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Law Creates Impact as Mirror and Mast

Supreme Court Legalizes Same-Sex Marriage

June 26th 2015 marked a momentous day for law in the United States. The nation joined twenty others in the world to legally recognize same-sex marriage, or more specifically, oppose the denial of same-sex marriage under the Fourteenth Amendment of the US Constitution. The famed Equal Protection Clause of that amendment guarantees that “no state shall deny to any person within its jurisdiction “the equal protection of the laws.”

Final paragraph of Justice Kennedy's majority opinionlegalizing same-sex marriage

Final paragraph of Justice Kennedy’s majority opinionlegalizing same-sex marriage

The journey for marriage equality can easily be traced back decades, and perhaps longer. In fact, in the early 1970’s then-students Richard Baker and James McConnell used the the legal system to dispute the denial of a marriage license in Minnesota because both spouses-to-be were both men. The case there actually did reach the inboxes of Supreme Court Justices via appeal, but at that time the Justices chose not hear the case for lack of a substantial federal question. (Note: denial of a ‘writ of certiorari’, i.e. Supreme Court’s deference to pass on a case, is overwhelmingly common—and they are known to hear upwards of 100 cases, of over 7000 petitioned each year)

Fast forward nearly a half-century, and the Supreme Court not only agreed to hear the landmark case of Obergefell v. Hodges, but indeed the Justices overturned and created law with their opinion. Where 37 US states have passed some form of marriage equality act, the single decision of the Supreme Court on a summer day at the end of June 2015, powerfully set precedence that supersedes state law on the subject.

By the numbers, there are reportedly well over 250,000 married same-sex couples in the United States.

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Couchsurfing: Rocky Road from Nonprofit to B Corp & Lessons in Honoring Your Mission and Members

Back in 2011, we wrote about the re-incorporation of Couchsurfing from a nonprofit to a for-profit B corporation.

Couchsurfing Goes From Nonprofit to Certified B Corp

Couchsurfing: Rocky Road from Nonprofit to B corp...In August 2011, the newly-formed company initially raised nearly $8M in venture funding from Omidyar Network and Benchmark Capital before it informed its member base of over 3M users worldwide about its shift.

It wasn’t a smooth transition.

 

The Couch Pulled From Under Its Surfers

Over the course of four years, there has been a impactful decline in engagement along with some major internal restructuring– which at first led to the hiring of new Apple and MTV Alum, Tony Espinoza, as CEO. He would resign 18 months later. Under his watch, it is said that registered users more-than-doubled to 7M, but many of the existing and new users were not actively engaging on the platform. Additionally, reports indicated that October 2013 also saw layoffs of 40% of Couchsurfing staff.

In fact, this Change.org petition was launched on September 15, 2011 protesting the change in legal structure.  Notable excerpts include:

“We represent thousands of Couchsurfing (CS) members, donors and volunteers. We found meaningful work and global connections to each other through our commitment to the ideals of CS as a non-profit organization.

Couchsurfing Intl. was established as a non-profit corporation in April 2003 and registered with the state of New Hampshire as a public charity in 2007. It was dissolved and its assets were acquired by a newly-created for-profit C-Corporation with the name “Better World Through Travel Inc” in Delaware in August 2011. Since its inception, the organization received >US $6,000,000 in member donations and verification fees. Community volunteers freely donated volunteer labor, time and talent which created much of the network’s current value. (12) We find it difficult to believe that the verification income was insufficient to operate a travel website and disagree that these gifts should be sold to investors. We believe that these gifts belong to the community that created them.

We believe these changes betray the relationship the organization had with its network of volunteers and members, the relationship that shaped Couchsurfing into what it is today, and are concerned that its values will not persist.”

While the petition didn’t garner the 1600+ signatures it proposed, 882 supporters did sign as a show of dissatisfaction.

At Innov8Social, we caught scent of this too. Though very few people post comments to blog posts here, there were two lengthy and thoughtful posts by avid Couchsurfing (CS) aficionados challenging the change in legal structure.

Notably “CS host” said:

“Many people were surprised by this move as CS had always prided itself for being a non-profit organization which wanted to be a charity. For those who had seen how volunteers had been used and abused for years by Couchsurfing, how safety measures such as credit card “verification” have been misrepresented, how management covered up repeated sexual misconduct with volunteers by one of its own or how rarely promises were kept none of this should come as a surprise. Reality could hardly be any further from the offical Couchsurfing claim to “create a better world”….

Most will continue to offer their couch, just not for Couchsurfing International Inc. to resell it to travellers against verification payment or optional premium services, but in one of the other more democratic communities organised as non-profit organisations, such as BeWelcome.org or WarmShowers.”

Equally passionately, “Anonymous” noted:

“Couchsurfing and its ‘team’ or ‘board’ or whatever they have constructed now have never kept a promise, certainly not the one repeated for 5 years that “WE WILL NEVER BE A FOR-PROFIT CORPORATION”. Their skill lies in jettisoning devoted volunteers when they ask serious and professional questions.

Instead CS has taken ‘donations’ under the guise of a charity and published delayed audits that always showed they had made hefty margins and had cash in hand.. till suddenly they show up with a $3.9 MILLION debt.

And yes I am still trying to get some equity for my time invested in a proclaimed ‘charity’ -this is why i am ‘anonymous’.”

This is shaping not only in an incredible story of a social enterprise, but a rich opportunity for tomorrow’s social entrepreneurs.

Lessons in Honoring Your Mission and Members

Just as hindsight is 20/20, the story of Couchsurfing is ripe with lessons that seem so clear today.
1. Honor Your Mission.  This is true especially when you have a broad membership. Here loyal donors, volunteers, couchsurfers, and couchsurfees were rebuffed in their belief of the mission of the nonprofit to connect travelers and hosts in a safe and meaningful way, without profit motive. With the major shift in legal structure, co-founders Casey Fenton, Dan Hoffer, Sebastien Le Tuan, and Leonardo Silveira took a risky bet that their users would stand steadfast even in the face of a major shift in purpose and profit.
The risk didn’t pay off here. Perhaps B corp was new and unknown—such that it didn’t inspire confidence in users in 2011 that the mission of the organization could be pursued meaningfully in a for-profit structure. Perhaps it was a lack of follow through or a case of “greenwashing” — i.e. in using B corp more as a PR move than to honor the initial mission. It is hard to say—but knowing that most co-founders are utterly loyal to their ideas—it seems likely that the heart of the mission was in the right place even with the shift of legal structure—but somehow the intent didn’t survive the transition in a way that made members, volunteers, and donors feel heard and acknowledged.
2. Honor Your Members. With the backlash of members, it is clear that the founders thought they could sidestep informing members and asking them if they would support the new organization. The goodwill created in establishing a global nonprofit seemingly dissolved in the face of the new goal of profit in addition to purpose.
Here, it may have been wise for CS to inform members, or inform power members and rely on them to ambassador the message.
3. Expect Failure, and Adapt.  As we have learned in the “lean” method to startup and social enterprise—startups should expect failure. Here, the founders took a calculated risk (i.e. that members and networks would have no problem with the change) and that turned out not be the case. It was a small failure.
The larger failure came next, when the company couldn’t recognize and adapt to dissent and unhappiness from its target market. Here is where quick assessment and pivots could potentially have steered the company back on course. But, with four years to review, it doesn’t seem that the company was able adopt the ample customer feedback. Perhaps with the restructuring an influx of venture-backed capital, the founders were limited in the actions they could take to right the situation. Or perhaps, what was done was done—and beyond apologizing, the company didn’t know what definitive steps it could take to earn back the trust of its user base.

Couchsurfing in 2015 and Beyond

After the exit of Tony Espinoza, Jen Billock (formerly director of member experience) was tapped for the CEO role. Under her guidance, the site has seen a major re-launch which involved over 30 hours of downtime. Beyond front-end design changes, the re-launch featured improved search functionalities.
Perhaps in a nod to learning from the past, Billock was sure to include robust beta testers in preparation for the relaunch.
Considering the company has raised in excess of $22M in venture funding—there may be a vibrant second life ahead. However, unlike during its initial launch in 2003, it has to contend with neither being a novel concept, nor being the market leader. With rapid growth of companies like Airbnb, peer-to-peer sharing of space as an idea has been validated and perfected to a far greater degree than when CS first introduced the concept.
With innovation, honoring its mission and members, and being ready to pivot—it remains to be seen whether Couchsurfing can adapt and create unique value ahead.

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(Note: Reading the comments for the articles noted is highly recommended. Many are thoughtful notes by former CouchSurfers and provide depth to story and evolution of CS)
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Photo Essay: Social Enterprise Law Symposium 2014 at University of California Berkeley, School of Law

The first Berkeley “Social Enterprise Law Symposium” took place in the first week of April 2014. The Boalt Social Enterprise Group (a student organization of UC Berkeley School of Law) and the Impact Law Forum hosted the insightful event to take a closer look at financing & exits for social enterprises. The event comprised of two panel discussions and surveyed the finance and legal structures for social enterprises from startup stages to scale– focusing more on scalable social enterprises backed by foundation or grant funding.Scroll down below for links to watch videos of the sessions.From the perspective of covering social enterprise law in various posts on Innov8Social about the introduction and passage of benefit corporation legislation in California and beyond; hybrid corporate forms including L3C, CA flexible purpose corporation, and others; the merit of tandem structures (i.e. for-profit + nonprofit combinations); potential of crowdfunding for equity; and impact financing possibilities and constraints—-the panel talks validated some overall trends that have been emerging and brought to light interesting nuances by active legal practitioners in the space, social entrepreneurs, funders, returns-focused venture capital, and policy experts.

Below is a photo essay from the talk, along with a few notes about notable quotes and points raised. You can also read literature handed out at the Symposium on the Impact Law Forum website.

Attorney Gene Takagi also posted about about the session in his blog post, “Financing Social Enterprises: From Start-up Through Exit”.

Social Enterprise Law Symposium

The panel talks afforded legal practitioners continuing legal education credit and brought together a diverse group of individuals engaged or curious about the social enterprise space.

Panel 1: Early Stage Financing and Mission Preservation

Social Enterprise Law Symposium

Panel 1 included (from the left): Rick Moss (Founder and Managing Director of Better Ventures); Ayesha Wagle (President of KOMAZA, a social enterprise); Will Fitzpatrick (General Counsel and Secretary of the Board of Omidyar Network); and Susan Mac Cormac (Partner at Morrison & Foerester’s Clean Technology Group & PRivate Equity and Venture Investment Practice, and Co-Chair of the Working Group for the Flexible Purpose Corporation). The panel discussion was moderated by Berkeley law student, Jen Barnette (extreme right)

 

Social Enterprise Law Symposium
To put the social enterprise sector into context, Susan Mac Cormac (center) noted that social enterprises represent less than 1% of the total capital market. She also framed the stage of development and reporting of the infrastructure for social enterprises, in her reflection that “if hybrid structures are in the the ‘1st grade’ of development, impact measurement is in ‘kindergarten.'”
In addressing his perspective on hybrid legal structures, Will Fitzpatrick (left in photo) of Omidyar referenced a quote by famous Silicon Valley venture capitalist Marc Andreesen, likening hybrid structures to a “houseboat” because, in Andreesen’s view, “they are neither a good house, nor a good boat.” He also emphasized the weight Omidyar Network places on the scalability of the social enterprises and nonprofits it funds and supports.
Moderator Jen Barnette (right) covered questions surround legal structure options as well as ways social enterprises can avoid “mission drift” and the impact of legal structures and channels of funding.
Social Enterprise Law Symposium
Ayesha Wagle (right) discussed the emerging view of social enterprises as a new asset class in investing. She also reflected on social enterprises pursuing funding, noting the importance of choosing funding types wisely, based on risk tolerance and ability to bear debt or give equity.
Rick Moss (left) brought up an interesting point that his venture fund prefers social enterprises to come in for funding with no legal form rather than an overly-complex of “bad” legal structure.


Social Enterprise Law Symposium
Social Enterprise Law Symposium

 

Panel 2: Exits

 

Social Enterprise Law Symposium

Panel 2 included (from the left) Mark Perutz (partner at DBL Investors & Board member of Revolution Foods); Kendall Baker (CFO at Revolution Foods); Jan Piotrowski (Head of Venture Coverage at Credit Suisse); and Eric Talley (Berkeley Law professor and co-director of Berkeley Center for Law, Business, and the Economy). The panel was moderated by Berkeley JD/MBA candidate, Libby Hadzima.

Social Enterprise Law Symposium
Jan Piotrowski (left) noted that while we haven’t seen big exits in the social enterprise space yet, the time is coming.
Professor Eric Tully (center) expanded on the case of Ben & Jerry’s as a “zeitgeist” of social enterprise M&A and expanded on the implications of the legal case Revlon and “teeth” that new legal structure provide in preserving a social enterprise’s mission in exists.
Moderator Libby Hadzima (right) posed questions framing typical exits for social enterprises, what venture capital firms seek when engaging with social enterprises, and ways social enterprises can pursue mission even in exit scenarios.

 

Social Enterprise Law Symposium

Mark Perutz (left) emphasized that DBL Investors seeks big returns so as to be making “absolutely no sacrifice on financial return” when investing in social enterprises.


Kendall Baker (right) shared Revolution Foods’ mission to become the first mission-based company to go public and expounded on the “halo effect” of health/wellness companies trading higher than companies not dedicated to those goals in similarly situated companies in their class. (i.e. Annie’s brand).

 

Social Enterprise Law Symposium

 

Reception

After the panel discussions, speakers and attendees gathered on the patio—continuing conversations and sharing insights from diverse perspectives and experiences in the social enterprise space.

Social Enterprise Law Symposium

 

Social Enterprise Law Symposium

 

Social enterprise Law Symposium 2014

Watch the Videos

PANEL 1: EARLY-STAGE FINANCING & MISSION PRESERVATION
PANEL 2: EXIT
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8 Takeaways from Stanford Codex #FutureLaw 2013: The Big Picture

Codex #FutureLaw 2013 ConferenceOn April 26th 2013 hundreds of attorneys, law students, legal startup founders, informatics experts, and venture capitalists gathered for the first ever Codex FutureLaw Conference (i.e. #FutureLaw) hosted by Codex— the Stanford Center for Legal Informatics .Codex #FutureLaw 2013 ConferenceThe day was structured in 5 panel discussions with a kickoff keynote by Charley Moore (Founder of RocketLawyer) and capstone keynote by Daniel Martin Katz (Co-founder of ReinventLaw Laboratory and Asst. Professor at Michigan State Univ). It was a day for thinkers and doers in the legal tech space to talk shop, exchange notes, and ask tough questions about the field.The Reinvent Law movement has been making its voice heard in Silicon Valley. You may recall our recap of #ReinventLaw Silicon Valley through a compilation of tweets and photos. That event, in March 2013,  brought together 40+ speakers in a rapid-fire format to discuss major issues, inefficiencies, and challenges facing the current legal system—and solutions that tech + design + delivery can provide.

The #FutureLaw Conference at Stanford was a logical follow-up to the March event. It took place in a more intimate setting featuring fewer speakers, many of whom were leaders in this emerging space, in  interactive small panels featuring significant audience participation. The exploration into the topic was genuine—with many of the panelists posing questions from the audience in other panel sessions. The atmosphere was collegial and conversations of concepts raised in the panels continued between participants during the breaks and lunch hour.

Recaps of #FutureLaw

There are a few excellent recaps and summaries of the event that have been published. I am including Stanford Codex’s Storify recap of the event below. Here are a few additional resources and recaps:

 

8 Takeaways from #FutureLaw Conference Hosted by Stanford Codex

As the day progressed I began scribbling broad concepts in the margins of my notes. Things that left me…wait for it… #mindblown, or that provided fresh takes on enduring concepts. The field of law is ripe for innovation. The industry has been one of the hardest-hit by the Great Recession. And while select firms and attorneys have survived, if not prospered, for each success there are countless numbers of law school graduates and attorneys who struggle to find a foothold in the field, and perhaps no longer even seek one. Idle/restless legal professionals + tech innovation has given new pathways to take a look at the field through telescope, microscope, and 3D glasses. What has resulted is a movement to disrupt the status quo, and examine the success of law through the lens of its constituents rather than its practitioners. This change of viewpoint lends to re-prioritization and re-thinking of what law should be, and what data and design-driven innovation can lead law to become.

I wanted to share a few broad brushstroke takeaways from Codex FutureLaw 2013.

1. Contracts don’t need to be written documents. The second panel discussion of the day was on computational law and contracts. Panelist Kingley Martin (of KIIAC) brought up the fascinating question of “what is contract?” He reframed the traditional concept of a contract by specifying that above all, it is a “workflow design” and noting that we have chosen to express the workflow through words on a document. However, contracts could also be expressed as code or in a variety of other formats—some of which might be more suitable to replicating, customizing, and operationalizing.

2. Legal startups should choose a VC wisely. The third panel was all about financing legal startups. VCs and founders shared their experience in the funding process. One legal startup founder made it clear that legal startups are a unique animal, and that founders trying to line up funding should seek out a VC who understands nuances of the field. Another panelist summed up his thoughts on exit strategies:  “acquistion is a reasonable outcome, but a terrible plan.”

3. Design for people first.  Budding law students are instructed that one of an attorney’s duties is to zealously represent his/her client. That makes sense for the lawyer, and the client…but not for the field of law. The result is a field that contains, gaping disconnects and inefficiencies, essentially by design. Instead, new legal startups are thinking about the participants in law as they design tools, UI, and resources. They are leveraging what people want to know about the law in designing tools to provide those resources efficiently, cost-effectively, while leveraging copious amounts of relevant data available.

Codex #FutureLaw 2013 Conference4. Open source hybrids are OK. In one of the panels it was brought up that open sourcing legal information is particularly difficult because libraries of contracts, filings, documents, and research are precisely what distinguishes various attorneys and firms. Instead of a full open source mode, there might be innovative hybrid models that will enable attorneys and firms to retain their valuable information while also contributing to the overal open law movement. It doesn’t have to be an either/or thing.

5. Law can be “automated”.  As consumers are already used to “boiler plate” language for everything from online shopping to buying a new car. Instead of recreating the wheel, maybe there’s a way to standardize it to make the content more accessible and understandable. Awhile back Innov8Social covered the movement to standardize #PrivacyIcons, lead by a group called Disconnect. Movements such as that one are showing us that parts of law can be made more efficient through smart automation.

6. Law can be re-imagined. When you are sitting at a library studying the Rule Against Perpetuities in law school or slogging away memorizing key concepts and case law for the Bar exam, there is little room for thought on ways to re-imagine the field of law itself. But the truth is, of course it can be re-imagined. Entrepreneurs and attorneys complain that the patent law system and taxation mechanisms haven’t changed or adapted to emerging needs and industries. The influx and availability of digital data also changes how we interact with the field. Not only can law be reimagined, it is almost feels imperative that the movement to do so continue.

credit: Margaret Hagan

7. Law can be beautiful. One of the house favorites of the day was the panel on design. The startups and designers presented beautiful, simple, mindblowing ways to think about legal tech data. It becomes quite clear that the proof is in the pudding when you view the work of these designers, such as Margaret Hagan

8. Lawyers can re-invent law. It may be tempting to wait for changes to the field. But the conference showed that there are already a number of attorneys who are taking bold steps to reinvent the field. The final speaker of the day, Daniel Katz spoke to tangible ways that law school education can be tweaked to prepare the next generation of legal professionals—who have studied not only Torts but also computational law, informatics, and have actually worked with a team to pitch, code, validate, and launch a project leveraging law, tech, innovation, design with data and delivery.

Stanford Law’s Storify: A Look Back at Codex FutureLaw 2013

[View the story “A look back at CodeX FutureLaw 2013” on Storify]

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Interview with R. Todd Johnson, Co-Author of California’s Flexible Purpose Corporation Legislation

California holds a special place in the story of new legal structures for social enterprise. Not only was it the 6th state to pass benefit corporation legislation, it was also the first state to pass flexible purpose legislation—-in the same legislative term.

Meet Attorney Todd Johnson

One of the thought leaders in social enterprise law in California, and co-author of the FPC (flexible purpose corporation) law is R.Todd Johnson Todd Johnson. Todd is a Partner at Jones Day and is the Practice Leader of the Energy group of the firm where he focuses on Renewable Energy and Sustainability.

Todd has had a lengthy career serving social entrepreneurs, having represented companies such as SunPower, Embrace Technologies, GoodGuide, LaborFair.com, as well as Grameen Trust, and advising companies like Good Capital, Global Giving, and B Labs during his 25 year career at Jones Day. He also blogs at Business for Good.

Innov8Social had a chance to speak with Todd Johnson about his vision for the intersection of law, policy, and social enterprise; as well as the story behind California’s flexible purpose corporation.

Read the Interview

Q1 | Innov8Social:  How do you define social entrepreneurship?

A1 | R. Todd Johnson, Partner at Jones Day:

 Social entrepreneurship is applying the best tools of entrepreneurship to tackle some of the world’s toughest problems, in a way that people and the planet can flourish.

Q2 | Innov8Social:  Can you share the history of the flexible purpose corporation?

A2 | Todd Johnson :

In the late 1990’s as I started working with social entrepreneurs I noticed some dysfunction in the way the legal community thought about legal structures for social enterprises. The thinking was bifurcated…there was a 1 or 0 mentality on the subject, and there wasn’t much middle ground. Entrepreneurs were forced to choose between being a “for-profit” or a “not-for-profit,” terms loaded with baggage of what entities should and should not do.
Then, a shift started happening. Companies such as Salesforce championed a 1-1-1 model and other corporations, often spurred by institutional investors, adopted strong environmental, social and corporate governance (ESG) measures. These innovations moved the for-profit model more toward a company doing good rather than merely minimizing harm.
Even these initial steps were cautiously taken. Companies like Google already had standing mottos of doing the least harm (i.e. “don’t be evil”) and certain sin stock filters on portfolios excluded vice-products such as tobacco, alcohol, etc.
I began working with the social enterprise PureVida Coffee in the late 1990’s, whose founders had new questions. For example, they wanted to know if you want to do something that is fully blended, what legal structure should you adopt?
As I started thinking about these issues, I met Jay Cohen Gilbert and others social enterprise thinkers at the Aspen Institute. He and B Corporation co-founders were beginning to develop the B Lab and B Corporation concepts.
In working closely on issues of social enterprise law, I saw a huge flaw in many corporate statutes. In California, for example, a social enterprise couldn’t even file Articles of Incorporation with a mission/impact driven statement of purpose. The fact that founders could not write in a purpose for their corporations was a major issue.
In 2005-2006 I did a study on constituency statutes for B Lab. Constituency statutes can be effective tools in legal tool kit; however, they don’t necessarily create transparency around stakeholder empowerment. And in all 31 states with constituency statutes, it is elective (i.e. Boards can abide, but are not required to).
In 2008, B Lab proposed a California constituency statute applying a “shall” requirement—to apply to all corporations. While I supported the idea that the market should allow for social enterprise, I was wary of forcing it on every corporation. A few entities, including the State Bar Association opposed the proposed law. 2008 was also the first year of major budget battles in CA (i.e. there were 99 bills that Gov. Schwarzenegger allowed to lapse, and vetoed by default). The governor didn’t comment on any of the vetoes, except for this one—he told the bill’s sponsor that he wanted a better bill, and wanted CA to be a leader.
I convened a meeting at our SF offices in Fall 2008. The robust discussions resulted in a working group of 10 lawyers including attorneys from large firms, smaller firms law firm, academics, nonprofit attorneys, and foundation attorneys who kicked off a multi-year effort to create a new statute for social enterprise.
In 2009, we published a draft of a new law and distributed it to 300 social entrepreneurs, organizations, thought leaders, and incubators, and received comments from many. In response, we made changes to the proposed legislation and prepared an FAQ to explain the changes made and those that were not made in response to comments. That FAQ remains available to this date, providing transparency in the trade-offs made in drafting the legislation. In 2010, California state senator DeSaulnier sponsored the bill. Unfortunately it was another budget battle bill year, and the bill didn’t proceed very far. In 2010, B Lab also ended up introducing their own legislation in MD and VT, and in 2011, introduced a version in California.
In 2011, both the benefit corporation and flexible purpose corporation legislation passed into law in CA. Since that time, fifteen states have adopted either a benefit corporation or social enterprise legislation that resembles FPC. And just two weeks ago, Delaware (the grand-daddy of all corporate laws), introduced legislation that is a hybrid between the benefit corporation and the flexible purpose corporation.

Q3 | Innov8Social:  What have you seen from the front lines of being part of social enterprise legislation?

A3 | Todd Johnson:

The structuring of social enterprise is in its infancy. We are in the rapid prototyping phase, and we should realize there will be failures. I think it is key to apply design theory in determining legal structure for social enterprise.
For me, the real test for these new legal forms will be whether they attract capital. Today, the jury is still out on that point. Most of the B Corporations that have institutional investor funding are traditional Delaware corporations or they are companies like Patagonia – owned and controlled by a founder with a passion around anchoring the mission. The key will be when capital flows freely into companies that are organized affirmatively to achieve blended value or the triple-bottom line and are structured to make that institutional, rather than subject to the will of the founder (which is always at risk of death, divorce or a change of heart).

Q4 | Innov8Social:  How do you help social enterprises determine the right structure for their business?

A4 | Todd Johnson:

When I discuss legal structure options with social entrepreneurs, I walk them through a “design tree” of options. It helps to evaluate the traits of each form against the needs of a particular business.
I personally don’t find tandem structures (using both a for-profit and a non-profit corporation) to be a good option, except in the situation of a “corner case”. Look, a startup is hard to launch on its own—without a social mission. Nine out of ten startups fail in the first two years. And social entrepreneurs aren’t just doing a start-up, but they are also trying to tackle some of the world’s hardest problems.Tandem structures lead to social enterprises doing all of that while living with the worst of both worlds—i.e. having to adhere to strict accountability of corporate law as well as IRS regulations.
However, some social enterprises have chosen a tandem model because tax deductible contributions are key to the business model. For example, Global Giving adopted a tandem structure; although I’m sure that Mari and Dennis could give founders an earful about the challenges of establishing and operating such a structure. In contrast, there seems to be a movement for social entrepreneurs to consider starting in a non-profit as a way to cover the soft costs of start-up, and then morphing into a for-profit once a product or business idea is fully baked. This is challenging and not for the faint of heart, even if it is possible. Embrace Technologies did something like this, but not without receiving hundreds of pro bono hours from a law firm to navigate the challenges. Also, it can be difficult and costly to move assets between entities–a business and nonprofit (i.e. you need 2 law firms, and huge transaction cost are major). At the end of the day, I think the administrative and operational costs of pursuing this route make it extremely unwise, except in the rarest of circumstances.

Q5 | Innov8Social:  Should CA still pursue a constituency statute?

A5 | Todd Johnson:

No, that’s crazy!
In mid-1980’s states introduced constituency statutes to be able to look at other interests besides maximizing shareholder value. So 31 states have passed them, but they were essentially anti-takeover tools. The idea of using them for social enterprises as a way to anchor the mission is no longer necessary in most cases, now that B Lab has been successful in getting alternative legislation adopted in so many states.
And we need to remember, no courts have ever looked at using constituency statutes as a way to anchor the social mission of a social enterprise. There is a risk that a constituency statute might not be effective to protect a corporation’s mission.

Q6 | Innov8Social:  What are your thoughts on how social enterprises should measure impact?

A6 | Todd Johnson:

First, let’s be clear. Social enterprise is not a sector! A social enterprise is a business deploying capital to solve problems/do good. Organizations that are making money and doing good are social enterprises. At its essence, social entrepreneurship is a “way” of doing business, rather than a type of business.
But that means that measuring impact depends on the type of business of a social enterprise. We can’t think of impact in a uniform way. For example, Change.org can measure impact by successful petitions. Embrace can measure the number of babies lives saved by the number of inexpensive infant incubators distributed. The folks at d.light can estimate the amount of kerosene not used in favor of their solar-powered LED lights and the health and environmental benefits.
It’s incumbent on the social enterprises to develop an impact strategy and a means for measuring and reporting that impact. Of course, as my examples note, this will be different for a base of the economic pyramid company than for a Western-focused technology company. And it will be hard for companies with a mission around personal transformation. But social enterprises need to own this issue as part of their business plan, and it must include looking and thinking about the unintended negative consequences.Bottom line: If social entrepreneurs want to attract impact investing money, then they need to have a well-developed impact story, developed using the same type of empathic design thinking they used to develop their service or product.

Q7 | Innov8Social:  What inspires your commitment to the social enterprise movement?

A7 | Todd Johnson:

My parents have always been very active in their communities and always modeled giving back. From the very beginning of my legal career I have sought out ways to give back.
At Jones Day, I run the renewable energy and sustainability practice—and that fits well with my passions.
But ultimately, I feel like that part of my responsibility–and others of us who are more established in the field (or just older)— to help build an ecosystem for the young lawyers passionate about this emerging arena.

Q8 | Innov8Social: What advice do you have for attorneys interested in practicing social enterprise law?

A8 | Todd Johnson:

First, there really isn’t such a thing as “social enterprise law.” The most important goal for any young lawyer passionate about this area must be to become a very good lawyer in a specific expertise – capital markets, mergers and acquisitions, venture capital and private equity, intellectual property, etc. Then apply that expertise to social enterprises. Initially, focus on becoming an expert.
Lawyers need to understand at the beginning of their careers that the trajectory of an attorney’s career is like an hour-glass—broad at the beginning, specialized as it develops, and broad in the later years — and prepare accordingly.note: photo of Todd was adapted from his LinkedIn photo. 
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Interview: Jonathan Storper, Partner at Hanson Bridgett LLP and Involved in Passage of CA Benefit Corporation Legislation

Meet Jonathan Storper, Attorney in Sustainability

Innov8Social had the chance to speak with Jonathan Storper, a Partner at the well-established law firm Hanson Bridgett and lead attorney of the firm’s Sustainable Business Practice. Jonathan was instrumental in drafting and supporting the benefit Jonathan Storpercorporation legislation in California through all stages of its development and passage.

To provide a little background, Jonathan has been a prominent voice and early champion of creating a new legal structure that recognizes impact-oriented goals in addition to profit.

Storper has been synonymous with the benefit corporation movement from its nascent stage. If you have been keeping up with Innov8Social since its start in May 2011 you may have read recaps and posts about events such as the Sustainable Enterprise Conference, San Jose Green Business Academy, and SOCAP11—events at which Jonathan presented or spoke about the topic. The support extended to his firm, Hanson Bridgett, which has been frequently listed in support of the legislation.

Read the Interview

Q1 | Innov8Social:  How do you define social innovation?


A1 | Jonathan Storper, Partner at Hanson Bridgett LLP:   I define it as any new venture or action that attempts to improve the human condition. Social innovation harnesses the creativity of humans to improve the human condition in some way.

Q2 | Innov8Social:  Was AB 361 (California’s benefit corporation legislation) the first piece of legislation you helped to write? What was your experience in drafting it?


A2 | Jonathan Storper:   The benefit corporation legislation, passed in October 2011 was not the first legislative effort I was involved with. The first was AB 2944 in 2008, which was a precursor to benefit corporation legislation.

That bill proposed that companies could consider multiple stakeholders (including interests of employees, the community, and the environment) when assessing the best interest of the corporation. It passed through the California State Assembly and State Senate but was ultimately vetoed by Governor Schwarzenegger.

I found it interesting to see how the legislature works, how support and opposition for legislation works, and how coalitions work.  It was wonderful to work on enacting policy. And, I saw first-hand that passing legislation is an iterative process.

The first bill, AB 2944, was essentially a constituency statute, as 31 other states have. The bill had significant opposition of a committee from the State Bar.

Hanson Bridget is a founding B corp member and was in contact with the B Lab family early in the process. The idea for the new legislation came from a conversation with B Lab.  In thinking about proposing new legislation, I wanted to be sure the new form was one that social entrepreneurs wanted, not something only attorneys wanted.

For AB 361, the team drafting the legislation was more ready and more aware of support and opposition. I learned from the prior experience that projects like these take longer than you think and really require coalition-building. I knew it would be vital to build a constituency and have a broad coalition even before working on the legislation, so we created a legal working group to draft and develop the legislation and process.

I am much more satisfied with what [the 2011 legislation] evolved to [from the 2008 version]. It is broader than a constituency statute and provides for accountability, transparency, consumer protection, and shareholder rights. Legislation is iterative and even the current benefit corporation may also need to evolve and change in the future.


Q3 | Innov8Social:  Would it still be useful to have a constituency statute in CA?


A3 | Jonathan Storper:   Having a constituency statute would be great because it would encourage boards to do more for social and environmental issues.

However, there is no assessment or reporting required with a constituency statute. Considering that new legislation such as the benefit corporation requires transparency, it may be more protective than a constituency statute. I’m not sure that a constituency statute for California is as necessary now.

Q4 | Innov8Social:  What advice do you have for social innovation-minded attorneys interested in policy and legislation work?


A4 | Jonathan Storper:    Don’t get discouraged. It may take longer than you think—but a few really dedicated people can make a difference, still. A few people and a few good ideas are able to harness exponential power of really good people, companies, and associations. Being involved in the process has renewed my faith in the legislature.

If you choose to work for a firm, find one that encourages pro bono work. I am grateful to be part of a firm that supports pro bono work. Being so involved with the legislation has also been helpful to the firm. I have incorporated a number of benefit corporations, in fact–just one earlier today.Q5 | Innov8Social:  How has the passage of benefit corporation legislation and flexible purpose corporation affected your legal practice?


A5 | Jonathan Storper:   It has been interesting. I always tell people who are interested in converting or starting a social enterprise about the usual customary forms as well as flexible purpose corporation and benefit corporation. About 2/3 or 75% of social enterprises that have chosen one of the two new structures has elected to to structure as a benefit corporations. The choice to do so is more aligned with the already-existing mission/practice of the business.

I have been approached about new legal structures by companies such as an ad agency, music company, consumer product company, science fiction publisher, and education providers.

I have been asked to make presentations about the new structures, and found that I really enjoy the opportunity to speak and write about this topic.

Q6 | Innov8Social:  How do you see social enterprises measuring impact?

A6 | Jonathan Storper:   This is one of the biggest challenges for social enterprise. There are a number of different standard-setting organizations. This is unfortunate but is how our economy works.

It will take awhile for there to be a uniform way to measure impact, but will be valuable.

Q7 | Innov8Social:  What is next for you and Hanson Bridgett in terms of projects related to sustainability and social entrepreneurship…in 2013 and beyond?


A7 | Jonathan Storper:   A lot of attorneys interested in the area branch out and use their knowledge in sustainability to do different things. One of my Partners participates in Global Social Venture Competition at Haas.

My next goal is to come up with a best practices guide for benefit corporation in collaboration with UCLA’s School of Public Policy. I am interested in providing guidance on how a Board of Directors would approach a multi-stakeholder model.  We hope to provide guidance on how the Board can create an organization using assets that are tangible and intangible that help solve the human condition.

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Webinar Recap: Ashoka Workshop on Hybrid Legal Structures by Morrison & Foerster, Jones Day, and Adler & Colvin

On Tuesday, January 29th 2013 Ashoka Legal brought together a few top law firms specializing in social enterprise law and hybrid structures. The session was created to be an open discussion and training on some of latest trends, tools, and resources for setting up nonprofits, for-profits, hybrids, and new corporate structures.
Hybrid Structures Webinar: Nonprofits, For-profits, and New Corporate Forms
The event, held at the Morrison & Foerster offices in San Francisco, was live-streamed online. The presenters’ list included:

Watch the Webinar

For social innovation attorneys, law students, and social entrepreneurs seeking to research legal entity options, formation, and restructuring—this webinar is an excellent tool to begin unpacking the many options available. And, the experience is made more meaningful as it is guided by attorneys at the forefront of the social enterprise legal space.
If you missed the the live webinar or live session, Morrison & Foerster is making the archived webinar available for viewing until April 2013.

Legal Structures

The speakers spoke in detail about legal structures that have been covered on Innov8Social, weaving in practical experience, policy history, and examples into their assessment of how each structure may benefit a social enterprise or non-profit.
Legal structures for social enterprise law covered in the webinar
Hybrid legal structures
  • For-profit subsidiary of a nonprofit
  • Nonprofit under control of for-profit
  • Sibling relationship of for-profit and nonprofit
  • Independent, but aligned entities
Other tools that can create value, and enable entities to remain mission-driven 
  • Licensing
  • Trademark
  • Integrated reporting: to integrate social, environmental impact alongside financials
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Q & A About Crimes Against Women in India with Attorney Preeti Goel Bishop

Violence Against Women in India

Of his 23 year-old aspiring physiotherapist daughter, Jyoti Singh Pandey’s father told press last week, “I am proud of her. Revealing her name will give courage to other women who have survived these attacks. They will find strength from my daughter.”Jyoti and a male friend were attacked on a bus in South Delhi, India in December 2012. She passed away two weeks later from severe injuries resulting from the gang rape and impact from a metal rod she endured. Six individuals have been charged for murder, rape, abduction, and other offenses.The crime has incited millions worldwide, and has put a spotlight on the crime and punishment for crimes against women in India and elsewhere.

New Delhi protest NewDelhiprotest2 Protests After Death of Gang Rape Victim, New Delhi, India - 02 Jan 2013

Knowledge, a Path to Constructive Change

Knowledge can form a path to constructive change, and awareness and communication get us there faster.

With renewed focus on the pervasive issues of crimes against women in India and other countries, there is an urgency to understand the legal and legislative structure in India.

Meet Preeti Goel Bishop, Attorney in California

Preeti KhannaTo facilitate knowledge-gathering on this issue, Innov8Social interviewed Preeti Khanna, a practicing attorney in California with several years of law practice in India. She provided valuable insight about crimes against women in India and the potential for new legislation and implementation to impact change.

Preeti graduated from the University of Delhi with a B.A. in Psychology, with Honors, before pursuing a law degree from the same university. In her career as an attorney, she has actively litigated cases in the Delhi High Court and Indian Supreme Court with a focus on criminal, employment, and administrative law cases.

She recently completed her Masters in Law (LL.M) at the University of California, Berkeley in Business and International Law and is now working as a research fellow at Berkeley Law School.

Read the Interview

Q & A About Crimes Against Women in India with Attorney Preeti Goel Bishop

Q1 | Innov8Social: How are crimes against women prosecuted in Delhi/India currently? Is there leniency if a perpetrator marries a survivor of a sex crime?

A1 | Preeti Goel Bishop, Attorney: India is a common law jurisdiction, with a partly federal and partly union structure. Furthermore, juries were abolished in India in 1961 or so, and trials are conducted under the adversarial system.

Sex crimes are defined under the Indian Penal Code for instance in:

  • Section 376 (Punishment for rape)
  • Section 354 (Assault or criminal force to woman with intent to outrage her modesty);

and other statutes such as:

In addition, there are some state specific laws as well. Furthermore, even though not yet codified under statute, sexual harassment of women at workplace is criminalized under a scheme set up by the Supreme Court (Please refer the 1997 constitution bench Supreme Court decision in Vishakha case).

Prosecution of sex crimes proceeds much the same manner as prosecution for any other crime.

Prosecution is governed by the Code of Criminal Procedure, 1973 (CRPC) and begins with an aggrieved person filing a first investigation report (FIR) with police, which is the primary investigating authority. Police conducts an investigation – records statement of victim, visits and collects evidence or inspects the scene of crime, evidence/statements of other identified persons are collected, medical and forensic examination takes place etc. After completing investigation, the police submits a chargesheet and its report, and trial commences in the court. A Court /judge/ magistrate may also take suo-moto cognizance of an offense and direct the police to carry out an investigation and submit a report to the court. All detailed procedures are specified in CRPC. Prosecution and defense evidence is led and trial is held.

As for leniency – this depends on facts.

The willingness of the girl is the important factor here. The court will attempt to separate sham transactions and lift the veil. Offer to marry a victim of crime cannot be allowed to become a way to bail consequences. If the interests of parties are found genuine, and not resulting from any oppression or coercion or not found sham, it may be a mitigating circumstance – and treated as a sort of a compromise or settlement. The benefit to the victim is the key factor. After all, one of the objects of punishment is to redress the grievances of the victim.

Q2 | Innov8Social:  What are the steps required to enact new legislation changing the law in India? How long does it usually take?

A2 | Preeti: Again, India has a Westminster parliamentary scheme of government, with a bicameral legislature. Law is enacted by legislature. If legislature is not in session, and there is any sort of urgency, the executive is not without power.
On the advice of the cabinet, executive (president) can pass an ordinance – which lasts for upto 6 months, and can be extended by the executive. It may also be voted into law. As for time, an ordinance can be passed in a day, and some bills never become law.
So it is difficult to determine a normative time, but time is not the constraint, political will is. Moreover, personally in my opinion, India has mature, good laws. The greater problem lies in their implementation.

Q3 | Innov8Social: From your practice of law and policy on related issues, what are the key changes you think would create the most impact in safety for women in Delhi (and India)?

A3 | Preeti: This is a big one. A multi-pronged approach is going to be effective. So in no order of importance:

  1. There needs to be greater social awareness of women’s rights and safety, and sensitivity to the plight of victims of crime – not just sexual crime, but other equally rampant crimes such as domestic violence etc.
  2. Victims of crime need greater support and need more protection. Often women victims and their families are threatened by the accused.
  3. Awareness should also be directed at changes in attitudes. For the most part, crimes against women simply go unreported, as victims are not comfortable coming forward and reporting.
  4. More effective policing is needed. More quantity of, better trained and more sensitized personnel, a quicker investigation by the police, reduction in corruption
  5. The judiciary is overburdened. A trial in a rape case for instance, should take no more than 6 months, and an appeal no longer than 6 months either. Reality is that it takes 5 to 10 years for each, which makes justice even if delivered,somewhat illusory. Trials have to be expedited. Technology is greatly under-utilized in process redesign. Everyone focuses on having more judges, but in my opinion, we can leverage our existing judges a LOT more, we can focus on the process efficiencies and focus on getting better co-operation from lawyers and the bar in expediting processes.
  6. Greater community involvement, and most importantly the social values and the approach to the place of women in society is the most important factor.
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Impact Law Forum — Cultivating a Legal Community for Social Enterprise

Impact Law Forum (ILF) is an innovative response to the growing interest of the legal community in serving impact entrepreneurs and social enterprise.

Started by Zoe Hunton of Hunton Law and Natalia Thurston of Social Venture Law, the practice group seeks to inform, share resources, build networks, and survey relevant issues, legislation, public policy and case law. 

Impact Law Forum Events

Impact Law Forum has organized two events since its inception in Fall 2012 and has a third planned for Thursday, January 24th 2013. You can Register here.

Upcoming:

  • January 24th 2013 Thursday meeting in Palo Alto. Founder of LawGives, Tony Lai will speak about his experience in social enterprise and the goals of LawGives—an online platform to engage and inform attorneys and to make free legal information widely available. Tony is a staff member of StartX (Stanford startup accelerator), was on a teaching team for the new Legal Technology course at Stanford Law School, and completed his LL.M at Stanford in Law, Science, and Technology.

Past Events:

What Inspires Impact Law

When asking co-creators of ILF Zoe and Natalia about how they envision Impact Law Forum, here’s what they had to say.

According to Natalia, a San Francisco-based attorney who leads a law firm specializing in social enterprise issues, “Impact Law Forum is a unique opportunity to engage a community of attorneys to support the growth of social entrepreneurship and build law practices also based on sustainable principles.”

Zoe, whose firm is based in Menlo Park, envisions ILF “building community in a dynamic area of law that is rapidly evolving to keep pace with social entrepreneurs who push the boundaries of what is possible despite limited resources and intense challenges.” She is enthusiastic about being part of a community “working towards social change and justice and consciously shifting the role of the law and lawyers to create a better and more just world.”

The potential for impact + law

There is great potential in moving the conversation of social entrepreneurship law from theory and policy to how it actually applies. Stay tuned for information on updates on the progress of ILF and the 411 on upcoming events.

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Interesting SSIR Article Takes Another Look at the Sale of Ben & Jerry’s to Unilever

If you find yourself at a roundtable discussion about law, policy, and social innovation there is a good chance you will hear buzzwords like fiduciary duty, Dodge v. Ford, Revlon, maximizing shareholder wealth, legal structures, benefit corporations, flexible purpose corporations, and business judgment rule.Key in all of that will be an account of some of the historical happenings in corporate law and how they hammered out our understanding about the way corporations, as distinct legal entities, relate to the individuals who own them (i.e. shareholders).And somewhere in the narrative, there’s a good chance that the story of the sale of Ben and Jerry’s will come up.

SSIR Article about the Sale of Ben and Jerry’s

In the Fall 2012 issue of the Stanford Social Innovation Review, Indiana University Law professors Antony Page and Robert A. Katz address the story of Ben and Jerry’s in an eloquent article titled, “The Truth About Ben and Jerry’s” that recalls the history of the company and context of its eventual sale to Unilever, and the impact of the sale to the social entrepreneurial vibe of the ice cream company.

Related Innov8Social Posts

As you read the article you may be searching for further background on some of the topics raised and buzzwords mentioned. Here are a few Innov8Social articles that may help.

 

Is There Still a Role for New Legal Structures for Social Innovation?

The SSIR article leaves it to the reader to decide on whether new legal structures are necessary, and if so, to what extent such structures should strive to create a presence in each state. In an earlier post, I suggested that these new legal structures may serve to formalize a way of measuring double and triple bottom lines.

Whether you are an avid supporter of new legal structures for social innovation, or are on the side of using existing legal constructs to support social entrepreneurship, the article provides a valuable history of the sale and its context.  And, above all, it keeps the discussion alive. It is through discussion, debate, and action that we can impact law and policy, that impact social entrepreneurs, who are steadfast on changing the way business is done.

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