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No Single Path
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No Single Path

For-profit or nonprofit, there’s more than one way to do good. Getting set up as a B corporation may be the smart play.

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On May 12, the Bush Foundation sponsored bushCONNECT, a daylong mash-up of speaker presentations, hands-on training, participatory sessions and networking opportunities for 1,100 guests. The guests were associated with either the foundation or one of the 30-some nonprofit partners that helped plan the extravaganza. People came from Minnesota and the Dakotas, the states in the foundation’s grantmaking region.

With three other colleagues, I took part in an Oxford-style debate led by the Theater of Public Policy, an improvisation group that “explores big ideas through improv comedy.” In this case our purpose was not to produce comedy but rather to use a nontraditional format to explore one of the nonprofit sector’s raging controversies—whether the 501(c)(3) tax-exempt structure has become so constrained by the sector’s regulatory and historical weight that social ventures or other for-profit business structures formed “to do good” are a preferable alternative.

Specifically we were asked to debate: “Forget nonprofit vs. for-profit. Don’t worry about 501(c)(3)s. Just support individuals and organizations doing good.” We each had to argue our side, with the audience voting on our effectiveness at changing their minds. With teammate Jon Pratt, executive director of the Minnesota Council of Nonprofits, I argued against the motion. Kimberly Low, shareholder at Fredrikson & Byron, and George Shardlow, president of the Humphrey School of Public Affairs Student Association, argued for it.

It’s true that 501(c)(3) organizations can have trouble staying nimble. Funding requests can move through foundation and government grantmaking processes at glacial speeds. To start something new, groups must convince many others their cause is worthy. Fundraising revenue streams are not keeping up with nonprofit ideas.

Social enterprise, taking a variety of for-profit forms, is the next big thing. Taking advantage of for-profit capitalization structures and business practices, social ventures seek to show the “double bottom line” of making money while doing good. Social enterprise advocates say they bring market discipline to the community’s most pressing problems, and can solve them faster and better than traditional nonprofits can.

Among the new forms emerging is the B corporation. Seventeen states, including Minnesota, have passed legislation authorizing B corps. (Minnesota’s new law takes effect Jan. 1, 2015.) B corps advocates say this new form is needed so businesses can have a broader focus than profit maximization, creating businesses that are purpose driven, not just profit driven. B corps must have explicit social or environmental missions and a legally binding fiduciary responsibility to take the interests of all stakeholders into account. B corporations have neither the tax benefits nor the regulatory requirements of a tax-exempt nonprofit. Well-known corporations that are flocking to the B corp form include Patagonia, Seventh Generation and Ben & Jerry’s. And locally, St. Paul-based Sunrise Banks is thriving as a B corporation (see chart).

The question is whether the B corps will turn out to offer an effective path for addressing pressing social problems. The answer may lie in capitalization structures that B corps can access. The size of the capital market for business is vast, while nonprofits are typically capitalized through donations from wealthy individuals, from grants and loans from major foundations, or (less frequently) government. If job creation, hunger relief and academic achievement can be advanced through the sort of “slow capital” approach that B corps tout, then perhaps the B corp can become an important part of the solution to communities’ most pressing needs.

That said, B corps social ventures can’t replace the 501(c)(3). Authoritarian governments prohibit the very sorts of citizen organizing that 501(c)(3)s exist to advance. Public benefit nonprofit organizations give us the framework to act as private citizens, and to advocate for public benefit activities outside of government and business frameworks. The B corps may be helpful in adding to the variety of structures that businesses can take—putting new tools in the hands of entrepreneurs—but there’s no one right way to do good. Good takes many forms, from large corporations to social ventures to nonprofits. Consider them all.

And by the way, we won the debate.

Sarah Lutman is a St. Paul-based independent consultant and writer for clients in the cultural, media and philanthropic sectors.

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