Damian von Stauffenberg, the founder of MicroRate; and Swaminathan S. Anklesaria Aiyar, consulting editor for the Economic Times. More information is here.
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