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BFV Perspectives, Corporate Matters, | Dec 01, 2010

Social Enterprise is Changing the Face of Business: Are You Ready?

In Part One of this two-part series on social enterprise, we explored several examples of this new mixture of business and mission, and discussed how the growth of social entrepreneurial strategies throughout the marketplace is changing the way companies do business. In this second and final part of the series, we discuss several ways in which business owners are adopting aspects of social enterprise. We also point out some of the legal issues businesses need to consider in connection with such strategies.

With the walls between business and nonprofit lowering, there are a number of ways for businesses interested in social enterprise to dip their toes into the charitable waters in a way that exceeds the traditional writing of a check to a charity. If you are considering implementing a mission-based component to your company’s activities, you need to be aware of what you can and cannot do.

Some businesses are developing mutually beneficial relationships with existing nonprofit organizations. Some businesses have found ways to engage with existing organizations to incorporate a particular social cause into their models. This has been shown to boost sales for the companies who partner with charities in addition to benefiting the charities themselves. One way to do this without a long-term commitment is through charitable sales promotions. Charitable sales promotions are sales campaigns in which companies advertise that the purchase of their products or services will benefit a charitable organization. You have no doubt come across such campaigns during your most recent stroll through the grocery store. For example, for every bottle sold, water bottle manufacturer Miir is donating $1 to provide clean drinking water to people without access to safe water sources. All proceeds from the sale of L’Occitane’s Animal Soaps Set are donated to an organization working to prevent blindness in developing countries. Even vacuum manufacturer Oreck has jumped on the charitable sales promotion bandwagon with its “Clean for the Cure” promotion. When you buy a pink Oreck XL Power Team vacuum, Oreck promises to donate $25 to Susan G. Komen for the Cure.

In Georgia, charitable sales promotions are required by law to be in writing. There are a number of provisions that must be included in the written agreement, which must be signed by representatives of both the charitable organization and the commercial coventurer (as the business is called in this scenario). If you work with a nonprofit organization on a joint project, be careful that you are not engaging in a joint venture. For example, if a charity agrees to provide assistance to your business in exchange for a share of certain profits, you could be unknowingly creating a joint venture. The result could be that your business is deemed to share in liabilities it never intended to assume.

It is always advisable to put the terms of any agreement in writing. As any business knows, the excitement and goodwill that exist at the beginning of a project or relationship tends to wane as problems and misunderstandings arise. Written agreements that seem unnecessary at the beginning become crucial when it’s time to split up money, or when individuals are deadlocked on a decision.

Some businesses are considering switching to “double bottom line” or “triple bottom line” approaches. For companies interested in going a step further, adopting a “double bottom line” or “triple bottom line” approach is one way to expressly articulate the importance of social and environmental benefits alongside financial profit. “Double bottom line” refers to the measurement of a company’s success in terms of both the financial and the social profits it generates. “Triple bottom line” involves the calculation of success according to financial, social and environmental profit. This is a tricky area and should not be attempted without legal help. One challenge inherent in the double- and triple-bottom line approach is the fiduciary duty owed by directors and officers of corporations to their shareholders. Specifically, directors and officers are legally obligated to use their best efforts to maximize profit for their shareholders. “Profit” is generally interpreted to mean financial profit, so if a company’s directors and officers choose to forego financial profit in favor of environmental or social profit, it is always possible that shareholders will argue management has been derelict in its fiduciary duty.

While businesses that decide to implement a social entrepreneurial aspect to their everyday operations do need to be aware of the legal boundaries that exist, the evidence indicates that doing good for society and the environment is simply good business. The well-respected Cone Cause Evolution Study, released earlier this year, revealed that in 2010 the percentage of Americans who have purchased a product because it was associated with a charitable cause more than doubled, from twenty to forty-one percent. In addition, researchers found that over eighty percent of Americans wish more of the companies that make the products and services they buy would support charitable causes. If the trend continues, more and more businesses will find ways to add value to their brands and place themselves ahead of their competitors by adopting social enterprise strategies.

BFV Perspectives, Corporate Matters, | Dec 01, 2010