Could Nonprofits Fulfill their Missions as Benefit Corporations?
I love many nonprofits. I support them and have been an Executive Director of one. I can go on and on about the contributions they make in our communities. But I also know the challenges they face. Executive Directors have shared these observations and realities about nonprofits:
Competing for grants against other worthy nonprofits in their space
Fundraising on an endless cycle
Lacking support as they strive for a more entrepreneurial path given “older guard” board members
On-going reporting and documenting of activities for foundations and other grants that demand significant staff time
Overseeing programs driven by grants awarded rather than responding quickly to new opportunities
Impeding innovation and creativity by some Board members or grant process and restrictions
Lacking budget flexibility to reward and pay “competitive wages and benefits”
Realizing Boards are often made up of individuals who can help fundraise and have deeper pockets or prestige to make donations themselves versus representative of disciplines or the people they serve
Struggling to make Boards reflect community demographics
Requiring long hours for employees without the option to nimbly “flex” staffing quickly when needed.
The Benefit Corporation: Stakeholders, not Shareholders Driven
These challenges have been around for a long time. The options are pretty simple: Remaining purpose or cause-driven as a nonprofit, or re-structuring as a corporate for-profit company that is all about generating income for shareholders.
Yet, I know many enlightened leaders in the nonprofit world who want to act more like an entrepreneurial business with increased autonomy while staying true to their mission. Is that possible?
Today there is a new business model available as a legal structure in 35 states. It’s called the Benefit Corporation and it may address some of the challenges listed above while enabling a nonprofit to stay true to its purpose.
Nonprofits may want to explore this structure with a simple caveat: it may not be feasible or appropriate and some nonprofits are totally valid staying with their current status and should not try to convert to a Benefit Corporation.
The Benefit Corporation embraces the best of the mission-driven nonprofit world but adds a more entrepreneurial business approach, as an LLC, C or S corporation focused around the triple bottom line of “people, planet, and profit.”
It's a new hybrid model that is generating more and more interest. Some of the current literature about this structure holds that the Benefit Corporations provide in their bylaws purpose around a community benefit and “provides socially responsible enterprises with a path to growth that is not available under existing non-profit structures that do not allow long-term profit and rely solely on donations and grants. Benefit Corporations and other hybrids are then an alternate vehicle for the pursuit of charitable, nonprofit purposes, although without the tax exemptions.”
In addition, in its Legislative Guide, the third-party standard B Lab portrays the BC factually as an alternative to nonprofits: “Traditionally, entrepreneurs had to choose between for-profit entities and 501(c)(3) designated nonprofit entities. Each path has its pros and cons, but neither is ideal for entrepreneurs aiming to reconcile financial, social, and environmental goals … 501(c)(3) nonprofit organizations are not structured to sell a product or service. Their intended purpose is to instead fill a gap in government services—not turn a profit—and accordingly depend on funding from endowments and donations.” (Barnes, Woulfe, and Worsham n.d.)
What the Benefit Corporation Offers
We are familiar with a number of social enterprises and cause-driven organizations that have been structured as Benefit Corporations. They have shared with us some of the reasons they have selected this model over a nonprofit model. The benefit corporation offers them:
More autonomy and freedom to respond to opportunities
More attention to operations and marketing
More opportunities for corporate funding, venture capital funding
More time to manage and provide leadership to staff versus chasing grants and writing reports
More focus on green and sustainable activities
More opportunity to recruit “the best and brightest” as a company
In full transparency, Benefit Corporations do not receive any tax advantages as nonprofits do. However, more and more government agencies are beginning to recognize the value of Benefit Corporations as purpose-driven companies and have begun to offer them additional “points” in scoring on RFPs (Request for Proposals). And we anticipate more advantages to organizations in the coming year.
There has also been a shift in the business world.
Just last August, the Business Roundtable, made up of the CEOs of Fortune 500 companies, issued a statement that proclaimed businesses no longer should just support shareholders, but support all stakeholders. This means communities, including the disenfranchised. This means the planet. This means employees.
As stated earlier many nonprofits are totally successful and viable under their current 503(c)(3) status. However, the Benefit Corporations model may be worth exploring for some nonprofits, desiring to be more entrepreneurial with products or services to sell, while maintaining a community and purpose-driven mission.
For more information on the Business Corporation model, check out: www.benefitcorporationsforgood.