More On

Community Spirit

I tried out the phrase Some-Profit Organization (SPO) in last month's column to describe a still-new form of doing business in the U.S. that is essentially a halfway point between a for-profit and a non-profit organization. In the U.K. it is called a Community Interest Company (CIC) and has been formally codified in law there. You'll notice the British moniker stresses the community orientation of this type of business, while my phrase focuses on the financial aspect of it.

That's because in America, money talks. Loudly. The best evidence is the way we describe the basic dissimilarity between for-profit and non-profit businesses: those that make money and those that don't. Every other distinction between them is a detail. An armchair philologist such as myself does not swim against such a tide when trying to make an impression on the English language.

CIC, as the Brits would have it, simply does not conjure up in the American mind the core essence of this new form of business. I would wager that if you asked a random group of people here what a Community Interest Company was they would say it sounded like a charity or a legal term for the way the Jaycees or local chambers of commerce are organized. And I don't blame them. The term's focus on "community" is misleading, although technically accurate in that a CIC does focus on community needs.

The phrase SPO focuses on the other key element of a CIC: It allows social entrepreneurs trying to acquire capital on behalf of a community's interest (as opposed to investors' interests) to actually return some profit to the investors. This concept flies in the face of non-profit law in this country, which severely punishes charities and other non-profits that would do the same thing. Under current law we call any profit that finds its way into a person's pocket private benefit or private inurement, and we punish it with intermediate sanctions--fines and excise taxes. If we're ever going to have a CIC-like business form in the states, we're going to need terminology that gets right to the point about what it is. Hence, Some-Profit Organization.

The idea of an SPO probably seems radical. As noted, the non-profit sector can't imagine handing money back to its investors, known as donors. And the business community can't understand why investors in a corporation would not demand the maximum return on their investment. But in one sense the SPO is really just a 21st-century return to the original purpose of that 19th-century invention--the corporation.

In the wake of Milton Friedman's famous 1970 dictum that a business's sole purpose is to generate profit for shareholders, it is easy to forget that states created corporations to serve the public interest. If the state concluded the public would benefit from a canal or a railroad, it issued a charter to a group of businessmen. The charter allowed them to act in concert (while avoiding personal liability) to build that canal or railroad, with the condition that they had to serve the state's interest even as they earned profits. By as early as the end of the 19th century, the corporation's public interest duty had disappeared.

It seems to me that the SPO is just one attempt to moderate the excesses of the ensuing free market capitalism by reining in greed. It assures the corporation's focus on a community's interests by limiting the amount of return investors can earn--the some-profit part--and by locking in their capital contribution so that it continues to serve the community. All the while, the SPO produces enough personal gain to keep the principal investors happy. At least that's the theory.

Contributor

Bruce D. Collins

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.