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When you are in the midst of an emerging field, there is often no shortage of related terms and buzzwords. Social innovation is a prime example. Associated words and phrases include:Social innovation IQ

  • social entrepreneurship
  • social enterprise
  • impact investing
  • conscious capital
  • double bottom line
  • triple bottom line
  • social accounting
  • benefit corporations
  • flexible purpose corporations
  • low-profit limited liability companies (L3C’s)
  • hybrid corporations
  • blended value
  • social ventures
  • maximizing stakeholder value
  • doing well, by doing good
  • corporate social responsibility
  • and more….
Terminology, a Social Innovator Does Not Make
Through Innov8Social or various other blogs and resources, you may be (as I am) building your familiarity with key buzzwords in the field. But, as I begin to read books, listen to podcasts, and become more familiar with questions that those outside of social innovation have about the field—I realize that terms and buzzwords may not be enough to achieve the overarching goals of building new kinds of businesses that generate monetary profit while positively benefiting society & the environment.
We Need to Collectively Build Our Social Innovation IQ
What makes social innovation an intriguing prospect is also what makes it complex: it blurs the traditional distinctions between sectors such as financial, government, social, and environmental and seeks to connect them in new ways that align with mainstream business.
Judging by the burgeoning number of social innovation fellowships and accelerator programs available, it looks like more people and institutions are seeking connect with and expand the social innovation arena.
If we are putting out time into engaging and investing ourselves in this emerging field, it may be helpful to build our collective social innovation intelligence.
Components of Social Innovation IQ
Full disclosure, I am not an expert in this field. But as I learn and grow into it, I find myself developing more focused questions about what it will take to succeed as a social innovator and what it will take for the field of social innovation to succeed in impacting the way business is done. Here is my (evolving) understanding of components that can make up a social innovation IQ:
  • Financial intelligence
  • Social & environmental cause intelligence
  • Adversity intelligence
Much of it, I suspect, will begin with understanding the flow of money. Even though capital is one element of the triple bottom line, it is the one that is often most identifiable with mainstream business. Currency is like the electric current that powers machines. Though causes and action often eclipse capital in their reach and karmic importance—to understand that even the most compelling projects will require steady, consistent, and adequate funding is to understand the important role it plays.
Additionally, if we do not have a clear understanding about the history, root, and context of the social and environmental causes we aim to address—we may not be addressing issues in the most effective ways possible. Worse, we may not realize future problems that we are seeding with our best-intention ‘fixes’.
Finally, any start-up entrepreneur will tell you that there can be a fair dose of adversity required to launch and succeed. And, this likely only multiplies when your business is focused on maximizing a triple bottom line (people, planet, profits). We have to be able to identify re-frame our problems, dwell in resilience, and connect with the social innovation community for support and guidance.
What to Read
I am in the process of trying to build my social innovation IQ. I would love to connect with others interested in doing the same. Here are a few books I thought could get the ball rolling:
If this topic interests you, and you are also seeking ways to build a social innovation IQ, connect through the comments below, on the Innov8Social Facebook page, on Twitter, via email.
The movement to create new legal structure for social business called benefit corporation, took a definitive step forward in April 2010, when the first state passed the legislation.To Pass State LawPassing a bill requires no small amount of work.  A bill must be drafted with consideration of existing corporate codes and state law infrastructure, and it must be sponsored by a state legislator(s). Support for the new law must be established by affected constituents such as state and local business, entrepreneurs, and other state actors. The bill must be persuasive, relevant, and must address an unmet need. The bill must be presented in and voted on by various committees and representatives of state assemblies, and state senates.

And, if that process wasn’t involved enough, each state differs in its rules and process of how a bill is passed.

So it is noteworthy that benefit corporations did not only become law in a single state. The legislation has gone on to be introduced in various states, and has recently been passed in another 5 states. And similar legislation is being introduced in various other states.

So which states were first on the scene for benefit corporation?

6 in black, white, silver
6 States That Have Passed Benefit Corporation Legislation

  1. Maryland passed SB690/HB1009 in April 2010.
  2. Vermont passed S.263 in May 2010.
  3. Virginia passed HB2358 in March 2011.
  4. New Jersey passed S2170 in March 2011.
  5. Hawaii passed SB298 in July 2011.
  6. California passed AB361 in October 2011.
Read the text of the bills, find out about the legislative sponsors, and follow links to press coverage of the benefit corporation bills on B Lab’s Public Policy page.
California Capitol Building ceilingIn reviewing the last batch of the nearly 600 bills that he had to process, California Governor Jerry Brown signed into law both social innovation bills—just in time for the midnight deadline on October 10th, 2011.Both AB 361 (benefit corporations) and SB 201 (flexible purpose corporations) which create new legal structures for social enterprise are now officially California law.You can read the key points of each bill here.Read the official legislative update from the Governor’s office here.

California is #6

The passage of the benefit corporation legislation makes California the 6th state to recognize a new form of corporation that is for-profit and committed to creating a positive impact on society and the environment. California joins Maryland, Vermont, Hawaii, Virginia, and New Jersey in the benefit corporation club.

A Look Back

If you have been following the benefit corporation legislation movement on the B Corporation public policy page, here on Innov8Social, or on any number of sites following the developments, you may have been awaiting the midnight decision.

You can catch up on the progress of AB 361 in California:

  
A Look Ahead
   
Non-urgent bills such AB 361 and SB 201 signed into law will become effective January 1st, 2012. Until then, social entrepreneurs interested in becoming among the first benefit corporations in California, can use the time to decide which legal structure is the best fit, and become prepared to meet the various requirements.
Attorney Donald Simon shares some tips on how a company can get ready for benefit corporation certification or re-certification as a benefit corporation in these two videos:

Attorney Donald Simon Defines 3 Terms Related to AB 361 (Benefit Corporations) [VIDEO]

Attorney Donald Simon’s Q & A on California Benefit Corporation Legislation [VIDEO]

 

first

There is unique fame and distinction in being the first. In the Olympics it can win you gold. In the marketing world, it can give you first mover advantage. And in law it can help you set precedent.

Maryland can tap into these sentiments when telling the story of benefit corporation legislation. That’s because on April 13, 2010, Governor Martin O’Malley made Maryland the first state to legally recognize benefit corporations, when he signed Senate Bill 690 into law.

(A quick refrain, benefit corporation legislation creates a new form of corporation. One that is for-profit and that aims to create material positive impact on society and the environment. It is different from “B corporation”, which is a voluntary certification. More here.)

6 Interesting Provisions of Maryland’s SB 690, Creating Benefit Corporations

Here is a look at how Maryland has structured its benefit corporation bill, SB 690, which became effective law on October 1, 2010. It closely follows the model legislation prepared drafted by Drinker Biddle & Reath.

(Read the full text of Maryland’s benefit corporation bill here)

1. Defining a Benefit Corporation:
Paraphrased from Section  5–6C–06: Every benefit corporation shall have the purpose of creating general public benefit. Benefit corporations may additionally identify one or more specific public benefits.

Specific public benefits include (paraphrased from Section  5–6C–01):

  • providing beneficial products/services to individuals or communities;
  • promoting economic opportunity, beyond job creation, for individuals or communities;
  • preserving the environment;
  • improving public health;
  • promoting arts, science, or advancement of knowledge;
  • or any other particular benefit for society or the environment.

From Section  5–6C–01: “General public benefit” means a material positive impact on society and the environment, as measured by a third-party standard, through activities that promote a combination of specific public benefits.

2. Requirements
Paraphrased from Section 5-6C-05:  Companies that choose to incorporate as benefit corporations must make clear reference to their benefit corporation status by:

  • announcing the corporation is a benefit corporation at the head of the charter (and at the head of each subsequent charter); and on each outstanding stock certificate
  • approval by stockholders according to Maryland Corporations Code (Title 2, Subtitle 6). Note Section 2-604 requires 2/3 vote where there are stockholders.

3. Transitioning Corporations
Paraphrased from  5–6C–03: A corporation may elect to become a benefit corporation by amending or including in the charter of incorporation a statement that the corporation is a “benefit corporation.”

 Additionally, the required vote from stockholders is also required (Section 2-604 of Maryland Corporations Code).

4. Board of Directors Decisionmaking
Paraphrased from  5–6C–07: A Director of a benefit corporation should consider the effects of any decision to act or not to act based on:

  • shareholders of the benefit corporation
  • employees and workforce of the benefit corporation
  • customers as beneficiaries of the general or specific public benefit of the benefit corporation;
  • community and society;
  • local and global environment; and
  • any other pertinent factors or interest of any other group that the Director determines are appropriate to consider

5. Transparency
Paraphrased from 5–6C–08: Benefit corporations shall deliver an annual benefit report to each stockholder  within 120 days of the end of the fiscal year. The benefit report shall include:

  • description of how the benefit corporation has pursued the general public benefit, and the extent to which the general public benefit was created;
  • ways in which specific public benefit was created; and
  • any circumstances that have hindered creation of the public benefit; and
  • assessment of societal and environmental performance of the benefit corporation, consistent with a third-party standard;

The benefit report shall be posted publicly on the company’s website.

6. Termination
Paraphrased from Section  5–6C–04: A corporation may terminate its benefit corporation status by amending its articles of incorporation charter (i.e. deleting the statement that the corporation is a benefit corporation.”

Read On

Legal structure for social entrepreneursAn informative legal panel concluded Day 2 of the San Jose Green Business Academy last week. Professor William Kell of Berkeley’s Boalt Law School provided a helpful approach to social entrepreneurs contemplating their legal structure and business needs.

 

A Business + Law Approach
Professor Kell noted that new entrepreneurs often need more than individual efforts of a lawyer and individual efforts of a financial planner. They often need the combined skills of business and financial acumen along with a good understanding of the law. He outlined an integrated approach for assessing and developing a business-legal strategy for social entrepreneurs.
Professor Kell referred to this approach as a “diagnostic model” with a focus on planning for business success. No matter what stage of building a social enterprise you may be in, this approach can be useful in framing your current and future needs and can help prepare you for meeting with a business attorney.
The approach follows the acronym “BECOME”.
BECOME a social enterprise

Business Planning. Consider concept, customers, capital in developing a business plan.

Entity Formation. Determine the level of liability and protection your venture will need, and work with an attorney to find the optimum legal structure. Avoid forming too soon, as you will have to begin paying state fees for incorporation once you file (even if you don’t actually start doing business or generating income until later)

Capital Relationships. Have a clear understanding of your organization’s debt v. equity equation. The most common pitfall is companies not having enough capital.

Operational Relationships.  Understand players and flow involved in sourcing your products and services, manufacturing, and bringing to market. Do you meet any government requirements for your industry? Do you qualify for any programs (i.e. minority, women small business leaders, etc.)?

Managing Risks. Think of risks such as protecting intellectual property (IP), protecting against tort liability, and considering regulatory liability. An attorney can help identify ways to protect your organization’s assets and protect against liability.

Extra Permits & Licenses.  Depending on the products or services your social venture is contemplating, you will have to look into applicable government licenses and permits. For example, as a non-profit, your organization will have to apply for tax-exempt status. Likewise, to conduct any construction work, procuring a contractor’s license is required.

  • Resource: CalGOLD.ca.gov is a resource Professor Kell mentioned for small businesses in California to find out what kinds of permits and licenses their venture may require.