Five Critical Mistakes to Avoid in Purpose-Driven Businesses
So, you’re very excited. You’re about to launch a new purpose-driven company. Or maybe you have one, but something just doesn’t seem to be working the way you’d like. Here are five critical mistakes to avoid with your new or existing purpose-driven company.
Defining Purpose
Having a good definition of the purpose elements of your company is critical for determining the direction of your company and whether it is achieving those purpose elements. Sure, you want to address the problem of, say, food deserts, but what does that really mean? What social impacts are you trying to have? Are those going to be measured by the number of people your company impacts or maybe by longer-term impacts on the lives of those people?
Entity Organization
I know this one sounds wonky, but the state in which your company is organized can be very important. When you set up your company, you’ll want to go through the standard analysis of whether to create a corporation or a limited liability company and how your company should be taxed. But with a purpose driven company, there’s another important factor: In what state to organize. If you want to organize as a benefit corporation or benefit limited liability company, you’ll want to pick a state which has a benefit corporation or benefit limited liability company statute. But state statutes are not all the same. Many states have a 1.0 version of a benefit company statute, which prescribes key elements a benefit company must satisfy. There’s also a 2.0 version, such as Delaware’s, which will afford your company much greater flexibility. Some companies prefer the structure of the 1.0 and others the flexibility of the 2.0. Are you in the right state? If your company already exists, would it make sense to change to another state?
Assessment
Both 1.0 and 2.0 versions of benefit company statures require that your company assess how it’s doing in achieving its benefit purposes, but they differ as to how the assessment is done. In a 1.0 statute, your company must prepare an assessment of how it is doing in achieving its benefit purpose by measuring against an independent third party standard, such as the B Lab assessment tool. The 2.0 statute, however, provides flexibility by allowing your company to define the standard(s) it will use to measure how it’s doing. Is your company struggling to deal with an assessment requirement that doesn’t fit? Among other things, an appropriate assessment method will guide you and your management team in making business and strategic decisions.
Communication
Does your company have a written communication strategy and plan and if so, what is it? An assessment can also serve as a wonderful marketing and workforce rallying tool for your purpose driven company and can help with your company’s communication strategy. With that, it’s important to be sure your company is using an assessment method that will allow it to shine. From a marketing perspective, this will help your company distinguish itself from its non-benefit peers which in turn will often provide public relations and other communication opportunities. On the workforce side, having a compelling benefit story, backed up by an assessment, will assist your company in attracting and retaining its workforce.
Contracts, Policies, Procedures, and Estate Planning
In business operations, you can create policies and procedures that are designed to further your purpose goals. For example, you can have procedures that ensure decisions at all levels take into account the impact of the decision on the purpose and your company’s stakeholders. You can have policies that support the purposes for which the company is trying to achieve. You can structure contracts that reflect your company’s purpose driven DNA as well. And, if you’re a business owner, don’t overlook your estate plan. Does it support your purpose drive focus?
Launching and maintaining a purpose-driven company requires thoughtful consideration and strategic planning. By clearly defining your company's purpose, choosing the appropriate organizational structure, implementing an effective assessment method, and aligning your communication strategy and internal policies with your goals, you can navigate common mistakes and pitfalls. This approach propels your purpose driven company toward success and helps it to have a meaningful impact in line with its mission.
Douglas E. Singer, Esq. is a Partner in FRB's Corporate & Securities and Estate Planning Practice Groups and is based in Mt. Kisco, New York.
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