The First Public Benefit Corporation Is . . . A For-Profit College?

By on February 10, 2017 in FAST COMPANY


On February 1, Douglas Becker made history when he rang the opening bell of the Nasdaq. His company, Laureate Education, Inc.–the world’s largest for-profit college network, with more than 1 million students enrolled at over 200 campuses in 28 countries–had just launched an initial public offering. IPO filings happen every day, but this is the first public benefit corporation to ever be publicly traded. Laureate is listed on the exchange as LAUR and raised $490 million by offering 35 million shares at a price of $14, slightly lower than expectations.

Benefit corporations are distinct from a traditional corporation. Rather than a singular focus on creating financial value, a benefit corporation is explicitly mandated to pursue positive social and environmental impact along with financial prosperity. The benefit corporation is designed to create flexibility for management to make decisions that aren’t driven solely to maximize shareholder value.

So, why would a publicly traded company choose to convert to a benefit corporation? By selecting the benefit corporation form, Laureate could be sending a signal that, even after it goes public, it will not compromise its educational mission in favor of the pursuit of quarterly profits.

In a letter accompanying the S-1 filing, Laureate’s Chairman and CEO Doug Becker notes that their stated public benefit is to “produce a positive effect for society and students by offering diverse education programs both online and from campuses around the globe.” He writes that they have always run their company with the “’head’ of a business enterprise–scalable, efficient and accountable for measurable results—with the “heart” of a nonprofit organization–dedicated to improving lives and benefiting society.”

Of course, there are lots of reasons to be very skeptical of the world of for-profit colleges: Publicly traded for-profit colleges performed well for shareholders for years, but in their single-minded pursuit of profit, they forgot their stated purpose: to provide high-quality education that would prepare students for a career. Instead, they loaded the students up with debt and failed to deliver high-quality education. And due to management’s short-term focus on quarterly profits, the shareholders lost out. According to Bloomberg, the For-Profit Education Index of 13 companies, including DeVry Education Group Inc. and Apollo Education Group Inc., has plunged 55% since its peak five years ago, amid recruiting abuses and student debt concerns, leading to a regulatory crackdown.

Because they lost sight of the purpose–to actually educate students–in pursuit of profit for their shareholders, they ended up running the business into the ground. Following the public outrage, their stock plummeted and two companies, Corinthian Colleges Inc. and Education Management Inc., have been delisted from the Nasdaq Stock Market, eventually destroying all the value that they had created for investors.

Laureate is no different: it’s been derided for exporting a broken for-profit education system abroad. Eighty-two out of 86 of its schools operate internationally and out of the reach of U.S. regulators. It has faced sharp criticism in Latin America, where the majority of its schools are based. In Chile, one Laureate school was stripped of its accreditation when academic standards suffered as the school scaled up (it’s now been restored, the company is eager not note).

In addition to the issues besetting for-profit education, there’s also the question of how the market will respond to a benefit corporation. Critics are skeptical that a company pursuing both profit and purpose could perform well on the public markets. These critics assume that profit and purpose are in tension; that by focusing on the mission, investors will suffer. However, the for-profit college industry seems to be a case study proving the opposite point: that, at least in this industry, a narrow pursuit to maximize shareholder value actually ended up punishing the shareholders (and students).

Laureate’s conversion to a benefit corporation might be a reaction to the mistakes made by publicly traded for-profit colleges. Perhaps protecting the purpose will be the best way to ensure that Laureate is able to focus on creating long-term shareholder value and financially outperform the rest of the industry. This legal structure will allow them to focus on the student and the quality of experience, and resist investors who may want to turn Laureate into a diploma mill.

Conversely, Laureate’s conversion could simply be a public relations tactic to soften its image with the public and investors thereby differentiating itself from the rest of the for-profit education sector.

So, how will investors respond? “While still an acquired taste for many traditional investors, the concept of codifying social and environmental values is really gaining traction across asset classes and geographies,” says Ron Cordes, co-founder of Impact Assets. This seems to be true for even the most established investors, both Citigroup Inc. and KKR are current shareholders of Laureate and have approved the conversion to a benefit corporation prior to the IPO filing.

Investors may be warming to the idea because, in certain instances, it can actually help drive long-term shareholder value by ensuring mission centrality. “The clarity created by a mission-aligned structure like the benefit corporation creates new opportunities to build long-term, durable value for all constituencies, including stockholders,” says Jay Cohen Gilbert, founder of B Lab. (Laureate is also a B Corp, B Lab’s separate accreditation that certifies sustainable businesses).

Only time will tell if Laureate is able to buck the trend of publicly traded for-profit colleges that have failed to deliver value to their shareholders or their students. Maybe converting to a benefit corporation will empower its management to navigate the public markets while keeping their purpose central.

Kyle Westaway is the author of Profit & Purpose and writes on social innovation, entrepreneurship, and emerging markets.

Click here to read the original story in Fast Company.

Tech Entrepreneurs Are Pledging To Give Their Money Away—But They’re Doing It All Wrong

By on July 8, 2015 in FAST COMPANY

The Founders Pledge is old-school thinking about giving back, from people who should be on the cutting edge.

As a founder of an early stage company, with a lot of technical know-how and the potential for millions of dollars in earnings, there is an obvious pressure to put some of those skills and that money to use for more than just entrepreneurship. The Founders Pledge is a new system that tries to lock down a commitment to philanthropy from the people at the top of the booming tech economy.

Entrepreneurs that make the pledge commit to donate at least 2% of their personal proceeds to a social cause of their choice, following the sale or IPO of their company. This allows the entrepreneur to work towards the financial goals of the business now, and to give back to society later, after they achieve their ambitions. It’s a pre-planned philanthropy.

Philanthropy like this has been the historical approach to creating societal impact. Since the days of the Gilded Age industrialists, businessmen have been giving a portion of their personal earnings away to fund libraries, symphonies and orphanages. This historical approach to social good was articulated by Milton Friedman in a 1970 New York Times op-ed entitled “The Social Responsibility of Business is to Increase its Profits,” where he argues that business should be purely focused on maximizing profits and individuals, if they wish, may give some of their personal wealth away privately. Friedman advocates for a strict divide between profit and purpose, between making money and doing good. He argues that the company should focus on the former and individuals may focus on the latter. The Founders Pledge encompasses this Friedmanian approach.

Unfortunately, the pledge allows founders to feel a vague sense of doing good, without asking the particularly hard question about how they are creating the wealth in the first place. If the business is creating a negative impact on society, will giving 2% of the accumulated profits from that business be meaningful?

It’s not that giving to charity is a bad thing, but founders are uniquely positioned to do a better thing. Rather than giving back, they have the ability to build a better business. Rather than giving a small percentage of their profits to charity, they can use their business as a means of societal impact.

An emerging class of entrepreneurs is doing just that. They are taking a pledge to run their companies in a way that allows their customers, employees, community, environment as well as their investors to prosper. They are blending profit and purpose.

Method, featured in my book Profit & Purpose, is a great example business as a force for good. From the outset Method set out to build cleaning products that are all natural (no harmful chemicals), a bold move at the time. Over the years, they have invested heavily in employees and are known for their great culture. This year they just opened a new production facility in South Chicago, its first U.S. manufacturing plant.

This 150,000-square-foot production facility sets the bar for sustainable manufacturing facilities with on-site wind turbines, ground mounted solar panels and a commendable goal to become the first ever LEED Platinum certified production plant in the consumer packaged goods industry. In addition they are creating a 75,000-square-foot, rooftop greenhouse (the largest of its kind in the world), capable of producing 1 million pounds of fresh vegetables. Method’s facility will not only be good for the environment, but it will bring around 100 manufacturing jobs to South Chicago and provide the city with local produce.

Method’s founders Adam Lowry and Eric Ryan, did not make a pledge to do something good whenever they made it big. Instead they determined that their business—selling soap—was going to be a force for good in the world. They committed to the vision and stuck to it, even when it looked like it was going to fail. Because of that, they have helped transform an entire industry as well as revitalize U.S. manufacturing.

It’s time for founders to disrupt their approach to impact and shift paradigms from giving back to building better companies, from philanthropy to building better businesses.

The Founders Pledge, which encourages profit then purpose, financial success as a prerequisite to create a positive impact, is old wine in new wineskins. Or perhaps, more appropriately, it’s outdated software running on new hardware. The startup community does not need to copy and paste the same approach to social impact as the industrial age tycoons or large corporations. What we need is to write a new base code. With the talent and innovation in the startup community, we can do better.

Click here to read the original story in Fast Company.


By on September 14, 2014 in The Guardian
Tom's Kyle Westaway

The ethical shoe company is valued at $625m despite selling a relatively dull product and giving half its stock away – does Bain’s investment recognize that purpose can drive profits?

Last week, the private equity firm took a 50% stake in Toms, a socially-conscious footwear company valued at $625m (£377m). Toms pioneered the “buy one give one” model of conscious commerce. They give a pair of shoes to a child in need for every pair they sell.

Toms will use this capital to expand more rapidly than it otherwise would be able to on its own. Bain will bring operational expertise including a new CEO to oversee the expansion and leverage its experience growing retail brands such as Canada Goose, Michaels and Dunkin’ Brands.

So, has Toms sold out? With Bain Capital in control of half the company and running the management team, will Toms be able to stay committed to its one-for-one model? Blake Mycoskie, founder and chief shoe giver of Toms, thinks so. He said, “We need a strategic partner who shares our bold vision for the future and can help us realise it. We’re thrilled that Bain Capital is fully aligned with our commitment to One for One, and clearly they have the expertise to help us improve our business and further expand the scale of our mission.”

Those are nice sentimental words, but is it really in Bain Capital’s interest to retain the social mission of Toms? Isn’t their purpose at odds with making profit?

Traditional business thinking dictates that profit and purpose are at odds with each other, that doing good will cost the company money. Toms stands as a counterintuitive example of purpose actually driving profit. The company has sold and given away 20m shoes. With its least expensive shoe selling for $54, the company has generated over a billion dollars of sales.

Increasingly, consumers would rather do good with their purchases than give to charity. A recent survey from marketing company Good Must Grow indicates that for the second year in a row, 30% of US consumers plan to increase their purchases towards socially responsible companies in the coming year. Meanwhile, only 18% plan to increase charitable giving in 2014, a decline from 21% in 2013. A recent Nielson study also shows that consumers place a premium value on these products; 55% of global consumers are willing to pay more for products from companies that are committed to positive social and/or environmental impact.

Additionally, millennials – Toms’ target demographic – particularly want their purchases to have purpose. According to the 2013 Cone Communications CSR Study, 72% of millennials believe that they can make a positive social and environmental impact through their purchases and 51% check the packaging to ensure social and environmental impact. However, only 31% of millennials will conduct further research on the impact claims of a company they are buying from.

The “one-for-one” model is perfectly crafted for a millennial consumer who wants to feel good about their purchases but needs a clear, simple and tangible means of understanding the social purpose of the company through point-of-purchase marketing.

Though a new CEO will take the reins of day-to-day operations, Mycoskie, who still holds a 50% stake in the company, does not plan to abandon his post anytime soon. Instead, his focus will shift to expanding new categories.

So far Toms has expanded beyond shoes into sunglasses in 2011 (for every pair purchased, Toms will help give sight to a person in need), and to coffee in 2014 (for each bag of coffee beans sold a person will get clean water for a week, and for every cup of coffee sold someone gets water for day.)

A quick glance at the domains and the trademarks owned by Toms gives some indication of the vast array of products and services Mycoskie is considering including such as tea, cocoa, luggage, hotel services, news services, wearable technology, ticketing, credit cards, student loans, bicycles, water and wine. One of their trademarks is “You drink, we dig”, which might hint at a partnership with Charity: Water, with whom they have collaborated in the past on both special edition shoes and sunglasses.

The question remains whether Toms can translate the success it has had with shoes into other categories. Given its success at selling a relatively boring canvas shoe, it stands a good chance of infusing purpose into other boring products like credit cards and student loans thereby grabbing the millennial wallet-share.

Perhaps Bain Capital will retain the social mission at Toms precisely because that is what will drive higher profits. “As a firm and as individuals, we are strongly aligned with the principles of the One for One movement and its contribution to the global community,” said Ryan Cotton, a principal at Bain Capital.

Should they have taken a risk on a millennial consumer motivated by purpose to drive profit for years to come? Well, if the shoe fits, wear it.

Kyle Westaway is the author of the upcoming book Profit & Purpose and founding partner of Westaway Law. You can follow him on twitter @kylewestaway

click here to view the original story.


By on September 24, 2013 in TIME
Time / September 24, 2013

As the standoff at an upscale Nairobi mall between Islamist terrorists and the Kenyan security forces appears to come to a close, the people of the city are trying to make sense of what has happened and are adjusting to a new sense of insecurity.

At Junction, a shopping center ten minutes from the Westgate Mall, the scene of the attack that has left at least 62 people dead, management has increased security measures. Shoppers must now pass through two separate checkpoints, each with metal detectors and staff checking bags. Many shopping centers remained closed, preferring to take a wait-and-see approach to the situation.

The Westgate branch of Artcaffe, an Israeli-owned restaurant catering to the expat community, was allegedly targeted in the attack. At the Junction branch of the restaurant the crowds are thin. On Monday, Natalie Houben sat discussing her own stories from the weekend with a friend. Houben is the owner of a company that runs mobile money kiosks in numerous grocery stores around the city. Some of her employees who worked at Westgate found themselves on the front line of the attack, but survived unharmed.

Houben’s voice trembled as she recalled her tearful reunion with those staff members on Sunday afternoon. On Monday she visited her other stores across Nairobi to comfort and support her staff. She was unable to reach some staff, but the staff that arrived on the job on Monday “have a sense of fear,” Houben says.

At each shopping center Houben visited she went out of her way to dine or sip a cup of coffee at a branch of Artcaffe to show her support and defiance. Many Kenyans fear that these upscale shopping centers could be the target of a follow-up attack. But Houben believes by keeping her business open and supporting businesses in the shopping centers, she is standing up against terrorist attacks. “We will not bow to terror,” she says.

Across town in Eastleigh, a predominantly ethnically Somali neighborhood, there is a cautious calm. Somalis in Kenya have been increasingly marginalized in Kenya, especially since 2011 when Kenya joined the battle to root out the Somali militant group al-Shabab, which has claimed responsibility for the Westgate attack. Kenya’s military involvement in combating al-Shabab in Somalia has made Kenya a priority target for the Islamists.

In November 2012, al-Shabab militants bombed a Nairobi bus, killing nine people. Immediately afterward, outraged Kenyans targeted the Somali community in Eastleigh, rioting in the streets, chanting “Somalis must go,” hurling rocks and smashing windows. But so far there appear to have been no such attacks on Somalis in revenge for the Westgate attack. “There are no signs of backlash or retaliation. Eastleigh is peaceful. It’s business as usual,” says a Somali-Kenyan shop assistant named Molid Apeulkaeir Guled.

Politicians and religious leaders are urging unity. On Monday evening members of Nairobi’s Somali community brought drinks and refreshments to the Kenyan soldiers near Westgate Mall. “We are all affected, we are all Kenyans,” says Houben. “The spirit is so strong in this country. I wish it felt like this every day in Nairobi.”

click here to view the original story.


By on September 24, 2013 in QUARTZ
quartz / September 24, 2013

NAIROBI—The front page of The Standard, a Nairobi newspaper, today read “The Final Assault.” For Kenyans that assault, bringing an end to ordeal at the Westgate mall that began on Saturday (Sept. 21), cannot come too soon. But it seems to be more of a slow, methodical process than a flash-bang operation.

A spokesman for the Kenyan Defense Forces claims they have “full control” of the mall. However, prolonged gunfire and explosions can be heard outside the building where they are still battling “one or two” militants, according to security forces involved in the operation. Heavily armed troops with dogs continue to shuffle in and out of the embattled building as smoke continues to billow and helicopters circle overhead. Reports are slowly starting to leak out that the attackers, members of the Islamic militant group al-Shabaab, include American and British citizens.


According to the Kenyan foreign minister, Amina Mohamed, “From the information that we have, two or three Americans (were involved) and I think, so far, I have heard of one Brit… a woman… and I think she has done this many times before.” The description of the British woman is causing some speculation—though no official confirmation—that she may be Samantha Lewthwaite, the widow of Germaine Lindsay, a British suicide bomber who killed 26 other people in an attack on the London Underground in 2005.
While the battle between the Kenyan forces and al-Shabaab rages inside the mall, it has also flared up on Twitter, with each side offering conflicting reports on the situation.


The highly coordinated terrorist attack began on Saturday afternoon, when a team of 10-20, some wearing balaclavas and scarves, some in plain clothes, all heavily armed, took the building by force from two separate entrances simultaneously. The gunmen approached the building lobbing explosives on to crowded restaurant patios and opening fire indiscriminately.

At this point there are over 70 confirmed victims, including three members of the Kenya Defense Forces, and over 200 injured. Those numbers may yet grow further as the final assault concludes.

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