Historically, the provision of pro bono legal services has focused on assisting persons of limited means and providing legal counsel to nonprofit organizations.
However, in recent years, a new generation of innovative entrepreneurs is seeking to solve social and environmental problems in communities around the world. These market-based solutions may be implemented through nonprofit or for-profit enterprises, and increasingly involve a new class of for-profit corporate forms designed to accommodate a variety of missions beyond simply maximizing shareholder value. These organizations are collectively referred to as social enterprises, and while traditional nonprofits will always play a critical role in serving the needs of vulnerable communities and still need pro bono support, social enterprises present unique pro bono opportunities that transactional attorneys are well-suited to provide.
Early data on the social enterprise sector illustrates the growing need for pro bono support of these socially and environmentally sustainable organizations. The most comprehensive survey of the social enterprise landscape is the Great Social Enterprise Census, a survey conducted by the Social Enterprise Alliance in conjunction with Pacific Community Ventures. Data from the 2014 census, which surveyed 511 social enterprises in 43 states accounting for $1.2 billion in annual revenue, confirms that the average social enterprise is a small, early-stage startup organization. According to the census, the average social enterprise is only six years old, has seven employees, and generates approximately $2.3 million in annual revenue.
The emergence of social enterprises offers transactional attorneys the opportunity to assist in structuring growing businesses and advise on the utility of newly authorized social enterprise corporate forms.
Since 2008, 38 jurisdictions, including New York, have authorized at least one new type of social enterprise corporate form. These forms were created in response to growing frustrations in the entrepreneurial community with corporate law's binary distinction between for-profit corporations, which are organized to maximize shareholder wealth, and nonprofit organizations, which are organized exclusively for charitable purposes.
As a result, states have enacted enabling statutes authorizing a variety of social enterprise forms designed to accommodate the simultaneous pursuit of profit alongside social and environmental missions. The most widely adopted of these new legal structures is the benefit corporation, which is now available in 30 states and the District of Columbia.
Other forms, such as the social purpose corporation, the benefit limited liability company, and the low-profit limited liability company, have also been authorized by some states.
The nascent social enterprise sector has enjoyed early success, and many household name brands are counted among its adopters. Patagonia, the well-known outdoor gear and clothing company founded by renowned rock climber and environmentalist Yvon Chouinard, was the first to register as a benefit corporation in California. Method Products, maker of eco-friendly Method Soap and other "green" home care and personal care products, reincorporated as a Delaware benefit corporation in 2012 after its acquisition by Ecover.
Plum Organics, ranked by Forbes Magazine as America's 19th Most Promising Company in 2013, is a wholly-owned subsidiary of Campbell's Soup and is also registered as a Delaware benefit corporation. In recent years, thousands of smaller mission-driven companies have adopted corporate forms designed specifically for social enterprise.
By combining the social welfare purpose of a nonprofit organization and the commercial purpose of a for-profit business, social enterprises are helping solve real-world problems in a sustainable manner. They enable entrepreneurs committed to positive social and environmental change to implement their ideas with funding from capital markets and similar sources, instead of relying on charitable donations from the public, private foundations or volunteer support. While traditional nonprofits undoubtedly continue to play a critical role in helping solve problems, at a time when economies are volatile and consistent funding sources continue to be the driving force behind successful corporate forms of all types, the social enterprise model provides an alternative approach.
Corporate lawyers have a unique opportunity to support the movement for social and environmental change. By helping inform clients about laws and regulations, assisting entrepreneurs as they navigate complex legal terrain, and structuring and negotiating initial and later-stage capital funding, lawyers can play a critical role in the development, strengthening and financing of the social enterprise sector. However, because social enterprises exist in a grey area between traditional for-profit and nonprofit corporations, it is often difficult to determine whether a social enterprise should be eligible for pro bono legal assistance.
Current pro bono eligibility guidelines, like The Pro Bono Institute's Law Firm Pro Bono Challenge Statement of Principles were drafted prior to the emergence of social enterprise and provide little guidance on the eligibility of these organizations for pro bono assistance. As a result, and with the assistance of our firm, Orrick, Herrington & Sutcliffe, the Association of Pro Bono Counsel will be releasing shortly, among other things, a Statement on the Eligibility of Social Enterprises for Pro Bono Legal Services.
Orrick was the first global law firm to establish a social enterprise practice and we have developed a framework for determining eligibility for pro bono services by analyzing four criteria:
• Whether the organization has stated social and environmental purposes and whether legal mechanisms are in place to ensure the ongoing pursuit of these goals;
• Whether, and to what extent, the organization allocates revenues to support its social and environmental purposes;
• Whether the organization possesses sufficient funds to pay for legal services; and
• Whether the pro bono engagement will be time-bound.
Organizations that have clearly articulated a social and/or environmental purpose and have adopted a legal framework that requires pursuit of these purposes satisfy the first criterion. Organizations that have ensured that some portion of revenues support these purposes—whether through reinvestment, charitable donations, commercial co-venture partnerships or other means—satisfy the second criterion. Organizations that do not possess sufficient funds to pay for legal services satisfy the third criterion. Lastly, any pro bono engagement with a for-profit social enterprise should be time-bound. The engagement may terminate when the social enterprise completes its first round of financing, begins to generate revenue or when annual profits exceed a predetermined amount. Where all four of these criteria are satisfied, Orrick believes the social enterprise should be eligible for pro bono representation.
As social enterprise legislation continues its march through state legislatures and the number of organizations increases, transactional lawyers should seize the opportunity to expand their pro bono work by engaging with both traditional nonprofits and these new organizations. Transactional lawyers can take a well-rounded approach to solving social and environmental problems, as well as bring much-needed legal assistance to a rapidly emerging sector, increase the percentage of pro bono hours involving business and corporate law, and help to align pro bono representation with organizations that are harnessing the power of business to solve these problems.
1. The Great Social Enterprise Census, http://socialenterprisecensus.org.
2. Social Enterprise Alliance, https://www.se-alliance.org.
3. Pacific Community Ventures, www.pacificcommunityventures.org.
4. Pacific Community Ventures InSight & The Aspen Institute, Social Enterprise Fundamentals, YouTube (Mar. 14, 2014), https://www.youtube.com/watch?v=UfCwsOYJImE.
5. Social Enterprise Law Tracker, http://socentlawtracker.org.
7. Patagonia, www.patagonia.com/us/home.
8. Marc Lifsher, Businesses Seek State's New 'Benefit Corporation' Status, Los Angeles Times (Jan. 4, 2012), http://articles.latimes.com/2012/jan/04/business/la-fi-benefit-corporations-20120104.
9. John Tozzi, "Why Delaware's New Corporate Structure Appeals to Method's Co-Founder," Bloomberg Business (Aug. 1, 2013), www.bloomberg.com/bw/articles/2013-08-01/why-delawares-new-corporate-structure-appeals-to-methods-co-founder.
10. Forbes Magazine, America's Most Promising Companies (2013), www.forbes.com/companies/plum-organics.
11. Jena McGregor, "Creating a Class of 'Do Good' Companies," The Washington Post (Sept. 20, 2013), www.washingtonpost.com/news/on-leadership/wp/2013/09/20/creating-a-class-of-do-good-companies.
12. Pro Bono Institute, Law Firm Pro Bono Challenge Statement of Principles and Commentary, www.probonoinst.org/wpps/wp-content/uploads/Law-Firm-Challenge-Commentary-20151.pdf.
Rene Kathawala is Orrick's firm wide pro bono counsel and helped to establish the Firm's Impact Finance Practice and Senior Impact Finance Leadership Team. Tal Hacohen is a corporate partner and member of the leadership team. Jessica Lauredan, assistant director of pro bono and marketing specialist for New York Lawyers for the Public Interest (NYLPI); Robert T. Esposito, Orrick's former Impact Finance Fellow and Diana Stern, an Orrick summer associate, contributed to this article.
Reprinted with permission from the September 9, 2015 edition of the New York Law Journal © 2015 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 - [email protected]
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