Book Reviews: 'Raise Capital On Your Own Terms' And 'Pursuing Profit With Purpose: Benefit Corporation Law And Governance'

Summary

• Lawyer Jenny Kassan guides startups beyond the venture capital maze to find investors that match their social purpose.
• Lawyer Frederick H. Alexander guides mission-driven enterprises on how to become Benefit Corporations, so as to focus on their social purpose.
• These two books will guide legacy asset allocators through these emerging trends that are disrupting traditional finance.

Raise Capital on Your Own Terms, Jenny Kassan, Berrett-Koehler, 2017

Pursuing Profit With Purpose: Benefit Corporation Law and Governance, Frederick H. Alexander, Berrett-Koehler, 2018

Lawyer Jenny Kassan's Raise Capital on Your Own Terms provides the best roundup yet on how to fund your business without selling your soul. After her early work for Ralph Nader's Center for the Study of Responsive Law, Jenny graduated from Yale Law School and earned her master's degree at UC Berkeley with a fellowship from the National Science Foundation. She went on to co-found and run Cutting Edge Capital which helps social enterprises raise capital and now heads her own Certified Benefit Corporation and has raised millions of dollars for the non-profit investment fund, Force for Good.

Kassan outlines her six-step process for raising capital compatible with your company's social purpose:

1. Get Clear on Your Goals and Values
2. Identify the Right Investors for You
3. Design Your Offer
4. Choose Your Legal Compliance Strategy
5. Enroll Investors
6. Address Obstacles Head On

Kassan has provided a welcome peek into the way capitalism itself is evolving now that ethical, green, impact and ESG-focused socially-responsible investing has gone mainstream, as described in The Economist "Ethical Investing Hottest New Trend", September 23, 2017.

In Pursuing Profit With Purpose: Benefit Law and Governance, Frederick H. Alexander describes the evolution of this popular corporate charter which specifies how broader social returns are recognized beyond the conventional goal of maximizing financial returns to shareholders.

In reality, companies' managements have always had leeway within this ironclad mandate to maximize shareholders' financial returns. In fact, as described by Cornell University Law Professor Lynn Stout in The Shareholder Value Myth (2012), this misconception grew because University of Chicago economists, including Milton Friedman, did not fully understand the legal basis of shareholding, i.e.: a shareholder does not actually own a piece of a company, but rather a trade-able contract.

Author Alexander describes in detail the Model Benefit Corporation Legislation, drafted in the USA, which specifically eliminates shareholder primacy and requires corporate directors to consider a broad group of stakeholders in the enterprise. Alexander, a graduate of Georgetown University, practiced with a law firm for 26 years until 2015, when he became Head of Legal Policy at B Lab, the non-profit firm founded by Jay Coen Gilbert, Bart Houlihan, and Andrew Kassoy, which certifies companies wanting to become Certified Benefit Corporations and carry the B. Corp insignia.

Many thousands of companies worldwide have now become certified, including Brazil's Natura (NATU3), a public company, as well as a division of Unilever (UN), Ben & Jerry's Ice Cream, also a B Corp, with CEO Paul Polman's enthusiastic approval.

Alexander, who was selected as one of the ten most highly-regarded corporate governance lawyers worldwide, has assembled in this volume everything you would ever need to know about this form of corporate charter. These B Corporations are similar to other new charters, including Britain's social enterprise chartering forms. He points out the current discontents with shareholder primacy, often misused by corporate raiders citing shareholder value as justification for takeovers, which often contribute to heavier debt loads, shorter-term policies, and sub-optimal management.

Many states in the USA recognize B Corporations and offer such charters, even the state of Delaware, notorious for shielding corporate secrets, malfeasance ,and money-laundering. Clearly, the current broadening of values and goals evident in the evolution of capitalism is toward more ethical impact, green, and ESG-focused responsible investing and businesses.

We hope too that the legal profession itself will evolve in the direction of these two exemplary authors and beyond the shenanigans described in The Chickenshit Club (2017), by Jesse Eisinger who describes how US law lost its zeal for justice and became big business. Similarly, Ray Dalio's somewhat tedious, over-written account of his management style which built Bridgewater into a preeminent hedge fund in Principles (2017) offers little in the way of broader global problem-solving, even though his separate analysis of inequality in the USA is excellent.

These two books of Kassan and Alexander belong on the shelf of every asset allocator from Wall Street and Canary Wharf to Hong Kong, Shanghai, Singapore, and emerging economies worldwide.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.