Legal change to help businesses balance profit and impact

Small-business owners understand the importance of connecting purpose and profit. They contribute to local communities – they employ locals, work with other businesses in the area, and provide products and services to the community. The purpose to benefit and serve the community drives profit.

But what about companies that go one step further and put positive impact at the core of their business model? Those entrepreneurs have a tough choice. Either they can choose to incorporate as a not-for-profit and lock mission into the company constitution, or they incorporate as a for-profit and have the ability to scale while risking mission when taking on investment. We need to give business leaders confidence that the law will allow them to meaningfully balance profit with purpose.

The journey of Chuffed.org, a Sydney-born crowdfunding platform for non-profit charity and social enterprise fundraising, shows change is possible but complex. Philanthropy initially fuelled the platform and soon the team needed funds to grow. As Co-founder and CEO, Prashan Paramanathan remarked, “It became very clear we had a commercially-viable business. We needed money. And this is where the charity model breaks.”

To ensure the core values and ethos of the company were protected as it became increasingly financially successful, the leadership team developed a social benefit company model, based on the US Public Benefit Corporation. Today, it is a for-profit for-impact company and has raised $43 million through 11,500 campaigns from over 475,000 donors.

It is encouraging to see governments around the world introducing legal models to give founders and investors the choice to fuse purpose and profit. In the US, more than 10,000 businesses have opted in to become Benefit Corporations, including major brands Patagonia, Allbirds and Danone North America.

The US Benefit Corporation model is designed to counter short-termism and shareholder primacy. It provides investors with clarity on the company’s intended impact and demonstrates a lasting and authentic commitment to act in alignment with that impact. Equally, it gives founders permission to develop and grow their impact as well as greater certainty that it will remain a core pillar of the business if ownership changes. Governments across the globe are making the change, beyond the US and into Italy, Colombia and British Columbia in Canada.

Many countries have other legal frameworks for entrepreneurs and business leaders to consider; in the UK there are more than 14,000 community interest companies, for example. This legal model has helped to drive growth in social enterprises which now contribute three per cent of GDP and five per cent of the UK’s total employment. Meanwhile, the NZ Government is also exploring legal models to drive investment and create a thriving social enterprise sector.

So what about Australia? We need a unique legal solution to support and encourage companies that are fusing profit and impact. The Australian Government needs to explore the impediments and opportunities in this area, and the Social Impact Investing Taskforce is one live option for this discussion.

A legal solution is what impact investors, such as Will Richardson, Head of Venture Capital of Impact Investment Group, call for, “A new legal model that helps to identify these companies and give founders a middle ground between non-profit and for-profit would accelerate growth in using businesses as a force for good, and ultimately accelerate the impact we need.”

There is a huge opportunity for government to support business leaders to tackle global issues such as economic inequality, social disadvantage, and climate change and our entrepreneurs need the right legal framework to balance profit with impact and do so.

Anna Crabb, Head of Strategy and Partnerships and Sanaya Khisty, Legal Policy and Governance Manager, B Lab Australia & New Zealand

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