The Washington state legislature is now weighing legislation that would create a new business category for “social purpose corporations.” [PDF document]. As with other state legislative efforts to create specific corporate categories for social ventures, there’s something to appreciate and reason to hesitate alike.
Many elements of other enacted legislation are included, such as broad definition of social benefit, ability of governance entities to act on behalf of interests outside of shareholder concerns (including communities and the environment), and reporting requirements denoting actual social good delivered.
Of particular note is the proposed reporting requirement [Sec. 16], which would require a social purpose corporation’s board of directors to provide a shareholders report
[P]ublicly accessible, free of charge, at the corporation's principal internet web site address, not later than four months after the close of the corporation's fiscal year. [The] report shall remain available on that web site through the end of the corporation's fiscal year.
More interestingly, the law proposes an additional accountability reinforcement provision
The superior court of the county in which the social purpose corporation's registered office is located may, after notice to the corporation, summarily order a social purpose report to be furnished to shareholders on application of any shareholder of a social purpose corporation if a social purpose report was not furnished to shareholders for at least two consecutive fiscal years
There’s great temptation to ask whether Washington state needs this law to help spur social entrepreneurship. It may be fairer to ask, however, what to make of the collective body of state laws to date.
On a basic level, we’re witnessing a patchwork of different terms– including benefit corporation, low-profit limited liability company, flexible purpose corporation, or social purpose corporation– used to describe essentially the same thing, with seemingly little visible coordination or consensus across the broad spectrum of existing social enterprise infrastructure networks and allies.
We’re also seeing a collective “huh?” among foundations, nonprofits, community development corporations, chambers of commerce, small business resource centers, local and state economic development efforts, and other key long-time supporters of community investment and innovation. The “huh?” precedes a noticeable “wha?” from government agencies that are charged with enforcing these new laws with little to no clear regulatory guidance, much less enforcement authority or funding to support the work ahead.
It’s unclear why the broader base of common good, social-minded, impact-oriented entrepreneur interests among nonprofit and for-profit sectors have yet to voice their active support– and not merely quiet ambivalence– for a law intended to introduce more flexible revenue options for their work.
Those silent voices are of particular interest when considering whether lawmakers facing mountains of competing priorities, should be directed to create more categories to better capture existing activities; or more opportunities to ensure sustainability and growth for a still-evolving sector.
In light of the current policy trend, we therefore ask the sector to consider two things:
- If the aim is to prime the pump for currently untapped or unavailable investment capital, there’s a strong case to make for broader sector-wide information sharing and engagement than what currently exists.
- If the aim is to score as many short-term “wins” through state legislatures in order to create an appearance of momentum that drives longer-term demand for social ventures themselves, there’s a better case to make for rethinking model legislation in its present form.
Both options requiring a clear, honest explanation of the relevancy, benefits, and risks of social enterprise measures to constituencies before any laws are introduced and voted upon. This helps guarantee vital capital (financial, knowledge, civic, and political) can and will flow where actual demand and commitment to build, support, and grow community opportunities exists– and not simply where a business opportunity presents itself.
Every US state that has passed or is considering some form of social enterprise law should be applauded. The US social enterprise sector has the power to drive effective policy solutions as a means towards successful business activity with a social conscience, tied to the success of urban and rural communities and all their stakeholders.
But do not mistake immediate success for long-term effectiveness. Sidestepping fundamental concerns among a wider base of vital community voices, no matter how difficult the dialogue, only provides a framework for failure ahead.