In a vote of 57-17*, AB 361—California bill that would create a new corporate form called benefit corporation—passed its concurrence vote in CA Assembly today.

It is now on the way to Governor Brown’s desk where it will be for 12 days or less for his review and signature.
This is a key time to express support for AB 361.  AB 361 support letters, calls, op-ed pieces, blogs, tweets, personal meetings, emails and faxes can be directed to Brian Putler, Deputy Legislative Secretary, Fax: 916-558-3177.
You can catch up on the progress of AB 361 as well as read a fact sheet about the bill through links on this recent post:

Read more about today’s vote in this press release from Assemblymember Huffman’s office.

AB 361 (Benefit Corporation) Passes CA Assembly (News Release)
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*Note: These numbers have been updated from the when the post was originally posted (50-14) to reflect the final official vote count.

I recently had a chance to visit a happening hostel in Washington. Over breakfasts, dinners, and activities it was exciting and intriguing meeting the eclectic group of hostel-goers and hearing their stories.couchsurfing logoOne new concept I was quickly educated on was couch surfing. CouchSurfing.org that is.

And as VentureBeat reports, just last week CouchSurfing made the bold move to reincorporate as a for-profit B corporation and begin its new identity with a $7.6 million investment from Benchmark Capital.

The big move, which involves establishing a physical headquarters in San Francisco, will also likely expand CouchSurfing’s loyal 3M+ user base.

How CouchSurfing Works

“At CouchSurfing International, we envision a world where everyone can explore and create meaningful connections with the people and places they encounter…” CouchSurfing mission statement

New users can sign up using the simplified sign-up page and can choose to verify their address (which requires using a credit card and having a postcard with a code sent to your address) and are invited to make a recommended minimum donation to the organization, as a good faith show of their desire to be part of the couchsurfing community.

Once you’re on, you can search for “couches” in various cities. CouchSurfing users are peer-reviewed or “vouched for” through badges on the site. And the site mentions multiple tools and measures that have been implemented to ensure safety but clearly states (in multiple places) that surfers should use their individual best judgment when making the decision to surf, host, or meet up with individuals from the site.

CouchSurfing as a B Corporation

CouchSurfing explains its decision to incorporate as a B corporation in stating that “as a B (Benefit) Corporation, CouchSurfing will be part of a group of innovative businesses that deliver products and services with a commitment to social and environmental responsibility, transparency, fair work conditions, and doing good for the world.”

They mention that incorporating as a for-profit entity will better position them to receive funding, make improvements to the website, and evolve their systems along with their community’s needs.

CouchSurfing’s decision to incorporate as  B corporation speaks to their commitment to their initial mission and vision, and to keeping with the ideals of the organization. As they mention in a released statement,”Becoming a B Corporation makes us accountable to our core values. And you can check out the full audit that B Lab, the non-profit that issues B Corp certifications, recently completed of our social responsibility.”
  
What won’t change?
  
CouchSurfing promises that their mission and vision will stay the same. And that “CouchSurfing will never make you pay to host and surf”.

We have had a few posts on articles related to history and progress of the U.S. legal infrastructure supporting  social innovation. This includes a look at U.S. case law that articulated the duty of a corporation’s board of directors to maximize shareholder wealth. And the buffer provided by the Business Judgment Rule (BJR) that protects court interference with a board’s decisions so long as certain criteria are met.

constituency statutesBut there’s more. There is the constituency statute.Through attending various talks, discussions, and CA State senate hearings on new legislation that would enable social entrepreneurship,the term “constituency statute” has come up multiple times.

In searching for a good explanation for the concept of constituency statutes I came across an excellent law review article mapping the relationship between corporate law and social innovation principles by Anthony Bisconti titled, “The Double Bottom Line: Can Constituency Statutes Protect Socially Responsible Corporations Stuck in Revlon Land?” (Loyola Law Review, 2009)

So, what is a constituency statute?

A constituency statute, also called a stakeholder statute, allows corporate directors to consider non-shareholder interests when making business decisions.

Have all states passed constituency statutes?

No, but a majority of states have. As of 2009 (when Bisconti published his law review article) 32 states had passed some form of constituency statute.

Which states have enacted constituency statutes?
 
As listed in footnote 13, the following states have constituency statutes:

  1. Arizona
  2. Connecticut
  3. Florida
  4. Georgia
  5. Hawaii
  6. Idaho
  7. Illinois
  8. Indiana
  9. Iowa
  10. Kentucky
  11. Louisiana
  12. Maine
  13. Maryland
  14. Massachusetts
  15. Minnesota
  16. Missouri
  17. Nebraska
  18. Nevada
  19. New Jersey
  20. New Mexico
  21. New York
  22. North Dakota
  23. Ohio
  24. Oregon
  25. Pennsylvania
  26. Rhode Island
  27. South Dakota
  28. Tennessee
  29. Vermont
  30. Virginia
  31. Wisconsin
  32. Wyoming

 

Back near the start of Innov8Social, I overviewed the case and story behind Dodge v. Ford. To summarize, in legal analysis circles the case is prominent for articulating an immutable rule for corporation law—i.e. a corporation has a duty to maximize shareholder wealth. Dodge v. Ford took place in 1919 and just as the past century has seen significant changes in the we travel, how we communicate, and the kinds of toppings that are acceptable on pizza—so too have there been advents affecting a court’s right to assess a corporation’s actions.

 business judgment rule (bjr)

 

 

Corporate Directors 101

 
It is well-established that directors of a corporation (i.e. the elected or appointed individuals who oversee and direct the activities of a corporation) are bound by fiduciary duties of good faith, care, and loyalty to the corporation’s shareholders.

What does that mean?

Essentially corporate directors are barred from actions that would jeopardize the corporation or that would put an individual director above the corporation (i.e. self-dealing).

 

Business Judgment Rule: A Coming of Age

 

  

The Business Judgment Rule (BJR) provides a buffer between the court and the actions taken by a corporate board of directors.  For example, corporations may have found Dodge v. Ford troublesome not for its ruling in favor of shareholders, but for the court’s intrusion into a board of directors’ decision-making.

BJR states that business decisions are presumed to be outside of the review of court where the board of directors acts in good faith, in a manner that a reasonable person would act under similar circumstances, and in the best interest of the corporation. BJR requires that board of directors do not commit waste (i.e. overpaying for assets).

 

But, Why?

 

  
Arguably, successful businesspersons are often skilled risk-takers. And they would argue that though they require the capital investments that shareholders provide, they don’t want their actions or calculated risks to be limited by shareholder interests. Enter, the Business Judgement Rule.
It was devised to protect business decisionmaking by corporate directors. And, as articulated by various scholarly publications including Professor David Rosenburg’s law review article Galactic Stupidity and the Business Judgment Rule” (2006), “[it] is a truth almost universally acknowledged that American courts will not review  the substance of the business decisions of corporate directors except under extraordinary
circumstances.”

 

How Business Judgment Rule Impacts Social Innovation

 

  
An excellent law review article that traces the relationship between corporate law and social innovation principles is Anthony Bisconti’s 2009 article in the Loyola Law Review titled “The Double Bottom Line: Can Constituency Statutes Protect Socially Responsible Corporations Stuck in Revlon Land?”
In short, by protecting the business judgement of corporate directors, BJR also gives a foot-hole to social innovators to make decisions that endeavor to achieve a successful triple bottom line.
In the absence of court acknowledgment of BJR, Henry Ford was barred by from taking an action for public good that did not maximize shareholder wealth (i.e. building a large expensive factory that would make cars more affordable, create employment, raise the standard of living for employees).
And though Ford’s plan may not reach muster in terms of today’s concern for social and environmental impact, the BJR can today be employed to protect decisions that may not necessarily maximize shareholder profits today but may maximize triple bottom line.

 

Is the BJR Enough to Protect and Promote Social Innovation?

 

  
The BJR is a step. So are constituency statutes, but we may find that these tools may be forcing a system designed to make profit above other concerns fit the shifting paradigms of social business and informed consumerism.

At the end of the day, we may be ready for a new corporate structure that can expand our conception of stakeholders and that can create quantifiable ways to measure progress of the bottom line (profits), double bottom line (community, profits), and triple bottom line (environment, community, profits).

And, this discussion is vital today, as new corporate structures are making their way into law across the U.S. in the form of the benefit corporation.

What do you think of the BJR? Has it paved the way for social entrepreneurship?

At Innov8Social we realize that we are consumers before we are social innovators. And that we vote with our wallet as much as with our words. With that in mind, we’ll post product reviews for a few of our favorite social innovations from time to time, highlighting what makes them smart and socially innovative…so can become better-informed consumers together.And we’d love to hear about socially innovative products or companies amaze, enlighten you…and even tickle your toes.To kick it off, we have a product that knows when to be there, and when to disappear.

The Product: Biobag Certified Compostable Dog Waste Bags

biobags compostable dog bagsbiobag dog waste bag

Why we like them:   
  
1. 100% Compostable and Biodegradable. There’s no reason that Fido’s output needs to be stored in a non-biodegradable plastic bag until the end of time, or end up in a plastic bag vortex. With a number of certifications to prove compostability and biodegradability, Biobag’s goal is “to help divert all naturally biodegradable waste from entering our landfills.”

2. Affordable. They generally run under $20 for 200 bags online. That’s less than $.10 per bag and the priceless knowledge that you are doing something to minimize you and your pet’s carbon footprint.
3. Easy to Order. My canine pal Bella and I have been ordering Biobag waste bags since she was a pup from Amazon Subscribe & Save—you get a discounted price, free shipping, and automatic delivery every few months. It saves a trip to the store and makes the process of replenishing dog waste bags, efficient, simple, and even a little exciting (just when you were running out, a box of bags magically appear at your doorstep).

4. A Family of Products. Biobag doesn’t end with dog waste bags, peruse their list of retail products and you will find kitchen garbage bags, lawn & leaf bags, and even composting units.

5. They are the best. Having had the occasion to try numerous dog waste bags, we have found Biobag sacks to be not only environmentally-forward—but also the best. The holes at the top make and the texture make for easy opening and simple disposal.

More Info:

Official website: http://www.biobagusa.com/
Order information: http://www.biobagusa.com/order_now.html
Press and media:

Do you have any favorite social innovation products? We’d love to hear about them. Share below or email us.
This just in…with a vote of 23-7 AB 361–California legislation that would create a new corporate form called a benefit corporation– successfully passed through the California State Senate today. It is now bound for the State Assembly for a concurrence vote. With a majority vote in Assembly, it will proceed to Governor Jerry Brown for final approval and to be signed into law.There is still time to show your support for AB 361. Letters of support from your business or company can be sent to Governor Brown’s Office (see Governor Brown’s contact information), with a copy sent to the bill’s sponsor Assemblymember Jared Huffman (see Assemblymember Huffman’s Sacramento office contact information in the bottom left margin)If you are catching up on the benefit corporation legislation in California, here are a few posts that will walk you through what it’s all about and the journey thus far:The Story of AB 361 (Benefit Corporation) As Told Through Blog Posts:

Note: This post has been edited to update the final Senate Floor vote count on 8/22/11 (which was 23 Ayes, 7 Noes, 10 non-votes). The bill needed 21 votes to pass. 
Social innovation may seem like the new hipster concept on the ‘do-good’ block, but in reality it has been evolving longer than we may realize. Ask Ashoka–an organization whose founder Bill Drayton literally coined the term “social entrepreneur” and which has been facilitating and supporting social innovation for over 30 years.npr logoNational Public Radio (NPR) has featured a number of stories and interviews over the past decade that trace the growth and evolution of social entrepreneurship, at a systemic level. Below are a few that help set the scene for understanding where social innovation has been and where it is going.EvolvingIn listening to interviews over the expanse of a decade there seems to be a kind of progression in the movement of social innovation. Starting from concept and practice by specific efforts in developing countries that harnessed the power of entrepreneurship in the context of social change, social innovation gained support through focused support and vibrant community (i.e. Ashoka’s Fellowship program). The concept seems to have grown to a level of recognition calling for academic study (i.e. new courses, centers for study) and governance (i.e. White House Office of Social Innovation) to investment (i.e. green venture capitalism).

The next logical step may be legislated change (such as benefit corporation) that would enable social entrepreneurs to recognize of multiple stakeholders beyond shareholders (i.e. the ‘triple bottom line‘ of people, planet, profits) and focus on creating material positive impact.

NPR Interviews on Social Innovation

1. Social Entrepreneurs – January 2004

Neal Conan talks to a panel of social entrepreneurs in this episode of Talk of the Nation. The panelists introduce social capitalism as a concept and how it differs–but complements–traditional business and non-profit work. The panelists talk about specific problems they each recognized and how they engineered social entrepreneurial solutions.

There is discussion and questions from callers including an interesting caller perspective (at 20:40) regarding the relationship between systemic change and social entrepreneurship, and a question by a caller wondering why Muhammed Yunus had not yet won a Nobel Prize. (He was awarded the Nobel Peace Prize two years after the interview, in 2006)

The panel includes:

NPR’s Pam Fessler reports on the new initiative by President Obama’s administration established in 2009 in this piece for Morning Edition. The White House Office of Social Innovation and Civic Participation (SICP) was created to identify non-profit solutions to broad issues such as homelessness and poverty and develop solutions that could be expanded.

Citing organizations such as Teach for America, Fessler notes that successful concepts such as these often face challenges in expanding and growing for lack for funds and infrastructure. And these are the types of projects that the new initiative hopes to support.

Fessler also reports on naysayers to the new office. Those such as blogger Allison Fine claim that true social innovation requires more risk—taking a chance on an idea that hasn’t been proven–rather than one that has experienced success in a small-scale setting.

3. Change You Can Invest In: Social Entrepreneurship – December 2010

NPR Education Correspondent Larry Abramson reports on the growth and evolution of the field of social entrepreneurship and takes a look at how social innovation has found its way to academia at universities such as the University of Maryland’s Center for Social Value Creation, which is part of the business school.

In this report for Morning Edition, he talks with social entrepreneurs such as David Wish of Little Kids Rock about the original social innovation institution—Ashoka—and it’s ability to support and connect social entrepreneurs. Abramson also talks to non-profit consultants such as Chuck Harris about the importance of making non-profits work more like corporations for efficiency and to ensure oversight.

Hear More From NPR

Interested in hearing more? Here are more NPR interviews on social innovation that caught our eye.
Here is a recent fact Sheet prepared by Assemblymember Jared Huffman‘s office outlining AB 361—-California’s “benefit corporation” bill. Read below to learn key points about the bill.

Fact Sheet AB 361 (Benefit Corporations)
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To continue the conversation, you can contact your California state senator to support or comment on the bill.  Also, you can read more about the journey of AB 361 in this post that recaps the progress of California’s benefit corporation legislation.

California State CapitolIf you have been following the journey and progress of AB 361— California’s bill that would create a new corporate form for social entrepreneurship called a benefit corporation— from idea to law (see here for a rundown of recent posts), you may be wondering where AB 361 stands right now. And, if there is anything you can do to support this social innovation legislation.Good news, we have updates! And, there are a few simple ways to show your support and cast your ‘vote’ for policies designed for social innovation.

Nod by Senate Appropriations

As California Assemblymember Jared Huffman (the bill’s sponsor) noted in this brief interview taken in July 2011, AB 361 was awaiting final vote from the State Judiciary Committee and, on approval would  head to the State Senate Appropriations Committee.

AB 361 did pass State Judiciary and, most recently, was referred forward by the CA Senate Appropriations committee (as per CA Senate Rule 28.8) since the bill will not have a significant fiscal impact on the state budget.

Up Next: Senate Floor

As early as next week the California State Senate will review the benefit corporation bill in its second reading and will vote on it after a third reading.

Then: Back to State Assembly for Concurrence Vote

Once AB 361 passes in State Senate it will be sent over to the California State Assembly for a final vote, called a concurrence vote.

Finally: to the Governor’s Desk

Passing in the State Assembly, AB 361’s final stop will be Governor Jerry Brown’s desk for final review and signature.

Cast your “Vote” for AB 361

If you are a state resident, you can contact your California state senator and express your support for AB 361 and other legislation that reflects the changing paradigm of business—with the new emphasis on social entrepreneurship. You can mention that how entrepreneurs and consumers in California and specifically your district want options that enable corporations to incorporate not only to generate profit but to have a net positive impact on society.

You can read more about California’s benefit corporation legislation in this Fact Sheet for AB 361 released by Assemblymember Huffman’s office.

Though Innov8Social is entirely dedicated to exploring social innovation, after reading a few posts you still may find yourself asking, “so, what exactly is social innovation again?”
“Social” Typecasting
And you wouldn’t be alone—in the social media-wired world you say the word “social” and many people immediately begin thinking the trifecta: Facebook, Twitter, and everything else (Google+, LinkedIn, etc.)
While online networking capabilities can play a major role in enabling social innovation—the “social” in social innovation is more related to public good or public benefit.
Stanford Professor Rob Reich Explains Social Innovation
If you have about a half hour, the clip below can answer many of your questions, provide a framework to understand social innovation, and introduce you to roses and thorns of the field.
The address is by Director of Program on Ethics in Society at Stanford University, Rob Reich made to 2011 Stanford graduates at Stanford Class Day Lecture on June 11, 2011.
Watch below and read further below for an overview of some of the topics raised.


Key Points from Professor Reich’s Talk:

  • The new social economy seeks to produce social benefits
  • Buzzwords: social entrepreneurship, social innovation, impact investing, venture philanthropy, social enterprise
  • Traditional balance of 3-sector society: government sector, business sector, social/philanthropic sector
  • Today, the boundaries between the sectors are blurring
  • Now, social innovators seek to deliver social benefits within each sector and across sectors
  • Social innovation in business: microfinance, corporate social responsibility, creative capitalism, socially responsible investing
  • Social innovation in non-profit: importance of business strategy, increased focus on measurable social impact (i.e. charitable return on investment/donation), new corporate/legal forms
  • Social innovation in government: White House Office of Social Innovation, partnerships between foundations and U.S. government (Investment in Innovation Fund–I3), Chief Technology Officer and Open Government Initiative
  • Perils of new social economy: 21st century warfare is asymmetrical warfare (nation state vs. non-state actor….i.e. war on terror), unchecked innovation in financial sector contributed to 2008 financial meltdown, 21st century innovation is happening in 20th century framework of policy
  • Concerns: there is inherent tension between for-profit pursuit and social mission, current legislation and structure for non-profits has not been updated since 1969, some forms of social impact are difficult or impossible to measure