The defining characteristic of all fourth sector organizations is that they integrate social and environmental aims with business approaches. Some fourth sector organizations go further by embodying features like inclusive governance, transparent reporting, fair compensation, environmental responsibility, community service, and contribution of profits to the common good.
As the fourth sector expands and becomes more formalized, there is a need to better clarify its boundaries. To that end, a range of efforts are underway to define the criteria for the archetypal Fourth Sector organization, which is referred to as the “for-benefit” organization or corporation.
As broad consensus builds around the definition of the for-benefit archetype, it will become easier for those involved in developing various elements of the support ecosystem for the fourth sector – financial markets, legal forms, technical assistance, assessment and reporting standards, etc. – to focus and integrate their efforts. This will in turn create a more conducive environment for the growth and maturation of Fourth Sector organizations.
Attributes of a for-benefit Corporation
The following characteristics of an archetypal for-benefit corporation are offered as a starting vision intended to catalyze further dialogue. With this caveat, a fully realized for-benefit could have the following core attributes:
• SOCIAL PURPOSE. The for-benefit corporation has a core commitment to social purpose embedded in its organizational structure.
• BUSINESS METHOD. The for-benefit corporation can conduct any lawful business activity that is consistent with its social purpose and stakeholder responsibilities.
• INCLUSIVE OWNERSHIP. The for-benefit corporation equitably distributes ownership rights among its stakeholders in accordance with their contributions.
• STAKEHOLDER GOVERNANCE. The for-benefit corporation shares information and control among stakeholder constituencies as they develop.
• FAIR COMPENSATION. The for-benefit corporation fairly compensates employees and other stakeholders in proportion to their contributions.
• REASONABLE RETURNS. The for-benefit corporation rewards investors subject to reasonable limitations that protect the ability of the organization to achieve its mission.
• SOCIAL AND ENVIRONMENTAL RESPONSIBILITY. The for-benefit corporation committed to continuously improving its social and environmental performance throughout its stakeholder network.
• TRANSPARENCY. The for-benefit corporation is committed to full and accurate assessment and reporting of its social, environmental, and financial performance and impact.
• PROTECTED ASSETS. The for-benefit corporation can merge with and acquire any organization as long as the resulting entity is also a social purpose entity. In the event of dissolution, the assets remain dedicated to social purposes and may not be used for the private gain of any individual beyond reasonable limits on compensation.
Formalization in the Law
For-benefits are a new class of organization. Like non-profits, for-benefits can organize in pursuit of a wide range of social missions. Like for-profits, for-benefits can generate a broad range of beneficial products and services that improve quality of life for consumers, create jobs, and contribute to the economy.
For-benefits represent a new paradigm in organizational design. At all levels, they aim to link two concepts which are held as a false dichotomy in other models: private interest and public benefit. For-benefits seek to maximize benefit to all stakeholders, and because of their architecture, they can embody some of the best attributes of other organizational forms. They strive to be transparent, accountable, effective, efficient, democratic, inclusive, open, and cooperative.
For the for-benefit organization to move from an idealized model to widespread cultural reality, support in the law will ultimately be required. Substantive changes are likely needed in corporate, non-profit, intellectual property, tax, securities, consumer protection and other laws at federal, state, and local levels. A range of promising efforts have emerged in recent years to create such regulatory changes.