Il Mulino - Rivisteweb Diletta Lenzi, Andrea Zorzi The Human-Centred Business Model and Hybrid Business Forms: A Primer and a Roadmap (doi: 10.1435/98519) Banca Impresa Società (ISSN 1120-9453) Fascicolo 3, Dicembre 2020 Ente di afferenza: Università di Firenze (unifi) c by Società editrice il Mulino, Bologna. Tutti i diritti sono riservati. Copyright • Per altre informazioni si veda https://www.rivisteweb.it Licenza d’uso L’articolo è messo a disposizione dell’utente in licenza per uso esclusivamente privato e personale, senza scopo di lucro e senza fini direttamente o indirettamente commerciali. Salvo quanto espressamente previsto dalla licenza d’uso Rivisteweb, è fatto divieto di riprodurre, trasmettere, distribuire o altrimenti utilizzare l’articolo, per qualsiasi scopo o fine. Tutti i diritti sono riservati. Diletta Lenzi and Andrea Zorzi THE HUMAN-CENTRED BUSINESS MODEL AND HYBRID BUSINESS FORMS: A PRIMER AND A ROADMAP 1. Introduction 1.1. An evolving landscape Less than a decade ago, Mohammed Yunus could write that the law offered no specific instrument to entrepreneurs who wanted to do business This article is the result of a joint work. However, paragraphs 1, 9 and 10 can be attributed to Andrea Zorzi and paragraphs 2 to 8 to Diletta Lenzi. The research on which the article is based has been developed as part of preparatory activities for the Human-Centred Business Model Project, a research project developed within the framework of the Global Forum on Law Justice and Development – World Bank Legal Vice Presidency. The authors have been involved with the project since its inception and work mainly within the second of the six «pillars» composing the project, focusing on the legal framework and corporate governance devices for a «human-centred» enterprise. This pillar is co-lead by the International Institute for the Unification of Private Law (UNIDROIT) and the University of Florence (Università degli Studi di Firenze). Frédérique Mestre (UNIDROIT Senior Legal Officer) has been of precious help in the development of the research, with comments and suggestions. The inventory of the existing initiatives and organisational forms has widely benefited from the collaboration with researchers at UNIDROIT between October 2017 and July 2018, coordinated by Frédérique Mestre, who have helped in reporting from different jurisdictions. Namely, Lindsey Callahan (USA), Master of Laws (LLM) in Sustainable International Development Law at the University of Washington; Murat Cengizlier (USA), Master of Laws (LLM) in Sustainable International Development Law at the University of Washington; Li Jiankun (China), PhD Cand. of Private International Law, Wuhan University; Pedro Marcon (Brazil), Master in International Commercial Law, Università Europea di Roma/Universidade de Lisboa; Alessandra Pedinotti (France/Italy), Master/Laurea Mag. Cand. Univ. Poitiers/ Roma 3; Irais Reyes de la Torre (Mexico), Master of Laws Rule of Law for Development, Loyola University Chicago School of Law (Rome); Tehilla Schwartz (Israel), LL.B. The Hebrew University of Jerusalem; Ashna Taneja (Australia), Master of Law (Global Competition and Consumer Law) Candidate, University of Melbourne; David Wouters (Belgium), Master in Laws, KU Leuven/LUISS. Further information on the Human-Centred Business Model is available at http://globalforumljd. com/new/communities-of-practice/human-centered-business-model (last accessed on 6th July 2020). A previous version of this article was presented at the ‘Workshop on the Guiding Principles and Corporate Governance Research Papers’, hosted by Unidroit, Rome, 12-13 November 2018. The authors wish to thank Marco Nicoli and Francesco Vella (University of Bologna) for their useful comments and suggestions. Usual disclaimers apply. BANCA IMPRESA SOCIETÀ / a. XXXIX, 2020, n. 3 415 with a goal to make society better off. Writing at a very general and international level, he noticed that one had to adapt business forms to the «social» aspect of business and that the law could hinder some important features of social businesses, such as the non-distribution constraint, and some forms of participatory governance (Yunus 2010). This is certainly not the case any longer. Since the last century, there is a common trend towards a more sustainable way of doing business (for instance, Unidroit 2010). A global cultural shift has occurred about the role of businesses and corporations in society, as well as about their «responsibility» in terms of social and environmental impact: several initiatives have been developed on the international stage (e.g, GRI 2016; United Nations 2015; UN Global Compact 2014; OECD 2011; United Nations 2011), and States are strongly encouraging and incentivising businesses to take into account environmental and social interests in their operations. For-profit entrepreneurs are also voluntarily moving beyond compliance with human rights provisions and environmental regulations, making real business out of sustainability. Perhaps it is still a matter of auspices, but there is a growing belief that we are going towards an economy «in which economic growth and environmental responsibility work together in a mutually reinforcing fashion while supporting progress on social development» (definition of «green economy» by the International Chamber of Commerce 2012). This trend goes together with a growing awareness of consumers and investors on the need for sustainability of both production processes and products (Kassoy et al. 2016). While of unclear practical impact, the Business Roundtable’s position of 2019 (Business Roundtable 2019) and Black Rock’s Larry Fink’s letters to CEOs since 2018 somewhat depart from the commonly accepted shareholder primacy paradigm (on the topic Bebchuk and Tallarita 2020; and Mayer 2020) and state – quoting from Fink’s letter of 2018 – that «To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society» and «companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate». This is not to say that all companies should necessarily embrace stakeholderism of some sort (a critique in Bebchuk and Tallarita 2020). However, the least one can say is that today the market is no longer a place for the sole for-profit business model. In every economy the share of some form of «social» business is increasing, and law and practice are developing new organisational forms to better carry out business and social activity, often referred to as «social businesses», since they aim at generating a positive impact on society in the broadest meaning. It should be noticed, for the sake of clarity, that, while there is a common understanding that «social» business is a business done for a goal that tran416 scends the financial interests of shareholders or members, the term has very different implications depending on jurisdictions. Very generally, in Europe the concept of «social» business tends to include some forms of profit distribution constraint (paragraph 3.2), whereas in the US this is not the case. Among the most notable of the many initiatives intended to provide a legal form to «social» business which have occurred in the recent past, the most renowned is the US «benefit corporation», which has no distribution constraint and has gone beyond US borders. Many European States have also provided advanced legal forms for doing «social» business beyond social enterprises and the distribution constraint usually implied. 1.2. Main purpose of the research This article aims to provide a general overview of some existing hybrid organisational forms, designed to carry out business with a view to generating a positive impact on the civil society, the environment, or other stakeholders, without foregoing profit altogether. This article has been developed as part of the preliminary activities of the «Human-Centred Business Model» (HCBM) project, within the framework of the Global Forum on Law, Justice and Development (World Bank Legal-Vice Presidency) and is now coordinated by the OECD Development Centre. The project aims to foster a holistic model to facilitate the development of an ecosystem for those who want to run a business generating a positive impact on society and the environment while being economically sustainable. In order to carry out this kind of business, «hybrid» companies are perfectly appropriate, given that they allow carrying out businesses organised in a collective way that balance profit and non-profit goals. Activities seeking to generate a positive impact on society indeed can be carried out by different kinds of organisations, some of which carry out business, some of which do not. In a very simplified manner, organisations having some sort of «social» goal can fall within one of the following categories: (1) not-for-profit organisations (such as associations, foundations, or charities) that do not carry out any business, and mainly rely on donations or grants to pursue their goals, or that may carry out business in an accessory fashion, as a means to provide financing to the pursuit of the social goal; (2) not-for-profit organisations (in any form) that pursue social goals but carry out business as a chore means to pursue their goal (e.g., some types of social enterprises); (3) for-profit businesses that pursue social goals and also profit (in a varying degree, the main common ground being that they do not pursue only profit maximisation), which can be divided into: (3.1) businesses that can 417 pursue goals other than profit maximisation; (3.2) businesses that must also pursue social goals. Among these categories, the research focuses only on categories (2) and (3), while not-for-profit organisations, when they do not carry out any business or when the business is a mere accessory of their activity (category (1)), are not included. For each category, various governance characteristics have been analysed in order to sketch the core structure of each model. The collection of information, as well as the selection of corporate governance issues to be analysed, has been realised in a functional way, in order to concentrate only on those examples that can be used in the quest for HCBM corporate governance frameworks. The analysis has involved several jurisdictions, in order to understand whether and how entrepreneurs can run a business balancing (to different degrees) profit goals with not-for-profit ones, and when a business model requires such a balance. Some laws enable members of for-profit entities to pursue notfor-profit goals, but some others do not. Even if a total profit-maximisation rule is probably inexistent, also in jurisdictions where corporate law tends to be mandatory and profit maximisation is the norm, the degree at which profit maximisation can be dispensed with is another issue; e.g., while for companies under some US laws, which are traditionally of an enabling nature, shareholders could set out special rules in the certificate of incorporation referring to the social or environmental sustainability of the business at the expense of profit maximisation, it may not be the same in other jurisdictions, where some legal categories (normally companies) are legally allowed to pursue profit only. This was the case of Italy until 2016, where companies could provide for some limited deviation from profit maximisation but could not, e.g., ban profit distribution, not even through a charter amendment (however, Stella Richter Jr. 2017). This is also one of the reasons why, in order to do business that aims to balance profit with social and environmental goals, new specific legal provisions on the Italian benefit corporation were deemed necessary (paragraph 3.3.4). The issue of whether or not the law allows for the pursuit of not-for-profit goals alongside profit by using a traditionally profit-oriented organisational form may seem trivial to those accustomed to enabling laws (leaving aside «branding» issues, that are, however, extremely important) but should not be undervalued, since in many jurisdictions this is not possible, if there is no specific provision in the law that allows it. In contrast, some jurisdictions have special provisions for types of organisations that the parties are free to use or not. If they do, they must also pursue not-for-profit goals (as defined by the law). This includes, on the more «profit» side of the spectrum, hybrid forms such as «benefit corporations» or «public benefit corporations», which can freely distribute profit, and – on the other side of the spectrum – forms such 418 as L3Cs, community interest companies (in the UK), some types of co-operatives (e.g., in Italy; Fici et al. 2013, for a worldwide comparative analysis of cooperatives), which can distribute profits, albeit with various limitations, and some kinds of «social enterprises» as so defined by some laws. Within this framework, the research concerns only types of organisations as provided by the law, through which it is possible to set up «sustainable» businesses having also social or environmental goals. 2. The United States 1 The US can be considered as one of the countries in which the cultural shift first occurred and where the debate about the role of business in society has begun, at least with such intensity, perhaps as a reaction to the shareholder value maximisation approach. In the US, the notion «social enterprise» generically includes organisations of several levels of sustainability and stakeholders’ involvement, from pure for-profit companies with a commitment to corporate social responsibility to not-for-profit organisations carrying out business. Also, State company laws across the US traditionally allow shareholders to set out, in the certificate of incorporation, special rules which refer to social or environmental pursuits. In the US, two models seems to be particularly relevant within the present research: the low-profit limited liability company (or L3C), and the benefit corporation (and similar forms: some authors expressly include both L3Cs and benefit corporations in the category of «social enterprises»; Murray 2016). These models have taken a different approach to balancing the tradeoffs involved when businesses pursue both profits and social or environmental goals. Slight differences are also reflected in State legislations within the same benefit corporation model (corporate law in the US is a matter of State law), where benefit corporations may also be named differently. 2.1. The low-profit limited liability company (L3C) The first low-profit limited liability company (so-called «L3C») legislation was enacted in 2008 by the US State of Vermont, as an amendment to the general limited liability company (LLC) act, rather than as a separate act (Vermont Statutes, Title 11, Chapter 25, Subchapter 11: «Low-profit Limited 1 Paragraph 2 is based on the work of Lindsey Callahan and Murat Cengizlier. 419 Omissis DILETTA LENZI, Università degli Studi di Firenze, Via delle Pandette 35, 50127 Firenze, diletta.lenzi@unifi.it. ANDREA ZORZI, Università degli Studi di Firenze, Via delle Pandette 32, 50127 Firenze, zorzi.a@gmail.com. Diletta Lenzi and Andrea Zorzi, The Human-Centred Business Model and Hybrid Business Forms: A Primer and a Roadmap The Article was written as part of the preliminary research for the Human Centred Business Model Project, a project developed within the Global Forum on Law, Justice and Development and now supported by the OECD Development Centre. In a preliminary fashion, the Article skims the surface of «social» businesses, in the broadest sense, around the world, identifying some general trends and commonalities and some differences. The Article covers jurisdictions from North and South America, Europe, Asia and Australia and describes the organisations that can be used to carry out social business. Keywords: Corporate Governance; Corporate Social Responsibility; Stakeholder Value; Social Enterprise; Benefit Corporation; Hybrid Organisations; Sustainability. JEL Classification: G30; G34; G38; K20; K22; K38; L31; M14. 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