ABOUT THE PROJECT
WHY DO WE NEED ANOTHER KIND OF COMPANY?
Over the past decade, social innovation, social entrepreneurs and social enterprises have come to the forefront, and are cutting a path for new ways to address social problems. This developing sector, which combines people, planet and profit, seeks a new corporate form that reflects the character of social ventures, creates the conditions for ventures to prosper, and improves both efficiency and investor confidence through legislation for a comprehensive for-benefit corporate model in Canada.
WHAT NEED DOES THIS PROJECT ADDRESS?
The first outcome of this project is a comprehensive paper about for-benefit corporate models and related legislation in the United States and the United Kingdom, and some Canadian jurisdictions – for example, the Government of British Columbia and the Government of Nova Scotia have made legislative changes to foster social entrepreneurship.
WHO WILL BENEFIT?
In Canada, social enterprises have traditionally been established as a standalone not-for-profit organization or as a social enterprise program within a larger nonprofit or charity. Many social entrepreneurs are looking beyond nonprofit and charitable channels to find new ways to resource and respond to social problems, which currently extends to for-profit companies and partnerships, often with B-Corp certification. The project outcomes will contribute to the body of knowledge about the for-benefit corporate model, and provide a foundation for further development and advocacy by proponents for a Canadian corporate form for social ventures.
Social innovation redefines the way that social and environmental issues are addressed and represents an overlap in the non-profit, private and public sectors. The promotion of the case for a legislated form for social ventures, such as the community investment corporation (CIC) model in the UK, or the Benefit Corporation legislation in the US, has been championed by people working for policy change in the social venture space.
The UK established CIC legislation in 2005, and there have been some conversion headliners, such as Patagonia and Kickstarter in the US. At present, the majority of Canadian social entrepreneurs can only adopt and adapt the established corporate models to meet their goals and objectives. Provincial hybrid legislation has rolled out in British Columbia (Community Contribution Company, C3) and Nova Scotia (Community Interest Company, CIC); however, there is no national coordination, and to date, there are only 52 registered C3s in Canada.
The established not-for-profit and for-profit corporate models create barriers for social entrepreneurs and hinder the potential for positive social outcomes. Furthermore, both models have resource challenges and strategic limitations in addressing long-standing social and environmental problems.
This project is intended to contribute to finding a way forward for for-benefit corporate models in Canada.
Not-for-profit organizations are dependent on government contracts and philanthropy, rendering their operations sensitive to ongoing shifts in social trends and policy changes, and the economy affects the level of both philanthropic and government funds available.
Non-profit organizations often face capacity limitations when it comes to responding to market forces; and in the case of charities, there are significant restrictions. The operational reality of not-for-profit organizations means they face considerable challenges creating the sustained conditions for resilience and change management connected to growth – and most lack the capacity to scale up innovation to meet social needs (much less solve social problems).
In the for-profit sector, corporate social responsibility (CSR) is the most common expression of social and environmental accountability; however, it is most commonly a component of communications and marketing. Except in the case of social ventures (for example certified B-Corporations), long-term strategy is rarely linked to social responsibility. Return on investment is the measure for CSR, and while it can flourish in times of profit, it declines when profits fall.
Canada’s existing venture models have been established for over a hundred years with little change despite significant changes in society – including increased population, shifting demographics, globalization, and the rise of the Information Age. Upon Confederation, the corporate model was established as a legal entity for doing business in Canada. One hundred years later, in 1967, Canadians could register a charity for income tax purposes with the Canada Revenue Agency, and offer tax benefits to philanthropists.
Enduring Canadian values such as support for human rights, enshrined in the Canadian Human Rights Act and social norms that include meeting the basic needs of all citizens, created Canada’s modern welfare state, which has been eroded by federal and provincial governments’ focus on controlling and reducing social expenditures. Society relies on non-profits and charities to augment public funds for social services and income support programs through resources derived from fundraising and volunteer engagement and management.
Professionalization of the not-for-profit sector, namely unionization of workers and competitive management compensation, have improved service levels and secularized services, but also increased the financial cost of service delivery. At the same time, demand/need continues to outstrip government funding and the capacity of the social sector, thereby creating a precarious service infrastructure. The government grants of the 1960s and 70s have morphed into short-term, usually non-renewable contribution agreements subject to changes to priorities based on policy and politics.
There are many reasons for the failure of philanthropy to fill the void. Charity has relied on the generosity of donors for centuries, with roots in the ancient practice of tithing – paying one-tenth of one’s income to support an organization – historically, to the church. In an increasingly pluralistic and secular society, the fundamentals of religious belief, essentially “the golden rule” and reward in the afterlife, no longer drive donations. Furthermore, most social causes cannot offer the bricks and mortar or high-profile naming and recognition rights required for corporate sponsorship or family legacy gifts.
Regardless of tax incentives, and in the case of charitable corporations, the ability to issue tax receipts, the not-for-profit sector’s ability to respond, much less be prescient enough to offer long-term solutions to the complex local, national and international social problems is falling short.