Flexible Purpose Corporation

Description

"The Flexible Purpose Corporation [Flexible Corp.], a type of company that can make profits and also pursue at least one special do-good purpose that is comparable to the charitable missions pursued by nonprofits.

A veritable for-profit/nonprofit hybrid, the Flexible Corp. is designed to accommodate any kind of company that wants to practice doing good (Google: Are you listening?)—public as well as private, slow growth or high growth, big or small, even nonprofits that choose to convert. The early adopters, however, are expected to be the social enterprises opting to create businesses to solve the world’s social and environmental problems that are at the heart of the impact investing movement. Think microfinance or community development, say, or businesses that sell clean energy or deliver access to water in the developing world.

“We wanted to help social entrepreneurs access capital from the mainstream markets,” says Todd Johnson, partner at Jones Day, who co-chaired the working group. Neither nonprofits nor their for-profit subsidiaries, he says, are currently set up to do this.

Here’s the twist: Although the Flexible Corp. allows directors to make decisions that forgo profits in favor of a special purpose like the environment, it also requires a “drastic” level of transparency, Johnson says: a management discussion in the annual report describing the company’s special purpose, its strategy for pursuing it, the metrics it’s using to measure success, a report on its progress, etc.

“Without transparency in this area, the risk for investors exists that directors waste corporate assets without accountability,” he says.

Unlike the case with financials where there are accountants to verify the books, no standards exist for the variety of do-good purposes that nonprofits engage in or that social entrepreneurs or companies may conjure up. “We want to rely on best practices, which are evolving and a company can choose,” Johnson says. “We don’t want to legislate morality. We think it’s best to let the market and shareholders decide.” (http://www.fa-mag.com/green/news/7150-broadening-fiduciary-duty-in-California.html)

Status

Signed into law in California.