Some-Profits
Faltering community-interest organizations require a new business model.
September 30, 2007 at 08:00 PM
4 minute read
As a news junkie I have noted with sadness the recent decline of newspapers in towns large and small. Formerly great newspapers are shadows of their former selves, feeling the effects of a multimedia world where their product–news–is out of date the minute it is printed. The downward spiral of newspapering in this economy is not a result of papers not making money; rather, it exists because they are not making enough money to satisfy the profit demands of their shareholders who, for the most part, are investors rather than journalists.
Yet the print press supplies an important social good as an independent watchdog of government and other malfeasors. Not for nothing did the Founding Fathers enshrine the freedom of the press in the First Amendment. But the economics of journalism have changed to the point that newspapers have cut back on foreign and national bureaus. Fewer reporters are assigned to the state house or city hall, much less the courthouse. And TV news has not stepped into the breach.
A solution might be found in a new business form located somewhere between non-profit and for-profit, in a new form I'm calling the Some-Profit Organization. There are other names for it, including Community Interest Company, as it is known and codified in the U.K. Here in the U.S. it does not yet have legal status or even an accepted name, but the idea is generating some buzz.
A Some-Profit Organization (SPO) responds to both community needs and the entrepreneur who wants to meet those needs. It provides a means of accumulating capital to fund community needs by allowing investors a return on their investment. We in the non-profit sector would avoid this feature as private inurement or private benefit. At first this sounds like a for-profit business, but the important distinction is that SPO investors agrees to a cap on their returns and accept that their initial investment is forever locked within the SPO so it will continue to serve the community interest. This is the so-called “cap and lock” feature. There are many ways to structure the cap and lock, but all of them provide an incentive for investors to put money into a community-oriented business through which they realize both a social and financial return. My example is newspapers, but SPOs could be established to operate any business the government deems sufficiently community-oriented–day-care centers, health clinics, schools, etc.
SPOs are not tax-exempt, but they would require some regulation–for example, to guarantee that the asset lock is really locked. Annual reports would be filed, but nothing more onerous than is now required of both charities and businesses. Although an SPO could be cobbled out of present law, it would take a lot of extra cost and effort and would not have the benefit to potential investors or entrepreneurs of being an accepted form of operating a business. Consider, for example, the response an entrepreneurial editor would get if she sought investors for her new local paper by telling them their annual profits would be slim and that they'd never be able to sell out for big bucks. Even if she got any takers, she couldn't legally prevent them from demanding more profit or return of their stake. A business plan premised on a legally cognizable SPO would assure leery investors would know exactly what they were getting into.
The SPO is a welcome business form that allows the private sector to perform a public good without completely ignoring the profit motive. It also introduces a new legal practice area: the Some-Profit Lawyer.
Bruce Collins is the corporate vice president and general counsel of C-SPAN, based in Washington, D.C.
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