Changing Business Climate Favors Philanthropy

(A new trend in pre-IPO charity could be a game changer)

This year, Key Elements Group LLC looked at a new style of corporate culture sweeping the business world that may change how we define for- and non-profit organizations.

Kickstarter – the popular crowdfunding website that has catapulted to world renown over the past five years – announced in September that it was registering as a “Public Benefit Corporation,” a unique and relatively new category of business charter that requires companies to allocate large percentages of their profits to support social causes and to adhere to pro-social standards of business, including rigorous environmental standards.

The company’s CEOs follow the footsteps of institutions including Patagonia and Rasmussen Colleges, which trailblazed the field of Public Benefit Corporations. B-Lab, an independent third-party organization based outside of Philadelphia, PA, has helped set standards for these next-gen businesses dedicated to the pursuit of the social good.

As research emerges showing the philanthropic spirit of millennials and their desire to contribute their skills and work time to the public good, it has become increasingly evident that philanthropy in the workplace is taking on greater importance.

A recent development further confirms this trend. Venture capital companies – long reluctant to embrace philanthropy in the nascent stages of business development – are now directing funds pre-Initial Public Offering (IPO) to philanthropic and nonprofit initiatives. In what may be a first for businesses of its kind, venture-capital firm Fyrfly announced that it would start a foundation.

On its website, the company acknowledges the unique landscape facing business leaders going into 2016, as well as the pro-social spirit guiding millennial employees:

Corporate philanthropy is not an outlandish concept anymore. The Millennial generation has brought about a shift in economic values. They buy from brands they respect; they want to work for companies that put people over profit; they think deeply about the ethical ramifications of their lifestyle choices. Millennials are reshaping the purpose and responsibilities of corporations.

This is bold language for a budding firm, yet – in this day and age – it may give the company a competitive advantage. Millennial talent will go toward institutions that reflect and foster their values and passions. Furthermore, costumers increasingly care about the impact their spending has on the world. If businesses position themselves as social good leaders from the get-go, consumers will place greater trust in their brand identity. By diving headfirst into philanthropy pre-IPO, soon-to-be successful businesses may very well set the new standard for how companies are organized.

And, if Fyrfly’s move becomes the new normal, the potential effects on philanthropy are gargantuan. The foundation commitment will only pay off if the venture firm succeeds, but the windfall could herald unseen amounts of money going toward nonprofit groups. In the first three-quarters of 2015, venture capital amounted to $47.2 billion. In a business climate in which vast quantities of these funds are allocated for the social good, just a small portion of these monies would make a profound impact on the resource pool available for philanthropic organizations.

These are exciting times for both nonprofits and private companies in which it is never too early to give back. Now, it’s also never too early to start forging relationships that will lead to mutual success in the long-run.

Public Benefit Corporations: Businesses for the Social Good

(Meeting at Kickstarter. Photo: Michael Mandiberg)

Perry Chen and Yancey Strickler – co-founders of the popular crowdfunding website Kickstarter – made waves on Sunday when they announced that their company would become a “Public Benefit Corporation” (PBC), legally binding them to pursue positive social aims in addition to churning a profit.

Historically, the term has applied to groups receiving federal charters to pursue some goal in the public interest.  Nowadays, however, the term has expanded outside of nonprofit work into the realm of for-profit businesses.

Currently, only .01 percent of U.S. businesses are incorporated as PBCs. There are several big names among those that have, however, including Patagonia and Rasmussen Colleges. As a result of their novel corporate charters, these businesses are legally required to pursue social good as a part of their mission and guiding principles.

On Kickstarter’s blog, the company’s founders provide more detail on their decision to drop the “inc” from Kickstarter’s name and replace it with PBC:

Until recently, the idea of a for-profit company pursuing social good at the expense of shareholder value had no clear protection under U.S. corporate law, and certainly no mandate. Companies that believe there are more important goals than maximizing shareholder value have been at odds with the expectation that for-profit companies must exist ultimately for profit above all.

Benefit Corporations are different. Benefit Corporations are for-profit companies that are obligated to consider the impact of their decisions on society, not only shareholders. Radically, positive impact on society becomes part of a Benefit Corporation’s legally defined goals.

As part of Kickstarter’s new legal charter, it must subscribe to a number of pro-social policies. For example, it must donate a full 5 percent of its profits to arts organizations and groups that work to eliminate poverty.

The company will also pursue certification from B Lab, a nonprofit that certifies businesses as “Benefit Corporations.” A number of PBCs – including Patagonia – have been certified by the group.

On its website, B Lab displays its “Declaration of Interdependence,” outlining the vision of Public Benefit Corporations:

We envision a global economy that uses business as a force for good.

This economy is comprised of a new type of corporation – the B Corporation –

Which is purpose-driven and creates benefit for all stakeholders, not just shareholders.

As B Corporations and leaders of this emerging economy, we believe:

That we must be the change we seek in the world.

That all business ought to be conducted as if people and place matter.

That, through their products, practices, and profits, businesses should aspire to do no harm and benefit all.

To do so requires that we act with the understanding that we are each dependent upon another and thus responsible for each other and future generations.

Kickstarter’s surprise move contravenes the common tech start-up story, in which companies strive to become “unicorns” that sell to larger companies for massive profits. This relatively new model – which blends the purviews of nonprofits and private enterprise – is certainly an exciting take on the character and identity of the 21st century business. Whether or not Kickstarter’s reincorporation heralds a more general revolution in business practices, the company will certainly contribute to the operations and missions of the nonprofit recipients of its donations. 

Key Elements Group LLC will continue to cover this exciting trend and explore how it fits into the world of philanthropy and nonprofit development.

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