November 16, 2010; Source: Fast Company | This opinion piece by Alice Korngold in Fast Company addresses the new hybrid “it” forms in the nonprofit sector, suggesting that the fact that they are neither fish nor foul is a problem.
She submits that both L3Cs and B Corporations create situations in which profit-making entities are expected to not necessarily maximize their profits in favor of a social purpose. She particularly focuses on B Corporations here, which she labels “gimmicky.” A B Corporation’s mandate is to serve the public good and increase shareholder value. Korngold questions the ability of such groups to be clear and aligned in their day to day work with the shareholder, board and lender, and level about whether profits or mission is the driving force. “Eradicating poverty in Africa, or making profits from the sale of financial services? It should be one or the other. And if you’re an equity holder evaluating the performance of your directors and managers, how do you balance the competing purposes—mission or profits? And will all equity holders strike the same balance? In a for-profit, the measures of success are clear; with competing purposes, how will the board know what success looks like?”
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Korngold also posits a few additional concerns—for instance, that the dimming of the bright lines between for-profits and nonprofits may result in the erosion of distinction between the two—and therefore tax and fee exemptions for nonprofits. Korngold’s arguments are well worth the read and we would love to hear your reaction.—Ruth McCambridge