PRI-Makers open to choices, including L3Cs

“The jury is out,” as to whether new corporate forms like the L3C (low profit limited liability company) and the B-Corp certification will make it easier for social enterprises and foundations to work together, agreed foundation executives at a 2010 meeting of PRI-Makers in Chicago. But foundation executives also said they are open to having more choices. [see note about program related investments at end of this entry.]

Discussions of the L3C and other forms are emerging on the social enterprise landscape with rapidity these days. The Internet gives them viral energy but the question of how philanthropy responds during this adaptation phase is key to how effective these forms will be moving into the future.

“I am really interested in these forms of innovation,’” said Jeff Clarke, from Alaska’s Rasmuson Foundation. “The conversation we are having is ‘How do foundations adapt and test these new forms?’ There’s all kinds of activity happening in the capital markets — How do we participate and how do we influence?”

In a conversation about what PRI-Makers call “this alphabet soup” of new corporate forms a collective light bulb went off as to their usefulness. The following is an interview with Mary Anne Rodgers of the David and Lucile Packard Foundation. Rodgers moderated a session on new corporate forms at the PRI-Makers conference.

“We had a good discussion about the move to L3Cs and other kinds of corporate forms,” Rodgers said. “What we learned is that the growing interest in corporate forms addresses different needs that are perceived to make not just funding — but also receiving — PRIs easier.

“One of the challenges for a PRI is to establish the charitable purpose and establish that the principal purpose is not to make money but to achieve some other mission,“ she said.

“When you are giving to a 501(c)3 public charity, that test is pretty easy because by definition the organization is a charity and by definition they will not make much money,” she said. “But if you are giving to a for-profit organization, you need a harder test because it is expected the corporation is going to make money, yet you have to be sure the organization is really not just about making money.”

“The point of these different corporate forms is to somehow embed in the corporate structure a charitable purpose or a partially charitable benefit so that the test for foundation investment is easier to meet,” Rodgers said.

“The benefit to the organization is that the manager using that form [the L3C entrepreneur] would not be subject to criticism if in fact they were not maximizing profit but were instead maximizing the charitable benefit.”

“I think the jury is out,” Rodgers said. “These forms are new. They are being adopted at some states. Some states are taking different approaches. The jury is out as to how effective they will be but I think most people in the audience [of PRI-Makers] think the more choices the better. Some forms will work for potential recipients and for potential funders. Others will not .”

“These forms may well make it easier for people to come together and meet the fundamental tests of charitable investing,” she said.

“I think PRIs are things smaller foundations can do. Absolutely,” Rodgers said. “If you want to get started and you are not sure what to do, one terrific thing you can do is find your local community development organization and make an investment that supports community development [through a CDFI, community development financial institution.

“You get a federally insured investment,” Rodgers said. “That’s simple.”

PRI stands for program-related investment, which PRI-Makers define as a type of mission or social investment that foundations make in order to achieve their philanthropic goals. Like grants, PRIs are vehicles for making inexpensive capital available to organizations that are addressing social or environmental concerns. Unlike grants, PRIs are expected to be repaid, often with at least a modest rate of return. Once repaid, PRIs are reused for other charitable purposes.

NOTE: I received this comment from Robert Lang, head of Americans for Community Development. “The statement that PRIs are expected to be repaid is very wrong,” Lang says. “Although PRIs can be loans they may also be equity investments, loan guarantees, low cost leases and anything else that would classify as an investment in the commercial world. This is a common misconception even among some PRI Makers,” Lang says. “If PRIs are to repaid they must be used for a new PRI or grant within one year of receipt,” he says.

Welcome to the birth of journalism!

Carnival of Journalism 2: Take a moment to reflect on your unique skills and circumstances. Then answer: What specific things can you do to increase the number of news sources for a local community.

What specific things can I do to increase the number of news sources for a local community? I can continue to work toward establishing the L3C as a business model for news.

Two things are important to know about the L3C as a business structure for news: 1) it encourages long-term ownership of a news organization that puts journalism first; 2) it is designed to accept an investment from a foundation as seed money.

The starting point for my thought is the current economic and cultural disruption, from which will emerge new ways of doing business. Among these innovations will be branded social enterprise, patient money, slow money and renewed interest in investing in all things local. There’s a lot of cash out there circulating looking for some kind – any kind — of return. The L3C returns 5% or less, and it is designed as a vehicle for investments by foundations, local businesses, institutions and others such as private equity funds.

The ideal owners of an L3C newsroom will be satisfied with this financial return and be enthusiastic about the intangible return, the social benefit delivered by a robust local news stream. Of course, since the foundation provides only seed money, the L3C newsroom in its business plan will have to persuasively describe the full complement of revenue sources for news that everyone is struggling with.

My career spans years in newsrooms, government and the independent sector, so the idea of the L3C newsroom struck me immediately as being worth a shot. But when I spoke to a group of journalism students at DePaul University recently, I was surprised by how easily they grasped the main concept of the L3C social enterprise. They didn’t get everything but they got the gist of it. It was a treat to think how unencumbered they are by the past. My attempt to explain the act of fitting copy on a page the old way could have been a comedy act – with me waving my hands in the air and them watching in puzzled silence. But in the end – who cares? Out with the old and in with the new!

I was also struck by how little the students knew about different types of businesses, including nonprofits. But instructors like DePaul’s Mike Reilley are wise, and they are integrating business concepts into the curriculum. Reilley has assigned the students the task of brainstorming a path forward for transforming their class assignment, “The Red Line Project” into a newsroom with a sustainable revenue stream.

The Knight Foundation points out that the main source of journalism has always been private enterprise and that marketplace incentives have fueled original and verified reporting.

Steve Yelvington, noted thinker on revenue models for news, said at a University of Minnesota School of Journalism event on Economic Models for News: “The truth is that journalism has never had a business model of its own. It’s always been a useful component of some other business model.”

My position is that for the first time, journalism has the potential to be thrown from its “newspaper” nest and born to a higher expression as a crucible for civic life.

Welcome to the birth of journalism as a social enterprise!

The L3C social enterprise is the bulkhead in a growing marketplace, one that values social benefit as well as investment return. There are signs of this emerging marketplace everywhere. Take a look at this recent article in the Harvard Business Review, Shared Value.

Inspired by the Peoria Newspaper Guild and its investigation into the viability of an L3C for the Peoria Journal Star, I brought the idea to my former paper, the Chicago Sun-Times. It didn’t exactly resonant with the Newspaper Guild or the Sun-Times corporate ownership. To answer our Carnival of Journalism question: To help increase the number of news sources I could always knock on the door of the Sun-Times again.

Just as the economy is seeking a foothold to stem foreclosures, create jobs, feed people and improve our lives and communities in systemic and sustainable ways, journalism is now preparing to crawl, then toddle and start to walk on its own. The two can be coupled.

I believe we could we bring together street level metrics and journalism in a mutually supportive system and change the way our society measures wealth while also changing the way we pay for journalism. It’s a nice blue sky thought.

It’s possible some of this blue sky could be added to The Red Line Project as an L3C. I could see adding some community development bells ands whistles – an added plus for foundations that are looking for systemic fixes. Maybe that’s where I should put my effort to increase the number of news sources.

Or I could concentrate on the system of news blogs we have developing here in Chicago and evolving it into an L3C; the Red Line Project could be an arm of it.

Or perhaps I could pitch in at Village Soup, a local news site that is making money and likes the L3C model.

Currently, I know of only one newsroom established as an L3C that has seed money from a foundation and that is the Pt. Reyes Light in the Bay Area. They have the structure in place and the money to get started, but when I spoke with them last fall they were hitting some road bumps in their set up.

It’s been slower going than I would like getting this idea launched and off the ground. Despite limited personal resources I have attended conferences of the Social Enterprise Alliance, BALLE and the PRI-Makers [a group of 100 foundations who make PRIs for systemic change.] I have also attended the FTC hearings on the Future of News, CitiCamp Chicago [Gov2.0] and dozens of events in Chicago about the future of news, as well as numerous technology- and journalism-based events. Thanks to the generosity of the Reynolds Journalism Institute, I was able to attend Journalism that Matters- Detroit, where my systemic community development ideas first started to percolate. I am scheduled to attend the Web2.0 conference in March in San Francisco, as a journalist, where I will be reporting on the latest ideas in developing online revenue.

It’s been slow going because new ideas take time to integrate into the mainstream and there is always push back from existing power centers. The foundations I spoke with at the PRI Makers conference are open to the idea of the L3C and other new economic models for news, but they tend to move slowly and with caution. It’s understandable. In conversations, I found more foundation officers who were open than skeptical. In conjunction with this Carnival of Journalism piece, I am posting a statement from the PRI-Makers on L3Cs and other business models as a kind of sidebar.

One common criticism of the L3C is that it is unnecessary, that there are many ways in which a regular LLC- limited liability company, can be structured to achieve the same purpose. Although it is true that many LLCs have been established in conjunction with 501(c)3s for social benefit, they lack the branding power of the L3C – which some foundation executives see as valuable. As the volunteer convener of the L3C for Media working group at trade association Americans for Community Development, I respond as quickly and thoroughly as I can to questions directed my way. We are all learning together.

To appease the legal industry that has historically profited from PRIs as well as those who have other concerns, Americans for Community Development has drafted Federal legislation to streamline the L3C/PRI process at the federal level. If so moved, the community of journalism thought leaders could join ACD in supporting this legislation. That might give a considerable boost to birthing the future of news as a social enterprise and increasing the number of news sources for a local community.

There is much work to be done. I am confident that with the assistance of many partners, we can establish social enterprise newsrooms that will deliver every possible flavor of credible news for local communities.

The Roar of the University

I managed to catch a few minutes of the end of the PBS special Dinosaur Wars the other night. The story is famous. Two brilliant paleontologists— Edward Cope and O.C. Marsh — over a three decade rivalry separately yet together created a vast collection of fossils and body of scientific work that formed the backbone of Darwin’s theory of evolution, as well as our most beloved childhood monsters — dinosaurs.

In the final chapter of Dinosaur Wars, information was leaked to a journalist, whose coverage played out the story in dramatic headlines over a period of weeks. The story rose to a crescendo of partisan politics, erupted into a bleating Congressional squall and then eventually switch-backed, knocking the two great men on their respective professional behinds, where they steeped in their individual flavors of bitterness until they reached their miserly and sickly demises shortly thereafter. As a byproduct, their behavior created a cul de sac in advancing the scientific mission of the U.S. Geological Survey.

The PBS biography of these two men on PBS says:

While the feud between Cope and Marsh consumed the scientists’ lives and damaged their careers, the amount and quality of bones they each collected became the foundation of paleontology in America. Cope left behind 13,000 specimens, and Marsh’s comparable collection proved to be “the best support of the theory of evolution,” according to a personal letter from Charles Darwin himself.

Their work was inspired. Their feud a waste. And journalism was a pawn in their game.

Spin forward to today where different kinds of dinosaurs wander the land. Our industrial age institutions — governments, universities — look for green shoots in a knowledge age frontier. How will they scale their lumbering forms to this digital, media-steeped landscape? Will they understand that there are enough bones for all of them?

That brings me to the question David Cohn has asked us journalist/ bloggers to discuss in this revival of the Carnival of Journalism.

One of the Knight Commission‘s recommendations is to “Increase the role of higher education… hubs of journalistic activity.” Another is to “integrate digital and media literacy as critical elements for education at all levels through collaboration among federal, state, and local education officials.”

I see today’s university as a place where ideas are researched, published and vetted in accordance with standards, and as a place where discourse and push-back from opposing points of view is encouraged, required, public and communicated through numerous media channels. As an active hub of journalism, the university is its own news room. Journalistic communicators working in the university newsroom showcase knowledge and ideas, host the conversation, and understand that the university’s contribution to the world is knowledge, not public relations.

So my point of view asks: What would Dinosaur Wars look like today if the two scientists had not been working in institutional silos? Cope and Marsh would still not have liked each other, but their academic differences would have been aired openly and the press would have been manipulated less.

Since I’ve been talking with entrepreneurs more than college kids these days, I asked Mike Reilley, Online Journalism Instructor at DePaul University, College of Communication, for his opinion of the media literacy issue.

“Universities move at a snail’s pace to adjust curriculums sometimes. They want to stay true to their foundational courses, which is fine, but it stunts growth and change,” Reilley replied in an email. “Technology has revolutionized communication at a core level, and we have to re-think teaching it. Not just to communications or journalism majors, but to everyone.”

In his classes at DePaul, Reilley embeds the use of Twitter, Foursquare, blogging and other digital tools as they emerge. He asks his students to think critically and to explore views on an issue and then justify their points of view. As part of their classwork, Reilley requires his students to build and report on a website, The Redline Project.

“Media literacy can be taught across any discipline in a college environment. Just as students are required to take core courses in their field of study or overall basics, a media literacy course could easily be integrated into a curriculum.”

“Twenty-five years ago, when I was an undergraduate,” Reilley says, “such a course probably wasn’t necessary. But with the emergence of the web and cross-platform mediums, including the ability for anyone to publish, [students] require a new level of critical thinking skills.”

“Anyone with a Twitter account knows this. Should I retweet the link or not? Should I retweet what someone said? Is the information I’m forwarding or sharing credible. What to do?” Reilley says. “If technology gives everyone a voice, we at least need to teach them the fundamentals of using those tools correctly.”

I agree. I developed sea legs in the twitter and blog worlds by using these tools. That is the only way. But my personal radar that detects credible and high quality information has developed over a lifetime of reporting. How to teach that?