Transformative Structures

I read the latest issue of Beyond Profit magazine on my flight to the west coast. I was headed to Beyond Social Media conference. What I most enjoyed reading was about going beyond existing structures. For years now, as part of several startups with varying degrees of social good intent, I have pondered over appropriate legal structures. It was so exciting when BCorp certification came out. Finally something to say that an organization was for-benefit with rigorous criteria. However, BCorps were, at that time, just a certification. We still had to operate in the space of either for-profit business (but working on double or triple bottom line outcomes), or as a nonprofit. The very name nonprofit annoys me. It is so far from being aspirational in purpose. It is framed by the profit issue and not by what drives a nonprofit — the mission to serve.

The first article I devoured discussed advances in hybrid organizations, Blended Value: Weaving Profit into Social Mission through Hybrid Models. Which states,

In the nomenclature created by Pamela Hartigan and John Elkington in their book, The Power of Unreasonable People, there are three categories of social enterprise: leveraged nonprofits, hybrid nonprofits, and social business ventures. As these categories indicate, where there is no single legal form that meets the need of an entrepreneur, they create their own: engaging in profit-making activities within a nonprofit, yoking a nonprofit with a for-profit, or creating a profic-making subsidiary within a non-profit.

Several states in the US have adopted new L3C legislation. L3C’s are low-profit, limited-liability companies designed to help foundations comply with program-related investment rules (as foundations push to use more than 10% of their endowments toward mission/program related opportunities). As a long-time advocate for mission-related investing, I was really excited to see L3Cs enter the market. However, they have not been tested with the IRS enough to build deep confidence in their worth and security.

And to be frank, this is really about confidence, trust, security. And while the B-corp certification acts as a “trust-mark” according to the article in Beyond Profit, it is not legally binding the way legal structures are. These legal models are all about trust! Founders want to be sure that the organization survives with the original intent (to make a profit or to serve the public). Combining the two is transforming the legal system and the structures we use to create organizations. Beneficiaries of a service also want to trust an organization to do what it is structured to do.

Lakra, citing the preconceived notions people have about certain structures, said. “You wouldn’t use a non-profit courier company, nor would you trust a for-profit company to provide HIV education to the deaf.”

We know we can trust that a for-profit company, no matter what gloss and cover elides it, will be driven by the need for revenue. They will be generous, helpful, and good citizens to the degree that serves their “rational actor” in the market approach. And a well-meaning entrepreneur can end up selling a for-profit business and seeing the core values get wrecked in the pursuit of revenue. Creating a structure that ties the organizational activity to a social mission is tricky. There are paths through it. And legal forms are actually more complex then just “for-profit” and “non-profit” lead us to think. There are member-owned organizations and cooperatives of different flavors. To create a legal structure that the founder and the public can trust to be consistent requires some expert advice.

I am off to get mine. March 3rd, I am going to Structure Lab, a workshop held by Criterion Ventures at innovative cities around the United States. I am told the workshop involves a game (and I love games!) as well as focused help on my particular concerns, so I can walk away much more clear about what organizational structure meets my needs.

I have some serious transformation in mind. I need a transformative structure to match, please.

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