The Fourth Sector, in partnership with the Social Enterprise Alliance and Corporation 20/20, recently convened a group of practitioners and thought leaders on the topic of new legal forms for social enterprises that mix mission and profit. The group discussed some of the legislative changes that could be made to allow for a “fourth sector” of organizations that could leverage both for-profit investments and philanthropic donations to speed up social problem solving.
 
Many people today talk of the “blurring” or “merging” of sectors.  The nonprofit sector has become more market-driven and business-oriented - measuring social impact, embracing market forces, quantifying market share, and writing business plans.  Corporations, meanwhile, are responding to consumers’ and shareholders’ desire to frequent businesses that are socially responsible, thus spawning an entire industry of cause-related marketing and deepening many corporations’ commitment to CSR, double or triple bottom lines, and sustainable business practices. Further, governments now outsource many of the service they used to provide directly – such as health care or poverty alleviation functions - to both nonprofit and for-profit entities.
 
One of these ideas particularly intrigued us and we wanted to share it with the wider Public Innovator community. Terry Mollner is founder and executive director of the Trusteeship Institute, Inc., a think tank and consulting firm focused on the research and development of socially responsible businesses.  (He was also a pioneer in the field of socially responsible investing; is one of several founders of the Calvert Social Investment Fund; and serves on the board of Ben & Jerry’s Homemade, Inc.)  He’s been working on these issues for many years and, in recent years in particular, on the development of a method within the current legal structures to build a new corporate sector that is committed to giving priority to the common good rather than the interests of only a few (generally shareholders). He views it as the natural next stage of maturation of the socially responsible business and investment industry. 
 
He has developed a “1 to 10 for the Common Good” concept, the essence of which includes:

1. Start a movement called "1 to 10 for the Common Good".
2. Existing companies can support this sector by donating between 1 to 10% of net profit to Common Good Foundations (CGFunds) or endowments of existing foundations. In both cases, the capital is restricted to only be invested in Common Good Investment Funds (CGIFs).
3. CGFs or endowment programs solely invest in CGIFs of their choosing.
4. CGFs also raise donations for their endowments from other sources for this purpose.
5. CGIFs buy successful companies and convert them to 10% Common Good Companies (CGCs).  It has an appropriate cap on the return on investment as needed to raise capital in the marketplace, but works its way toward a consistent 12% cap on its Return on Investment.
6. A CGC's highest priority is the common good:
   
   1. Consistently moving toward greater social responsibility
   2. 10% of net profit is donated to CGFs or invested in CGIFunds
   3. Where appropriate, it seeks to provide a consistent 12% return. Brokers and financial planners around the world tell their clients that they will try to provide an 8-11% return; thus brokers and financial planners will view such an investment as a very safe investment with a very good return. This will provide a consistent, large flow of capital to build this common good corporate sector.
   4. The excess profit above 12% each year is permanently set aside and managed for the common good by growing the company, investing in

      CGIFunds, or donating it to common good endowment programs.

   5. The CGIFunds also seek to provide a consistent 12% return, mainly from fees and owning a portion of the equity of the companies they buy. The balance above 12% is permanently set aside and managed for the common good as described above.

The goal would be to eventually have all companies “in the system” so that furthering the common good becomes embedded in every company’s mission.  Terry believes that many companies that were founded on social principles—a la Ben & Jerry’s, the Body Shop, etc—would have welcomed the opportunity to sell to a fund like this.  Even when companies imbed social principles into their product, they can be forced to sell to a multi-national corporation when demand for the company’s product grows beyond the small company’s capacity, due to the legal obligation to maximize shareholder value.  Terry argues that these Fourth Sector Investment Funds would create a network of pooled capital that could realistically compete to purchase these and other companies and, by retaining the company’s social mission, even provide shareholders with a competitive advantage. Once this happens:
 
“remaining competitors will become very concerned that they are not the last company bought by the CGFunds. That company will not receive a good price for its shares. Since the highest priority of the competitors is the financial interests of their shareholders, efforts will be made to sell to the common good funds before the others do. Since customer and employee loyalty will also consistently move toward supporting common good corporations, this will have to happen sooner rather than later.”
 
To read Terry’s 5-page working draft, click here.  He’s seeking feedback, so be sure to send him any comments or questions you may have.