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Social Venture Partners founding president Paul Shoemaker decides to turn a new page

When Paul Shoemaker agreed 17 years ago to be the first president of Social Venture Partners (SVP), it was a time when hundreds of suddenly wealthy Microsoft employees were retiring young and taking their newfound mantra of "if you have it you share it" into the community.

 

Thus it was that dozens of Microsofties were ready to seize the opportunity that would be created when SVP founder Paul Brainard, the father of desktop publishing who had sold his Aldus Corp. and turned to philanthropy, convinced Shoemaker to leave his position as Microsoft group manager for worldwide operations to head SVP.

Paul Shoemaker 

That 1998 luncheon meeting where Brainard made his pitch to Shoemaker came a few months after more than 130 potential contributors met with Brainard, Shoemaker and a couple of other high-tech leaders to found SVP as a kind of donor's circle, as it was once described. The partnership was set up with each member "investing" at least $5,000.

 

What followed, under Shoemaker's guidance, was the growth well beyond that Microsoft nucleus into what soon became a 501c3 focused on philanthropic investments. Today SVP is the world's largest network of engaged philanthropists and over the years the partners have invested not just dollars but volunteer hours in the non-profits they focused on.

 

SVP has spread not only to 39 cities across the country but in the past couple of years has reached into nations on four continents, including Asia with a launch first in India, then Japan, Australia, Korea and China.

 

Now shoemaker has announced that he will be stepping down from the position that his business card and the SVP website simply describe as Executive Connector, transitioning out over the next three to five months as the board looks for a successor.

Shoemaker's successor will assume leadership of an organization that has grown to 550 members in the Seattle area and more than 4,000 globally. Each partner now antes up $6,000 for the investment pool.

 

SVP website indicates members have collectively given more than $15 million to King County nonprofits and that money was stretched farther by the tens of thousandsof volunteer hours given by SVP Partners.

 

This number multiplies when looking across SVP's international network.  Since SVP's inception, the partners across the country and internationally have collectively given more than $54 million and "countless volunteer hours."

 

Shoemaker, who will remain on the board of the SVP International Network, says there will be "more to come" for international growth as he will be taking the initiative to focus on bringing SVP to Latin America this fall.

 

Shoemaker says that not only is SVP's impact becoming global, but "partners and investors are reaching for more positive change than ever, with exploration into impact investing and deeper diversity, equity and inclusion work."

 

Moving into impact investing, which SVP is exploring and which will be a key agenda item next fall when SVP's international conference will be held in Seattle again for the first time in a number of years, would add a different factor to SVP philanthropic investing.

 

Impact investing brings financial returns into consideration alongside social and environmental impact since the investments are in for-profit entities. Shoemaker says SVP involvement in impact investing, and how to go about it, is still to be determined. But he notes that "a lot of partners are already into impact investing on their own."

 

"Impact investing is where the action is," Shoemaker said. I asked him about B Corp investing and he said "I don't know if B Corp companies are an up or down trend but I think they are here to stay, sort of becoming more on the radar."

 

B Corp companies, a corporate legal status permitted in a number of states including Washington, allow for a higher purpose than shareholder value, permitting companies' decisions to go beyond maximizing financial results to include positive social or environmental impact.

 

I asked Shoemaker if it was fair to say that SVP could only have been launched in Seattle and only because of the giveback focus of those young Microsofties.

"I'm not sure about that, he replied. "But it was surely the best time and place to have created SVP."

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Growing number of businesses filing for legal status to put social purpose ahead of profit

With a growing number of states enacting laws that allow companies to put a social purpose as a higher corporate calling than shareholder benefit, there's an emerging disagreement among proponents of such legislation over whether it should require, or merely permit, companies to have the social purpose dominate in executive decisions.

 

The initiatives to allow a higher purpose than shareholder value was in response to the traditional corporate-law constraints that make it the fiduciary duty of officers and directors to operate with the underlying assumption that their role is to maximize shareholder profits.

 

Washington was one of the first states to provide for-profit companies a legal status for a social focus, under the legal designation Social Purpose Corporations. As of March 1, 89 companies had filed as SPCs under the two-year-old legislation that permits companies' decisions to go beyond maximizing financial results to include positive social or environmental impact.

 

And Oregon's legislature passed a law this session to provide for "B Corps"(benefit corporations) and state Rep. Tobias Read of Beaverton, co-sponsor of the legislation, described it as designed to "legally protect companies that want to strive for more than just profits." The law imposes much tougher requirements on companies to make the social purpose pre-eminent.

 

The two Northwest states point up the different approaches to the goal of allowing otherwise traditional for-profit corporations to have a higher standards of corporate purpose, accountability and transparency.

 

California actually has two social-benefit statutes, one called the "flexible purpose corporation" that emphasizes companies may take a stated social purpose into account in corporate decisions, and the other providing for a Benefit Corporation, imposing a requirement for the role of stated social purpose in decisionmaking.

 

Proponents of the flexible form of legal filing say it seeks to "unleash directors from the risk of liability while permitting them to experiment more broadly with the right mix of doing well and doing good, without concerns of personal or corporate suits."

 

The benefit corporation law, under which virtually all California companies have filed, is based on the model Act created by a 501C3 called B Labs, co-founded in 2006 by Andrew Kassoy, who sought to create a "social hybrid" corporate structure movement.

 

Kassoy, who had a career as a private equity investor and most recently was a partner at MSD Real Estate Capital, part of the investment vehicle for the assets of Michael and Susan Dell, says his goal was to make it easier "for all of us to tell the difference between 'good companies' and just good marketing."

 

All states require, as part of the benefit-corporation filing process, a third-party certification and verification for the chosen social purpose of a company and B Labs plays that role for businesses in 19 states with the Benefit Corporation model, which is a legal status like C Corp, S Corp of LLC.

 

Benefit corporation is often confused with Certified B Corp, which is a certification conferred by third-party organizations like B Lab that a company has achieved appropriate levels of social or environmental performance, accountability and transparency

Every benefit corporation is required to publish publically an annual benefit report that includes "an assessment of [its] overall social and environmental performance against a third party standard."

 

Kassoy is critical of both California's flexible purpose corp. legislation, whose sponsors are now seeking to amend it, and Washington's statute.

 

"I think that both miss the mark because by creating a 'may' instead of 'shall' standard and by failing to require transparency about the overall impact created by the company, investors and other stakeholders don't have something clear to rely on," Kassoy said in telephone interview. "That creates confusion, suspicion of potential 'greenwashing,' (a term used to deride bogus environmentalism or social causes) and therefore impedes market adoption."

 

But Peter Smith, a partner in Seattle-based Apex Law Group, disagrees, while saying he is "a big fan of what B-Labs is saying and doing," but adding "I think Washington got it right by making it about flexibility, making the legislation permissive rather than prescriptive."

 

"What this legislation really is about is providing officers and directors legal cover in the event they make decisions based on the stated social purpose of the company," he added.

 

What the Washington legislation provides is that officers and directors of SBCs shall act in the best interest of the company, but may take into account social purposes.

 

Paul Shoemaker, who founded Social Venture Partners and now carries the title Executive Connector, suggests the emergence of the ability of companies to provide for a social purpose is part of an expanding array of ways "to fund, invest in and sustain social programs in the community."

"The most exciting, potentially impactful thing about all this is it's part of a more diverse, wider range of capital and funding mechanisms coming into play for businesses," he said.

 

Preston Thompson, guided a variety of global-enterprise units or Boeing, ranging from production and supply chain operations to international development, last year founded VentureScale to help with a focus on "accelerating the sustainable growth of ventures."

 

After leaving Boeing, Thompson had already founded a non-profit to create education opportunities in Afghanistan and a business making clean cook stoves for the developing world when Washington's legislation was signed into law.

 

Thompson founded VentureScale as one of the first 50 businesses formed under that legislation with the goal of helping to accelerate the sustainable growth of social ventures.

 

"Gauging the success of a business strictly by evaluating standard bottom-line profit isn't enough," says Thompson. "Maximizing shareholder value and evaluating overall contributions should include social and environmental returns in addition to financial returns."

 

None of the nearly 1,000 social-purpose designated companies in the nation is publicly traded, but advocates of the designation insist that as the trend continues, companies seeking equity capital and focusing on eventual exit strategies will become increasingly appealing to investors.

 

Stephanie Ryan, B Lab's senior associate in the Northwest, sees banks as particularly attractive candidates for Benefit Corp status because of the traditional focus of community banks on serving their local areas. She says she is currently in conversation with an Oregon bank about converting to that legal status, which requires a two-thirds vote of shareholders.

 

Kristopher Lofgren, owner of an Oregon business called Bamboo Sushi, commented after passage of the Oregon law on its importance to the image of business as well as its community value.

"What a lot of people don't realize when they look at the CEOs of companies as despicable people who make these decisions about money, money, money is that the laws are actually written so that's all they can do legally," Lofgren said. "They can be sued and lose their jobs, and the company can go under if they don't. B corp is allowing another voice to come into that fray."

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Legal status that puts social purpose ahead of profit

With a growing number of states enacting laws that allow companies to put a social purpose as a higher corporate calling than shareholder benefit, there's an emerging disagreement among proponents of such legislation over whether it should require, or merely permit, companies to have the social purpose dominate in executive decisions.

 

The initiatives to allow a higher purpose than shareholder value was in response to the traditional corporate-law constraints that make it the fiduciary duty of officers and directors to operate with the underlying assumption that their role is to maximize shareholder profits.

 

Washington was one of the first states to provide for-profit companies a legal status for a social focus, under the legal designation Social Purpose Corporations. As of March 1, 89 companies had filed as SPCs under the two-year-old legislation that permits companies' decisions to go beyond maximizing financial results to include positive social or environmental impact.

 

And Oregon's legislature passed a law this session to provide for "B Corps"(benefit corporations) and state Rep. Tobias Read of Beaverton, co-sponsor of the legislation, described it as designed to "legally protect companies that want to strive for more than just profits." The law imposes much tougher requirements on companies to make the social purpose pre-eminent.

 

The two Northwest states point up the different approaches to the goal of allowing otherwise traditional for-profit corporations to have a higher standards of corporate purpose, accountability and transparency.

 

California actually has two social-benefit statutes, one called the "flexible purpose corporation" that emphasizes companies may take a stated social purpose into account in corporate decisions, and the other providing for a Benefit Corporation, imposing a requirement for the role of stated social purpose in decisionmaking.

 

Proponents of the flexible form of legal filing say it seeks to "unleash directors from the risk of liability while permitting them to experiment more broadly with the right mix of doing well and doing good, without concerns of personal or corporate suits."

 

The benefit corporation law, under which virtually all California companies have filed, is based on the model Act created by a 501C3 called B Labs, co-founded in 2006 by Andrew Kassoy, who sought to create a "social hybrid" corporate structure movement.

 

Kassoy, who had a career as a private equity investor and most recently was a partner at MSD Real Estate Capital, part of the investment vehicle for the assets of Michael and Susan Dell, says his goal was to make it easier "for all of us to tell the difference between 'good companies' and just good marketing."

 

All states require, as part of the benefit-corporation filing process, a third-party certification and verification for the chosen social purpose of a company and B Labs plays that role for businesses in 19 states with the Benefit Corporation model, which is a legal status like C Corp, S Corp of LLC.

 

Benefit corporation is often confused with Certified B Corp, which is a certification conferred by third-party organizations like B Lab that a company has achieved appropriate levels of social or environmental performance, accountability and transparency

Every benefit corporation is required to publish publically an annual benefit report that includes "an assessment of [its] overall social and environmental performance against a third party standard."

 

Kassoy is critical of both California's flexible purpose corp. legislation, whose sponsors are now seeking to amend it, and Washington's statute.

 

"I think that both miss the mark because by creating a 'may' instead of 'shall' standard and by failing to require transparency about the overall impact created by the company, investors and other stakeholders don't have something clear to rely on," Kassoy said in telephone interview. "That creates confusion, suspicion of potential 'greenwashing,' (a term used to deride bogus environmentalism or social causes) and therefore impedes market adoption."

 

But Peter Smith, a partner in Seattle-based Apex Law Group, disagrees, while saying he is "a big fan of what B-Labs is saying and doing," but adding "I think Washington got it right by making it about flexibility, making the legislation permissive rather than prescriptive."

 

"What this legislation really is about is providing officers and directors legal cover in the event they make decisions based on the stated social purpose of the company," he added.

 

What the Washington legislation provides is that officers and directors of SBCs shall act in the best interest of the company, but may take into account social purposes.

 

 

Paul Shoemaker, who founded Social Venture Partners and now carries the title Executive Connector, suggests the emergence of the ability of companies to provide for a social purpose is part of an expanding array of ways "to fund, invest in and sustain social programs in the community."

"The most exciting, potentially impactful thing about all this is it's part of a more diverse, wider range of capital and funding mechanisms coming into play for businesses," he said.

 

Preston Thompson, guided a variety of global-enterprise units or Boeing, ranging from production and supply chain operations to international development, last year founded VentureScale to help with a focus on "accelerating the sustainable growth of ventures."

 

After leaving Boeing, Thompson had already founded a non-profit to create education opportunities in Afghanistan and a business making clean cook stoves for the developing world when Washington's legislation was signed into law.

 

Thompson founded VentureScale as one of the first 50 businesses formed under that legislation with the goal of helping to accelerate the sustainable growth of social ventures.

 

"Gauging the success of a business strictly by evaluating standard bottom-line profit isn't enough," says Thompson. "Maximizing shareholder value and evaluating overall contributions should include social and environmental returns in addition to financial returns."

 

None of the nearly 1,000 social-purpose designated companies in the nation is publicly traded, but advocates of the designation insist that as the trend continues, companies seeking equity capital and focusing on eventual exit strategies will become increasingly appealing to investors.

 

Stephanie Ryan, B Lab's senior associate in the Northwest, sees banks as particularly attractive candidates for Benefit Corp status because of the traditional focus of community banks on serving their local areas. She says she is currently in conversation with an Oregon bank about converting to that legal status, which requires a two-thirds vote of shareholders.

 

Kristopher Lofgren, owner of an Oregon business called Bamboo Sushi, commented after passage of the Oregon law on its importance to the image of business as well as its community value.

"What a lot of people don't realize when they look at the CEOs of companies as despicable people who make these decisions about money, money, money is that the laws are actually written so that's all they can do legally," Lofgren said. "They can be sued and lose their jobs, and the company can go under if they don't. B corp is allowing another voice to come into that fray."

 

  
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Key expansion steps planned by Social Venture Partners this year

Social Venture Partners (SVP), the Seattle-based organization that describes itself as the world's largest network of engaged philanthropists, approaches its 15th anniversary with a couple of major initiatives about to unfold. One will extend the organization's international footprint and the other will enhance its impact nationally. 

 

First is an expansion into India next fall and second is creation of a "mezzanine fund" that will offer more philanthropic cooperation among member cities, allowing them to function much the way angel investors do in syndicating deals. Beneficiaries of that fund will be philanthropic organizations "with great models" who will be able to expand their reach into multiple cities.

 
 

Paul Shoemaker, who has guided SVP since 1998 when founder Paul Brainard convinced him to leave his position at Microsoft as group manager for worldwide operations to become SVP's first president, says the organization is coming off its best year for new members since its expansion year of 2000.

 

Shoemaker, now referred to on his business card and SVP website simply as Executive Connector, might suggest that the initiatives to be undertaken this year could expand the numbers dramatically.

 

The move into India, which will launch in Bangalore later this year, is driven both by the fact that "there are some basic forms of philanthropy there already" as well as by the large number of citizens from India who are drawn to the high-tech companies located in the Seattle area. Many could be attracted to SVP membership by the India initiative.

 

"There are so many connections between India and Seattle," Shoemaker observed. "And we're confident we've found the leaders there to make us confident of success, even if SVP will look different than it does here.

 

"It will undoubtedly be a different monetary level for members," he said, "and the social system in India is different but we'll bring the same core principles."

 

With respect to SVP's creation of its mezzanine fund, it will operate somewhat like syndication so that SVP cities into which a non-profit would expand will participate in the financial and personal support for that non-profit.

 

"What we are creating is a fund from cities across the system evaluating the strongest local grantees that have the interest and the best opportunity to expand into multiple cities," says Shoemaker. He explained it as "helping nonprofits with great models replicate and reach next level funding opportunities."

 

"They might now be operating in one or two cities and want to grow into three or five cities," he said.

 

The applicants for support from the mezzanine fund are currently being evaluated and those selected as grantees for the new program will be announced in the next month or so, Shoemaker said.

 

Shoemaker, who was named last August as one of the "Top 50 Most Influential People in the Non-Profit Sector" by The NonProfit Times, recalls that expansion into other cities helped spur the initial growth to what is now about 2,100 members around the country, plus Canada and Japan.

 

It was in 2000 that SVP, then only beginning to expand beyond Seattle, had its first surge of young partners. Many of them were successful techies, answering Brainard's and Shoemaker's call to get involved in a new model for philanthropic focus on creating a better non-profit sector.

 

Each agreed to donate $5,000 a year to SVP and become personally involved with one or more non-profits. The amount is now $6,000 a year.

 

The first cities into which SVP expanded were Phoenix, Vancouver and Dallas. Since then, the organization has expanded only into cities that sought to become SVP locations, but that is another thing that's changing this year.

 

"Up to this point we've been reactive, waiting until someone from a community contacted us to express interest in forming a group," Shoemaker said. "Now we're actively pursuing cities where we should be represented and most likely locations this year, in addition to Bangalore, are Austin and Raleigh/Durham."

 

There are currently 25 venture-partner cities in which SVP operates in the U.S., Canada and Japan. As of last January, the SVP network had contributed nearly $41 million in grant investments to 500 nonprofit organizations and provided tens of thousands of volunteer hours in service and counsel.

 

One of the more interesting developments in the evolution of SVP is the number of partners forsaking the private sector and stepping into leadership roles in the social and public sectors. In a large sense they are following the model established by founder and desktop publishing creator Paul Brainard and Shoemaker himself.

 

They include:

 

-- Lisa Chin, a former Amazon executive who stepped out of the private sector to become the first executive director of Year Up Seattle - helping urban young adults reach their full professional potential.

 

--Tim Schottman, who two years ago left behind a 17-year career guiding Starbucks international development to become chief global officer at Sightlife, building a network of eye banks to support corneal transplants with the lofty goal of eliminating blindness for 10 million people in the developing world.

 

--Peter Bladin, formerly of Microsoft, who headed up Grameen Foundation's technology Center for 10 years.

 

Shoemaker says "this is definitely a trend we are fostering, hopefully leading it, because it is significant for bringing people with key organization-building skills from the private sector into the non-profit world."

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