Kate Emery believes that social entrepreneurs must control their desire for profits. “The folks we work with have different values than mainstream business people do,” she says. “People often suggest that we push to give social enterprises some kind of tax advantage. But saving money on taxes is the wrong reason for doing this.”
Emery is the CEO of the Social Enterprise Trust (reSET), a Connecticut not-for-profit that works with entrepreneurs, and also the sole owner of The Walker Group, a technology consulting firm based in Farmington, Connecticut. She went to great lengths to protect her own social enterprise.
The Walker Group was growing rapidly in 2007, and Emery wanted to ensure that its profits would be divided equally between its owner, employees, and social mission. But Connecticut laws did not allow benefit corporations in 2007, so there was nothing to prevent a new owner from switching the firm to business as usual. Building a company with a social mission was her life’s work, and she wanted it to be her legacy.
Emery started The Social Enterprise Trust and gave it a “golden share” that has voting rights to prevent The Walker Group from changing its structure. Then she used one-third of Walker’s profits to grow the Trust into a statewide organization for social entrepreneurs. Lobbying the state legislature for a benefit corporation as one of its main goals.
A year ago, Connecticut became the 25th state to adopt a law allowing benefit corporations. Now 31 states have such laws, and five more are working on them. But Emery is proud to say that Connecticut’s law is the most comprehensive.
Benefit corporations write their social missions into their charters, so investors, employees, and customers know what they’re getting into. State laws differ, but they all require the company to pursue a dual mission and release annual reports on both financial and social performance.
Connecticut’s benefit corporation law is the only one with a “legacy preservation provision.” This clause allows Connecticut benefit corporations to protect their status in perpetuity after they have been chartered for two years. If a benefit corporation dissolves after adopting the legacy provision, its assets must be distributed to a not-for-profit organization or to another benefit corporation that also has a legacy clause.
Not everybody thinks the legacy provision is a good idea. “Ninety-nine out of 100 lawyers would advise against taking this step,” says Emery, “because it ties the hands of future boards.” But social entrepreneurs have what Emery calls “intentionality.” They are like donors to a land trust who voluntarily give up the development rights to their land in order to preserve its natural integrity forever.
Emery was surprised at another opponent of the legacy clause: B Labs, the national not-for-profit that runs a rigorous social auditing program and promotes the idea of benefit corporations internationally. “They wanted all the state laws to be the same,” she says. “But we wanted to be the leader.”
Emery doesn’t know many Connecticut benefit corporations will make their status permanent when the law allows it in October 2016. “It might not be too many,” she says. “But I want Connecticut to be the social enterprise state. This gives us an opportunity to tell social entrepreneurs that if this is your intention, this is what you need to do. Come to Connecticut and flip the switch.”