Pursuing Profit and Purpose: The Debate in California’s Statehouse and What it Means for Us

Emily and I just returned from a panel discussion at The HUB San Francisco on Pursuing Profit and Purpose: The Debate in California's Statehouse and What it Means for Us presented by The Aspen Institute and Omidyar Network.  The focus was on two bills going through California's legislature that could significantly change the social enterprise sector:

The panelists were: Will Fitzpatrick, General Counsel, Omidyar Network; Rob Wexler, Principal, Adler & Colvin; Donald Simon, Attorney, Wendel, Rosen, Black & Dean, LLP; and Priya Haji, Founder, SaveUp.  And the venue was packed, including with many of the lawyers in the forefront of the social enterprise movement.

The best source of summaries and updates with respect to the bills and comparisons of the two proposed entities can be found on attendee R. Todd Johnson's Business for Good blog.

The discussion was not the lovefest I expected. Some tough questions came from Haji and the crowd.  Haji questioned the appeal of the proposed entities without preferential treatment with respect to taxes (not at all realistic in this environment) or procurement.  Another attendee asked why an entrepreneur would accept the constraints imposed by these entities.  With respect to the benefit corporation, Simon responded, you are putting your money where your mouth is (i.e., prove that you're not greenwashing and that you deserve that halo).

Our new friend Kyle Westaway (of Socent Law fame) and another attendee asked a series of questions that revealed some differences between California's benefit corporation legislation with that of some other states (dissenter rights and no third party certification requirement).  In addition to state law differences, the differences between a B corporation (a license and "seal of approval") and benefit corporation (a new legal form of entity) added to the confusion of some attendees.  

Wexler explained at the outset that these entities provide solutions to the problem of director liability for acting to advance anything other than shareholder interests. Nevertheless, there were questions about the need that these entities fill and whether California would benefit by having both entities.  Wexler and Simon emphasized the branding advantage of the benefit corporation (which would probably attract primarily socially responsible capital) and the multiple uses for a flexible purpose corporation (which could be used for a single or multiple special purposes).  Providing multiple options to entrepreneurs and investors interested in addressing social problems would put California in the forefront of social enterprise corporate law.  While such options and others may evolve over time, the market and courts would shape this sector in a way not possible solely by fine-tuning legislation.

My prediction (without any special insight):  California finally steps up to lead the country in innovative corporate laws to promote social enterprises; both bills pass this year and go into effect in 2012.