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Using the law to do good: Kyle Westaway on Benefit Corporations and capitalism with a purpose

   /   Jul 25th, 2011Business, New York City, News

Business law assumes profit as a company’s singular motivation, making it hard, and sometimes illegal, for social enterprises to keep a social mission at the core of their operations. Kyle Westaway has dedicated his legal practice to counseling social entrepreneurs on the risks and complications involved in their business models. Westaway Law advises clients like Frontline SMS, Wello Water, All Day Buffet, Praxis Labs, and the Adventure Project. Westaway is also a founder of Biographe, a fashion startup that seeks to create sustainable jobs for survivors of sex trafficking in Thailand. Here he gives Dowser some thoughts on the emergence of Benefit Corporation legislation and the power of social enterprise. Check out more of Westaway’s advice on the SocEntLaw blog.

Dowser: What led you to become an advocate for social enterprise?
Westaway: I think that title, advocate, is the best description of what I do for this new form of capitalism with a purpose. I grew up with a great family that always knew it was very important to give back, to lift others up, that getting ahead didn’t mean you had to put others down. Also, when I was getting my master’s degree in public policy by thesis was around economic development in sub-Saharan Africa. So I got really interested in economics, in how can you leverage the market to alleviate poverty.

What exposed you to that particular vision?
My main inspiration was my love for Bono, from U2. Listening to his music, and seeing what he is doing, opened my eyes – specifically to Africa. Then it got me thinking about how I could leverage my talents to be a part of the solution. Bono’s focus on Africa is about them being the Global Least of These – in Matthew 25, from the Bible, Jesus says, “What you do to the least of these, you also do to me.” That made me think, what am I doing about the least of these? I’ve got a pretty comfortable life and I have an opportunity to help others. Then in law school I got really interested in social justice in general, specifically around the issue of sex trafficking. I knew very little about it and when I had my eyes opened to it, that it’s something growing and not dying as we speak.

Is the legal structure of the Benefit Corporation proving to resolve some of the complications involved in starting a social business?
What the Benefit Corporation does is pretty revolutionary. It changes the game on what a corporation is aiming at.

The noted management thinker Peter Drucker says, ‘You will get what you measure.’ Whatever you’re using as an analytic, that’s what you’re going to excel at. At this point in time corporations’ only goal, their legal mandate, has been to create as much profit for shareholders as possible. What we’ve found is that that sole purpose can really handcuff the directors of a corporation that want to pursue something in addition to profits. They still want to make profits but also want to consider community, environment, suppliers, and employees. So that group is generally referred to as stakeholders.

The main legal change that the Benefit Corporation makes is it broadens the mandate of a corporation from maximizing shareholder value to stakeholder value. And that is a huge shift in hundreds of years of corporate thinking.

Also the Benefit Corporation allows for transparency and liability – it allows a company to distinguish itself from a company that just has good marketing. Every year a corporation has to release a report, with a third-party verification done by an objective outsider that says how they’ve done this year in achieving their environmental and social goals.

Which states have legalized B-corps?
Vermont, New Jersey, California, Virginia, Maryland, Hawaii, New York (Law for Change article) it’s going to the governor’s desk to be signed right now. It seems to see very little opposition.

What made you want to join the Board of a NYC Charter School and what has that experience been like?
It’s been amazing for me. I was invited by a friend of mine to join. Then I got really excited about what we’re doing at Excel; it’s very entrepreneurial and different. We’re doing something called “Turn Around.” We’re taking a school that’s been shut down and trying to re-open that school with the same students in the same building with a different administration and teachers to prove the point that if the kids aren’t performing, it’s not the kids’ fault, it’s the adult’s fault. If we as adults try harder and do different things, we can see results. We’re the fifth school in the U.S. to try this.

What’s happening with your new company, Biographe?
Last year Biographe had a design contest
and now we are printing off the winners onto graphic t-shirts; we are calling this Biographe Beta. They are all open-source designed, and based on the stories of these women. But the most important thing is that they are printed by survivors of sex trafficking. We went to Bangkok in March and set up our production facility. Our model addresses a few issues and it’s powerful because it meets their primary need and also serves as an engine for more sustainable solutions down the road. It’s job training for these women, and they earn a sustainable living wage. And what we’re doing with the profits from this line is, 100 per cent of the profits are re-invested in the fight against the commercial sex trade. This will be in the form of donations on the ground, or maybe educational scholarships for these women and their children, or micro-grants.

What do you hope to see in the future of the social enterprise movement?
My long term vision is before I die to have 10 percent of the US GDP coming from social enterprise. So my passion is about laying that infrastructure and setting this movement up for success. We’re so young, so nascent. There’s so much growing up for us to do. I’m glad to be playing my small role in the legal side of things, and becoming a practitioner as well. I would be so happy if we no longer made the distinction between enterprise and social enterprise – if it was just the way business is done.

Interview has been edited and condensed.

9 Responses

  1. Tamara S says:

    Glad to see more about Benefit Corporations on Dowser and great people like Kyle who are helping entrepreneurs pave the way for this new form of capitalism. I love Kyle’s point about getting to a place where there is no longer a distinction made between enterprise and social enterprise — that it’s just the way business is done. Nice work!

  2. Thanks Tamara! Looking forward to that day!

  3. Jon Widrick says:

    One small clarification: California has not quite yet passed the benefit corporation law, though it is currently under consideration along with another social enterprise model: the flexible benefit corporation.

    Also, this June Maryland became the first state (and so far, only) state to pass benefit LLC legislation, extending benefit designation to the entity form businesses actually use most!

  4. Geri Stengel says:

    From your mouth to God’s ear! It would be a wonderful thing if 10% of GDP were from social enterprises. And it may happen. The next generation seems very interested in social enterprise and in making every transaction count toward social good. With the legal groundwork you are doing to support such businesses, it just may happen.

  5. [...] blog about the legal side of social enterprise. My work has been featured by We Are NY Tech and Dowser; and writes for Huffington Post, GOOD, and Social Earth. He is Chairman of the Board for both [...]

  6. [...] Kyle is a Cordes Fellow and is an Xemplar award winner.  He lectures at Harvard and Stanford Law Schools.  He launched Socentlaw – the first blog on social entrepreneurship law. he writes for Wall Street Journal, Harvard Business Review, Huffington Post, Venture Beat, GOOD.  Kyle has been featured by We Are NY Tech and Dowser. [...]

  7. [...] Earth. Westaway has been featured by The New York Times, Xemplar, We Are NY Tech, Dowser; and has been honored as a Social Innovation Rockstar and Cordes [...]