for-PROFIT mission
For-profits can pursue purpose as well as profit, and have legal design options to anchor their social or environmental mission.
The board of directors may take operational decisions based on mission
For-profit corporations are often mistaken as “profit maximization” machines, even at the expense of social good. In fact, maximizing shareholder value represents the ultimate duty for a for-profit director in only a limited set of circumstances -- typically involving a terminal event for a corporation, such as a potential acquisition, a management buyout, or similar transaction. Instead, in most other circumstances (i.e., those involving the operational life-cycle of a corporation) directors are reviewed based upon the exercise of their reasonable business judgement, with courts loathe to substitute the judgment of the court for the judgement of directors, unless there is some other evidence of bad behavior. This means that directors typically have a great deal of latitude making most decisions for a corporation, particularly in making the operational decisions for a corporation with an explicit social or environmental mission, where the decision takes into account the social or environmental goals.
Shareholders tend to place time pressure on financial returns
Just because a board “may” take into account goals other than profit maximization, doesn’t mean that shareholders will always agree with mission-related decisions. For example, the success metrics for traditional institutional capital invested in early stage companies places incredible time pressure on those companies to generate a high internal rate of return -- an impatient, time sensitive measure.
Social Entrepreneurs resolve tension through mission anchoring mechanisms
The founders of a social enterprise will often consider ways they can legally anchor a for-profit’s social or environmental mission and protect it over time. Ultimately, the various methods for anchoring the mission of a social enterprise can be segregated in two categories – corporate design and legislative. These mission-anchoring design features are detailed in the For-profit Hybrids section of this website.