Innovative Organizational Structures in Development
July 7, 2010
Building on my last blog entry’s theme of social enterprise, I have been thinking about the implications for board governance, and nonprofit boards themselves, of some of the new legal entities now under construction. Some or all of these may be controversial within the nonprofit sector, but it is uplifting that instead of hearing only about what nonprofits can learn from corporations, now we are witnessing corporations adopting ideas from nonprofits. The L3C, for example, which has not yet been ratified at the federal level but has been adopted by nine states, is an intriguing concept. Reverting to the original rationale for forming a company, this low-profit limited liability organization is primarily geared toward meeting a social need or providing a social benefit. Not yet granted charitable taxation status, it will presumably not incur a substantial tax liability in any event since it is not designed nor even permitted to be profit maximizing, but is able to attract investment dollars and apply for foundation program-related grants and guarantees.
“B” Corporations, or “Benefit Corporations,” are another example of the type of innovative structures that are beginning to emerge, bringing with them new types of responsibilities for their boards of directors. Just last month Maryland Governor Martin O’Malley signed this new legal structure into law, requiring that B Corporations create a positive impact on society and that “boards of directors consider how decisions will affect employees, local jurisdictions, and the environment, rather than just looking at shareholders’ interests.”
These kinds of organizational innovations – and they are likely only the beginning – carry with them many unresolved issues and as yet unanswered questions. What will the impact be on traditional nonprofit organizations? Will the new organizations end up increasing the “competition” for philanthropic dollars? What about boards? Where will the expertise come from to govern these new hybrid “mission + profit” organizations? For the time being, we will have to be content with framing the questions and waiting for the answers to unfold.