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MN2020 - Business Tools for Wealth Sharing
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Business Tools for Wealth Sharing

October 18, 2011 By Lee Egerstrom, Economic Development Fellow

Two new business models gaining attraction and approval in legislatures nationwide hold promise for start-up companies and entrepreneurs.

One is called a Benefits Corporation or B Corp, “which uses the power of business to solve social and environmental problems,” according to B Corp advocacy site B Lab. B Corps are different from traditional businesses because they:

  • “Meet comprehensive and transparent social and environmental performance standards;
  • “Meet higher legal accountability standards;
  • “Build business constituency for good business.”

This is community development that not only helps create jobs but encourages sustainable businesses. California has become the latest state to enact a law allowing B Corps.

Another business model growing in popularity is L3C, a variant form of limited liability companies for charitable operations seeking to turn a small profit.

“Minnesota should adapt both the B Corps and L3Cs to fit its needs,” said Bob Lang, creator of the L3C and founder of Americans for Community Development, group promoting the model. Moreover, he said, both new models would fit with Minnesota’s huge cooperative business infrastructure that also embraces social responsibilities.

B Corps give companies protection to spell out social, community and environmental objectives for the companies’ operations and not simply focus on maximizing profits for shareholders.

The new California law will allow companies greater access to social impact and venture capital investments, protect directors and officers from investor law suits for considering social goals, and validate social and environmental responsibility objectives for new companies, according to a Los Angeles Times blog post.

This builds on an argument from Jay Coen Gilbert, a co-founder of the B Lab nonprofit in Philadelphia, in which he noted that California and most states don’t offer legal protection for companies to consider “non-financial factors” in business decisions.

L3Cs combine the interests of nonprofit and for-profit entities. Nonprofit groups can invest in such ventures for helping and promoting social and community benefits that will be derived from successful operations.

Such new ventures appeal to foundations that want to assist a community or group launch a new business, nonprofit organizations that seek the same objectives, and nontraditional, for-profit investors who are driven to invest for social impact as well as returns on equity.

In many ways, both new business models would make companion business tools alongside Minnesota’s 308B cooperative law.

In a recent interview, Lang said it troubles him to watch communities compete with each other to subsidize business movement and new plants only to have the company lay off workers, board up factories and offices, and move jobs and economic activity offshore within a few years.

This is a waste of business venture capital and doesn’t lead to “good jobs” or “sustainable jobs” under any definitions, he said.

Along that line, 2020 has repeatedly argued that an “economic recovery,” as most everyone wishes for now and the more politically callous hope for after the 2012 elections, won’t be a mere economic restoration. We won’t put back in place the economy America and Minnesota had before the 2008-2009 Great Recession.

New enterprises will be needed to get our economies rolling again. Jobs lost to technological development and employment displacement, or to international business expansion and relocation (off-shoring) won’t be coming back.

California now joins Hawaii, Virginia, Maryland, Vermont and New Jersey among states authorizing B Corps, said the Philadelphia-based B Lab organization. Moving towards passage or gubernatorial signature are similar laws in Colorado, New York, North Carolina, Pennsylvania, and Michigan.

Meanwhile, 11 government entities have approved L3C limited liability companies, said Lang. They include Vermont, New Jersey, Wyoming, Illinois, Utah, Louisiana, North Carolina, Rhode Island, Montana and two federally recognized Native American nations, the Ogallala Sioux (South Dakota and Nebraska) and the Crow (Montana).

Federal laws and the Interstate Commerce Clause of the U.S. Constitution require states to accept the legal status of corporations and companies incorporated in other states. But that doesn’t mean states can’t interfere with entrepreneurs and their community backers from using competitive tools to develop new enterprises within the states.

That might be the unintended consequences in Minnesota and most states that haven’t looked at how new tools of company/corporate structures might impact entrepreneurship and investment in new businesses.

Following along a similar track, the Ohio Employee Ownership Center at Kent State University (www.oeockent.org) is encouraging employee-owned enterprises to consider becoming B Corps in mission statements as a relevant concept to their ESOP (employee-stock option plan) ownership structure. That can be achieved in Ohio even through state barriers exist to socially motivated B Corps business forms.

Bill McIntyre, executive director of the OEOC, stressed in the summer edition of the OEOC’s Owners at Work quarterly magazine that B Corp and ESOP companies are compatible. B Corps, he noted, can provide benefits for all stakeholders, and not just shareholders.

“Stakeholders can include employees, suppliers, customers, community, and the environment,” he said. The shared interests of those stakeholders make for strong communities and sustainable businesses that won’t pack up and leave for a few more cents on the investors’ dollars.

If those in the Occupy Movement are looking for some messaging help, here’s an idea: They should urge Wall Street Banks and Investment firms to start thinking more like B Corps, ESOPs and cooperatives. This would begin to set up a legal framework for truly sharing the wealth.

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