On April 3, 2013, the Berkeley Center for Law, Business and the Economy (BCLBE) hosted a Social Entrepreneurship: Legal, Financial and Public Policy Dimensions panel moderated by Professor Eric Talley. Panelists included legal experts R. Todd Johnson (Partner, Jones Days), Jonathan Storper (Partner, Hanson Bridgett), Kyle Westaway (Founder of Westaway Law) and Jordan Breslow (General Counsel at New Island Capital) as well as Vince Siciliano (CEO and President of the New Resources Bank).
Talley began by asking for a definition of social entrepreneurship. Johnson offered “any organization that makes money and does social good” and Siciliano added “maximizing distribution [for a given product] while being profitable” as social enterprises attempt to maximize social impact for a given product or service. Breslow, who works for an impact investment advisor, talked about how one of the downsides of a nonprofit, as compared to a social enterprise, is that “in giving money away [investors] lose control.”
Measuring profits is straightforward but measuring social impact is not always so easy. However, as Johnson notes, “we need to get past the head-scratching period of asking ‘how do we measure impact’ that comes from looking at social entrepreneurship as a sector. It’s not a sector. It’s a way of doing business.” Social impact can be applied to any business sector — health care, education, technology, etc. For some sectors, the impact equation is simple. For example, d.light solar sells solar light and power products so it is “relatively easy to calculate how much kerosene and therefore CO2 is avoided by its products.” It is harder for other sectors, such as services, or where impact is based upon human transformation or long-term goals. “Sometimes the outcome should be obvious, but is simply hard (or expensive to capture) such as greening of supply chains.” Westaway agreed noting that he “applauds the idea of standardization but it is hard to do.”
Talley asked the panelist to assess whether these types of enterprises are more risky than others, that perhaps, do not consider their social impact. Siciliano suggested that some social enterprises may be considered risky by traditional investors because they are not well understood. “As a commercial bank, one of the New Resource Bank’s competitive advantages” he explained “is its sector expertise.” He offers that it is not about the risk of the underlying business model as much as that traditional commercial banks assess high risk to these enterprises because of their limited exposure to some of the new sectors these enterprises are operating in. “We don’t view these companies as risky because we better understand their markets and stage of growth.” Specific industry examples include organic products, alternative energy, energy efficiency retrofits, green real estate, and nonprofits.
The panel then turned to the legal innovations happening in this space. As Johnson explained “ 14 states have passed legislation allowing for an integrated approach to building a company.” In 2011, California passed legislation allowing for two new types of forms: the flexible purpose company and the benefit corporation (See Westaway’s post for a comparison). As Johnson described “legislatures are embracing these new forms with open arms” and offered that passing these forms is perhaps politically easy because “for conservatives these entities are a response to big government while for liberals they are a response to big companies.”
Storper, integral in passing the benefit corporation legislation, talked about how the benefit corporation allows registered entities to have a purpose beyond shareholders while also demonstrating high transparency and accountability. These can be important signals to investors.
Breslow described how New Island Capital, which invests in sectors including renewable energy and sustainable agriculture, does not want to put money into a company only to have its mission change. Siciliano echoed this by noting that “when an entity is a flexible purpose entity or a benefit corporation our homework is done” because as Storper explains “these forms make it harder for organizations to succumb to mission creep.”
Everyone emphasized that these forms do not offer a “one size fits all” organizational form for all enterprises. Johnson stressed that each organization must ask itself “what’s my plan and what form will help me to attract capital so I can fund my business?” These forms offer exciting new tools for entrepreneurs in answering that question.
Storper has been surprised by the variety of industries that have adopted the benefit corporation form. “We are in an experimental time where many types of organizations are using the form” and we will see what works best for them.
Professor Eric Talley announced that Berkeley Law will soon offer a course in social enterprise law. He has also been working with students through the Berkeley Social Enterprise Project to track state legislation in this area and organizations which are utilizing these new forms.