In my work with historic sites, financially sustainability is one of the major challenges, and many are seeking advice from business leaders to increase their earned income. It’s often an awkward situation because business owners don’t share the same values for preservation and history, and non-profits are uncomfortable with the risks associated with entrepreneurship. Much time is spent explaining and defending various practices, and making decisions is incredibly slow. But there may be an answer. This month’s issue of the Harvard Business Review predicts that the growing desire to meld non-profit mission and for-profit entrepreneurship will create a new form of organizational structure: the for-benefit enterprise.
For-benefits are a new class of organization. Like non-profits, they can pursue a wide range of social missions. Like for-profits, they can generate a broad range of products and services that improve quality of life for consumers, create jobs, and contribute to the economy. Combining social and commercial ends is not new–think of hospitals, universities, arts organizations, Goodwill. But the for-benefit model does much more than that. It redefines fiduciary duty, governance, ownership, and stakeholder relationships in fundamental ways.
Author Heerad Sabeti calls this a fourth sector of the economy, distinct from government, non-profits, and commercial businesses, with the following characteristics:
- Embedded purpose (commitment to mission and fiduciary duty)
- Earned income (sales of goods and services generate most of the income)
- Inclusive ownership (ownership is allocated among stakeholders, not shareholders)
- Stakeholder governance (shared decision-making)
- Fair compensation for employees
- Reasonable returns (ensures the organization’s ability to succeed and achieve its mission)
- Social or environmental responsibility
- Transparency (performance and impact are fully and accurately reported)
- Protected assets (social-purpose assets are preserved upon dissolution, conversion, or ownership transfer)
Intrigued? The major challenge is that our current legal and tax structures don’t allow for this hybrid–is income taxable? are donations tax-deductible? can you obtain business loans for new ventures? who owns the organization? But changes in this direction are already happening in health insurance and some jurisdictions are beginning to formally recognize them as “flexible purpose corporations” or “community interest companies”. It may be the solution that historic sites and history organizations are seeking as they move towards more economically sustainable models.
For more details, see “The For-Benefit Enterprise” by Heerad Sabeti, Harvard Business Review (November 2011), pp. 99-104.