Morrison Foerster’s MoFo Impact blog provides insights on the latest news, developments, and trends in the impact and social entrepreneurship space. Through MoFo Impact, Morrison Foerster attorneys dedicated to impact investing and social enterprise work offer a real-time assessment of the developments in matters that are shaping the industry. Here, we examine the unique challenges faced by social enterprises and impact investors, including issues related to impact investments, disclosure requirements, hybrid corporate forms, fiduciary duties, and beyond.<h2>ABOUT MORRISON FOERSTER</h2>Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster has been repeatedly recognized as one of the top 10 firms on The American Lawyer’s A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia‑Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.

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Susan (“Suz”) co-chairs the ESG + Sustainability and Social Enterprise + Impact Investing practices. Her practice focuses on late-stage financings, secondaries, and other corporate transactions for investors, such as SoftBank and Temasek, and on investments for some of the top investors dedicated to impact, from “impact first” foundations to family offices to private equity funds. She co-led the drafting group for the first of the new corporate forms (the Social Purpose Corporation in California), has created hybrid/tandem corporate structures and crafted debt and equity instruments that blend impact with traditional financial terms, and has used corporate law to develop creative capital market solutions to pressing environmental problems. She also advises the boards of public and private companies on corporate governance and fiduciary duties as applied to sustainability and climate change.She was named a California Lawyer Attorney of the Year (CLAY) in 2012 and 2016 by Daily Journal and the Most Innovative Lawyer in North America in 2015 by the Financial Times.Leading Business AdvisorA powerhouse negotiator, clients note that “you cannot get a better corporate counsel” and that Suz “understands the big picture, could not be more responsive, and understands the business” (The Legal 500 US). She has extensive experience providing corporate and finance advice to companies and investors in connection with growth equity financings and secondaries, with particular experience in late-stage investments that have come to rival traditional strategic acquisitions in size and significance. Her experience includes leading some of the highest-profile late-stage investments over the past few years, including notable transactions for SoftBank Group (in the two largest private tender offers in history) in its $7.7 billion investment in Uber, $4.4 billion investment in WeWork, further $10 billion investment in WeWork, $1 billion investment in SoFi, and $250 million investment in Kabbage. She has also advised Temasek on its $800 million investment in Verily Life Sciences, Intel on its equity investment in Cloudera, and each of Fortress, TPG Rise, Vision Ridge Partners, Generation Investment Management, and Pontifax AgTech in numerous mid- to late-stage investments in clean technology, sustainability, education, food, and agriculture technology.Social Enterprise and Impact InvestingSuz is the go-to legal resource for social enterprises (for-profit and non-profit companies focused on social or environmental purpose), impact investors (investors interested in social or environmental returns), and mainstream companies developing environmental, social, and corporate governance policies. With deep expertise in the impact investing model, institutional investors exploring the space turn to her for creative solutions and her ability to structure both investments and companies to emphasize impact and returns.She represents a wide range of investors who are focused on impact, from foundations like the Gates Foundation, The Nature Conservancy, and The Rockefeller Foundation, to family offices like Armonia, Cornerstone Capital, Emerson Collective, New Island Capital, and Omidyar Network, to private equity funds like Goldman Sachs, TPG Rise, Vision Ridge Partners, and Generation Investment Management, in their equity investments in companies and projects that are focused on generating impact and returns for investors. She has deep experience and expertise ensuring energy, sustainability, and other investments have positive impact through the use of new corporate forms, hybrid or “tandem” structures with non-profits and for-profits, and alternative debt and equity instruments.Notable work in this space includes the establishment of a tandem structure, The Carbon Endowment, to retire coal assets at scale while securing a revenue stream for community reinvestment and job training in coal communities. Suz also advised on the structuring of Common Sense Growth as an extension of the non-profit Common Sense Media (to invest in companies that address issues related to children, education, and technology), the establishment of a fund for TPG Rise to provide debt financing to Echoing Green fellows, the spin-out of PRX from Public Radio International (to generate new revenue flows up to the non-profit), the establishment of a for-profit joint venture with non-profit Medicines360 (to allow the non-profit to distribute its healthcare products to women in the developing world), and the structuring of a for-profit evergreen fund that allows The Nature Conservancy to aggregate return-seeking and donor capital in order to invest in preserving our natural resources. She has also advised numerous clients on converting to a public benefit corporation or social purpose corporation model (which requires balancing traditional fiduciary duties against a social or environmental purpose), including This American Life, Revolution Foods, Rise Labs, and Beneficial State Bancorp.Suz also regularly advises boards of directors of private and public companies, special committees, and CEOs on corporate governance, particularly the intersection of fiduciary duties with sustainability, and focuses on environmental, social, and governance issues.Unmatched Cleantech and Renewable Energy ExperienceIn addition to founding and chairing the firm’s Social Enterprise and Impact Investing Group, Suz serves as Chair of Morrison & Foerster’s Energy Group and has extensive experience representing start-up to late stage private companies in the clean technology or sustainability space. She provides corporate and finance advice in connection with equity and debt financings, mergers, acquisitions, asset purchases and sales, reorganizations, and joint ventures. She has experience working with renewable energy start-up companies and renewable energy developers in the solar, wind, and biofuels industries. Suz has assisted renewable energy start up companies with raising venture capital and has advised renewable energy developers on project acquisitions.Suz’s representative renewable energy, cleantech, sustainable, and social enterprise clients include Anaergia, Change.org, EDF Renewables, E.ON, Etsy, First Look, OneSun, Planet Labs, Rising Sun Energy, RSF Social Finance, SustainBio, Trelys, Inc., Wikipedia, and Xpansiv.Board Activity and Thought LeadershipMs. Mac Cormac was a founding board member of the Sustainability Accounting Standards Board (SASB), is a member of the board of directors of Business for Social Responsibility (BSR), the Ceres President’s Council, and the Earth Genome Project, and is an advising board member of the Committee Encouraging Corporate Philanthropy’s Strategic Investor Initiative.She has joined the faculty (teaching on the intersection of sustainability and fiduciary duties) at both the Stanford Director’s College and the Northwestern Corporate Counsel Institute and is an adjunct professor at UC Berkeley School of Law, teaching a course on Social Enterprise.

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Our ESG + Sustainability lawyers work side by side with each company and investor to identify the elements of ESG (Environmental, Social, and Governance) that are most material for a particular business or industry.

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Named the winner of the California Legal Awards’ Environmental, Social, and Governance Initiative Category

Susan (“Suz”) co-chairs the ESG + Sustainability and Social Enterprise + Impact Investing practices. Her work focuses on advising innovative sustainable companies and investors, with particular expertise on ensuring investments have positive impact through use of new corporate forms, hybrids, alternative debt and equity instruments and disclosure.

Susan (“Suz”) co-chairs the Environmental, Social, and Governance (ESG) and Social Enterprise + Impact Investing practices. Her work focuses on advising innovative sustainable companies and investors, with particular expertise on ensuring investments have positive impact through use of new corporate forms, hybrids, alternative debt and equity instruments and disclosure.

<h5 dir="ltr">As Chair of the firm’s Social Enterprise + Impact Investing and Energy + CleanTech practice groups, I find it uniquely fulfilling to help emerging companies and their investors channel great ideas and good intentions into tangible, positive change.</h5>How I Help: I have extensive experience representing startup to late-stage private companies primarily in the clean technology, renewable energy and sustainability space. I counsel on corporate and finance matters in connection with equity and debt financings, mergers, acquisitions, asset purchases and sales, reorganizations, and joint ventures. I’m frequently called upon for my expertise in new corporate forms, hybrid of “tandem” structures with non-profits and for-profits, and alternative debt and equity instruments. I also regularly advise boards of private and public companies, special committees, and CEOs on corporate governance as it relates to sustainability and CSR.Favorite app or tech product: Strava. I love tracking the miles I run each week.Favorite place for client meetings: A walk in the PresidioLife beyond the law: When I’m not preaching to the world about the power of corporate form, I spend my time outside the office with my three young sons. I currently coach my youngest’s little league team. Go Pirates!

Susan Mac Cormac

Alfredo Silva is a partner in the Transactions Department, co-chair of the firm's Social Enterprise and Impact Investing Group, and a member of the ESG Strategy Committee. Alfredo represents companies and investors in a broad range of corporate and securities law matters, with a focus on businesses in the life sciences, agtech and fintech sectors. Alfredo’s practice includes capital markets transactions, venture capital, growth equity and corporate venture financings, tender offers and other secondary offerings, digital token matters, and mergers and acquisitions. Alfredo also helps clients leverage environmental, social and governance (ESG) factors to evaluate risk and opportunities and to invest responsibly in businesses seeking sustainable growth and impact.In his private company practice, Alfredo has served as company or investor counsel in early- and late-stage financings, minority strategic investments and impact investments in dozens of private companies, including representation of SoftBank and SoftBank Vision Fund in financings with a combined value of over $2 billion, Temasek in its $800 million minority investment in Verily Life Sciences, an Alphabet company, and Visa Ventures in strategic fintech investments around the world.In his public company practice, Alfredo counsels issuers on strategic transactions, such as the stock-for-stock merger of Marrone Bio Innovations, Inc. with Bioceres Crop Solutions Corp, as well as corporate governance and compliance with the U.S. federal securities laws and stock exchange listing standards, including advising on cutting-edge issues with respect to ESG disclosures and materiality assessments.In addition, Alfredo works extensively with nonprofit organizations, providing advice on fiduciary issues, entity formation, structuring and other corporate matters, and assists small businesses pro bono. He incorporated and continues to advise Illuminate, the nonprofit producer of The Bay Lights, a 25,000 LED sculpture on the western span of the San Francisco-Oakland Bay Bridge, in structuring, corporate governance, and project management matters. Alfredo currently chairs the audit committees of the boards of directors of Eat. Learn. Play. Foundation, a charity founded by four-time NBA champion Stephen Curry and The New York Times bestselling author Ayesha Curry to unleash the potential of every child, and Berkeley Repertory Theatre, an international leader in innovative theater whose shows have won eight Tony Awards, nine Obie Awards and a Pulitzer Prize, among many other honors.Alfredo is recognized by The Recorder as a 2013 Lawyer on the Fast Track, in 2014 was the inaugural recipient of the firm’s Kathi Pugh Award for Pro Bono Service, is a 2017 Lawyers Committee for Legal Diversity Fellow, and was the recipient of the American Bar Association’s 2023 National Public Service Award. Alfredo received his B.S. degree, cum laude with distinction, in Engineering Sciences (Chemical) from Yale College in 2004 and received his J.D. degree from Yale Law School in 2008. Alfredo speaks conversational Spanish and Mandarin Chinese, and spent a year at China’s Tsinghua University researching issues in intellectual property protection on a Fulbright Fellowship.

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We are a leading law firm with capital markets and corporate finance lawyers advising issuers, agents and underwriters in a range of private and public financings.

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Alfredo Silva is co-chair of the firms Social Enterprise + Impact Investing practice and member of the firm’s Pro Bono Committee. He represents public and private companies and investors in a broad range of corporate and securities law matters, as well as nonprofit organizations on entity formation, fiduciary issues, and structuring.

Alfredo B. D. Silva represents public and private technology companies and strategic and financial investors in a broad range of capital markets transactions, early- and late-stage financings, and corporate governance matters in a variety of industries, including Life Sciences, Health Tech, FinTech, and SaaS.

Alfredo Silva is co-chair of the Morrison Foerster Social Enterprise + Impact Investing practice and member of the firm’s Pro Bono Committee. He represents public and private companies and investors in a broad range of corporate and securities law matters, as well as nonprofit organizations on entity formation, fiduciary issues, and structuring.

<h5 dir="ltr">My job is to think creatively and balance competing interests to solve complicated problems, and the end result is that the companies I’m working with are able to raise the capital they need to grow, creating and maintaining jobs for others while bringing great products and services to consumers.</h5>How I help: I represent companies throughout their lifecycles, from entity formation to debt and equity financing to exit alternatives, including initial public offerings and mergers and acquisitions. I also counsel investors in venture financing, late stage / growth equity financing, strategic investments, secondary transactions, and impact investments in private companies in a wide variety of industries. Since I have a background in engineering, I get numbers, and often work closely with executives, finance teams, and financial advisors and analysts to model out complex capital structures, financing scenarios, and liquidity events. In doing so, I help clients analyze what’s possible, understand consequences of various transaction structures, and enhance their economics in deals in value from the tens of millions to the billions of dollars.Favorite app or tech product: I spend a lot of time these days checking Coinbase, seeing how the market reacts to developments in the cryptocurrency and blockchain spaces.Favorite place for client meetings: It’s great when you’re close enough with a client to catch up and talk shop at their house!Life beyond the law: Skiing at Lake Tahoe in the winter, weekends in Dolores Park in the summer, and travel to see family and friends in between.

Alfredo B. D. Silva

Benjamin Fox is a partner in the firm’s San Francisco office and a member of the firm’s Social Enterprise and Impact Investing Group. Benjamin’s practice focuses on the representation of clients in corporate and transactional matters, with a focus on investors and companies dedicated to pursuing social or environmental goals alongside financial returns.Benjamin counsels startup to late-stage private companies and venture capital and private equity investors, as well as family offices, private foundations, and public charities in early-stage and late-stage financings, mergers, acquisitions, asset purchases and sales, joint ventures, and hybrid or “tandem” structuring arrangements between nonprofit and for-profit entities. Benjamin has extensive experience working with investors and companies in the climate technology and infrastructure and sustainability space. He regularly advises clients on creative legal structures with respect to aggregating and deploying capital to maximize impact and returns.Benjamin earned his J.D. from the University of California, Berkeley, School of Law (Boalt Hall), with a certificate of specialization in both Environmental Law and Energy and Clean Technology Law. At Boalt, he served as an executive editor of Ecology Law Quarterly, a member of the California Law Review, and a judicial extern for the Honorable Edward M. Chen of the U.S. District Court for the Northern District of California. Benjamin received the Ellis J. Harmon Prize for best legal writing in Environmental Law and Policy and was a NAPABA Law Foundation Scholarship recipient for commitment to serve the Asian Pacific American community.Prior to law school, Benjamin worked for the U.S. Department of Energy in Beijing, China and spent a year at Taiwan’s Tunghai University researching renewable energy and urban development policy on a Fulbright Fellowship. He earned his B.A. with distinction and highest honors from the University of Michigan.

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Morrison & Foerster is an international law firm with a committed practice in social impact investing—a practice we have championed for more than 20 years. 


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 Ranked #1 U.S. Overall Leader in Lamp House’s Global Review of Law Firms’ Responsible Business Activity

Benjamin Fox is a partner in the firm’s San Francisco office and a member of the firm’s Social Enterprise and Impact Investing Group. Benjamin’s practice focuses on the representation of clients in corporate and transactional matters, with a focus on investors and companies dedicated to pursuing social or environmental goals alongside financial returns.

Benjamin Fox is an associate in the Morrison Foerster Corporate Department in the San Francisco office. Benjamin is a member of the firm’s Social Enterprise and Impact Investing and Energy and Clean Technology Groups.

<h5 dir="ltr">I feel fortunate to assist companies and investors focused on tackling our most pressing global environmental and social challenges.</h5>How I help: I provide counsel to companies from formation until exit, including in connection with corporate structure and governance, early- and late-stage equity financings, mergers and acquisitions, and joint ventures.  As a member of our Social Enterprise + Impact Investing Group, I frequently advise clients on the legal tools available to promote mission-driven businesses, including attracting non-profit and for-profit capital, and utilizing hybrid non-profit/for-profit structures and new corporate forms.  I also have a particular expertise in the renewable energy sector and work closely with investors, renewable energy developers and cleantech startups on a wide range of corporate matters.Favorite app or tech product: GuitarTuna. It’s pretty good at tuning my guitar.Favorite place for client meetings: At a baseball game. Fenway Park will always be the best, but other stadiums will suffice.Life beyond the law: Enjoying the great outdoors.

Benjamin Fox

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Benjamin T.R. Fox

Climate Links: 5/31/2024

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In August 2019, a group of nearly 200 chief executives issued a statement, arguing that the role of corporations should be redefined from solely maximizing shareholder value to also “invest[ing] in their employees, protect[ing] the environment and deal[ing] fairly and ethically with their suppliers.” Making that shift is hard when boards of directors are subject to the standard fiduciary duties applicable to Delaware corporations, but being a standard Delaware corporation is hardly the only option available to a profitable business, even a publicly traded company.Public benefit corporations (PBCs) are a special flavor of Delaware corporation. They are statutorily required to pursue the creation of one or more public benefits as set forth in their certificates of incorporation, including, potentially, considering the interests of stakeholders such as employees, customers, and members of the community. Accordingly, the board of directors of a PBC has a fiduciary duty to weigh additional considerations when taking corporate action, beyond those of a board of directors of a traditional Delaware corporation. In times of plenty, this additional fiduciary obligation rarely creates a tension for PBC directors, as companies and shareholders that have opted into the PBC standards often have business models where social or environmental impact and financial returns inherently tend to be aligned.However, in periods of economic stress—which we face today as a result of the coronavirus pandemic—directors may be required to make difficult decisions if a PBC faces a tradeoff between pursuing its social or environmental mission and protecting shareholder value. This alert outlines some of the key issues that PBC directors should consider when balancing these interests.<a href="https://www.mofo.com/resources/insights/200623-covid-impact-pbc-fiduciary-duties.html">Read our client alert</a>.

Marrone Bio Innovations' Acquisition by Bioceres Crop Solutions Corp

Temasek’s Joint Venture with Bayer

SoftBank Group and SoftBank Vision Fund’s Investment Transactions

Temasek's Investment in Verily Life Sciences and Agtech Space

Intel's Investment in Cloudera

Visa's Strategic Investments in the Fintech Space

Marrone Bio Innovations’ Public Offerings

Ekso Bionics Holdings, Inc.’s Stock and Warrant Financings

Temasek's Investment in Coherus, Inc.

Catalyst Biosciences, Inc. IPO/Reverse Merger and Public Offerings

RH's Public Offerings

InvenSense's Public Offerings

At-the-Market Programs

Marrone Bio Innovation’s Acquisition of Pro Farm and Jet-Ag

SoftBank's Acquisition of Sprint

Novellus' Merger with Lam Research

Shutterfly's Acquisition of Tiny Prints

Alfredo Silva is a partner in the Transactions Department, co-chair of the firm's Social Enterprise and Impact Investing Group, and a member of the ESG Strategy Committee.

COVID’s Impact on PBC Fiduciary Duties: Understanding Director Obligations in an Economic Downturn

In August 2019, a group of nearly 200 chief executives issued a statement, arguing that the role of corporations should be redefined from solely maximizing shar

COVID’s Impact on PBC Fiduciary Duties: Understanding Director Obligations in an Economic Downturn

In this episode of Impactful Conversations, Michael Santos, a social-enterprise- and impact-investing associate in Morrison & Foerster’s San Francisco office, interviews Rodney Foxworth, the CEO of <a href="https://www.commonfuture.co/" target="_blank" rel="noopener noreferrer">Common Future</a>. Based in Oakland, California, Common Future tackles wealth inequality nation-wide by focusing on the needs of communities that have been the most negatively impacted by injustice, extraction, and exploitation.To address the wealth gap, Rodney and Common Future are committed to confronting the structural oppression that leaves many communities out by shifting capital towards community investment.Common Future envisions an economy owned by people of all races and ethnicities. Rodney believes in having communities assume a position “as not just a stakeholder but as a literal shareholder that is able to voice an opinion, has a vote, and is able to influence and determine what types of businesses and enterprises and economic development projects are invested in,” says Rodney. “That is power.”<a href="https://soundcloud.com/user-496742723/impactful-conversations-commonfuture" target="_blank" rel="noopener noreferrer">Listen to the full podcast</a>.

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Michael Santos is a partner in the San Francisco office of Morrison Foerster and a member of the firm’s Transactions Department. Michael is a member of the firm’s Social Enterprise and Impact Investing Group.

Michael Santos

Impactful Conversations: An Interview with Rodney Foxworth at Common Future

In this episode of Impactful Conversations, Michael Santos, a social-enterprise- and impact-investing associate in Morrison & Foerster’s San Francisco office, i

Impactful Conversations: An Interview with Rodney Foxworth at Common Future

In this episode of Impactful Conversations as a part of MoFo Perspectives, Jesse Finfrock, a San Francisco-based associate in Morrison & Foerster’s Social Enterprise and Impact Investing Group, meets with Ken Doctor, the founder of Lookout Local, to discuss how he has incorporated Lookout Local’s mission into its corporate form in electing to become a Public Benefit Corporation (PBC).A PBC requires balancing the traditional fiduciary duties owed to stockholders with the social or environmental benefit that is written into the corporation’s charter documents. In this case, Lookout Local’s mission is to provide the news and information needs for the local communities it serves. “The main thing I want to do is change the conversation and repopulate these news deserts,” says Ken Doctor, so finding a corporate form that embraced his company’s values was the first step.<a rel="noopener noreferrer" target="_blank" href="https://soundcloud.com/user-496742723/05-12-impactfulconvo-v2">Listen to the full podcast</a>.

Impactful Conversations: An Interview with Ken Doctor at Lookout Local

In this episode of Impactful Conversations as a part of MoFo Perspectives, Jesse Finfrock, a San Francisco-based associate in Morrison & Foerster’s Social Enter

Impactful Conversations: An Interview with Ken Doctor at Lookout Local

As the COVID-19 crisis continues to make capital markets, including venture capital, an uncertain source of financing, founders and boards of impact businesses may increasingly look to M&A and other strategic alternatives to assure their survival. Mergers, business and asset sales, large-scale technology licensing, as well as other strategies should all be on the table. However, founders and boards of impact organizations will be rightly concerned with the ability to maintain their organizations’ missions, following such fundamental transactions. Not only is the ability to stay “on mission” important to the organization for its own sake, but it also adds real value (both pre- and post-transaction) that should be taken into consideration during planning and negotiations in connection with such transactions. In this article, we discuss a number of items that impact organizations should consider at different stages (at the preparatory stage, during negotiations with potential transaction partners, and following the closing of the transaction). It is important to understand at the outset that the relative negotiating leverage of the parties (including access to alternative transactions) can significantly influence the ability to implement the measures described below.<h5>Considerations at Preparatory Stages</h5>Proactively Change Corporate Form Even Before Sales Process Begins (Sweet Pill)In the context of a sale of the company, Delaware law requires the board of directors to conduct a process designed to maximize stockholder value.<a id="_ftnref1" href="#_ftn1">[1]</a> In order to maintain mission lock post-closing, it may be helpful to convert into an entity that allows the board to consider issues other than maximizing stockholder value in connection with, and in anticipation of, the sale of a company.Recently, more public companies have considered changing into social purpose corporations (SPCs), public benefit corporations (PBCs), benefit corporations, or similar forms. Such new corporate forms require a dual profit/mission mandate. Although these are for-profit entities that share many traits with regular corporations, their governance documents (and relevant state law) require adherence to a specific and/or general public purpose. For these corporate forms, in determining what is in the best interests of the corporation and its stockholders, the board of directors may consider things other than maximizing stockholder value. These dual profit/mission mandates may allow an acquirer’s offer to be rejected unless it addresses the specific or general public purpose that is aligned with the target’s purpose. For instance, a board of directors of a PBC may not be required to submit a takeover offer to stockholders for approval if the board does not believe that the buyer will prioritize the public purpose of PBC. However, such entities are not available in all states, and their legal rights and obligations vary from state to state.Conversion into an alternative entity is not without its own risks, all of which need to be considered in such a transformation. For example, stockholders of a traditional corporation are entitled to dissenter’s rights in connection with a conversion into a PBC. In addition, certain states require benefit corporations to have a “benefit director.” A “benefit director” is entitled to bring a “benefit enforcement proceeding” to enforce the general specific public-benefit purpose. Nonetheless, a “benefit director” may have a conflict between their traditional fiduciary duties and their duty to preserve a public purpose. Similarly, some states grant shareholders and, potentially, third parties the right to bring “benefit enforcement proceedings.” This expanded base of potential plaintiffs may increase a company’s exposure to litigation.Diligence/Reverse Diligence:  Confirming That Acquirer Will Be a Good PartnerPreserving mission following closing is desirable in many instances, but it may be particularly important where the transaction will be structured as a merger of equals and the company has mission-driven investors, or in instances where the value of the company is, in large part, based on its mission. In a merger of equals, two businesses are combined, and the former stockholders of each company will hold stock in the combined company. Similarly, a business where the mission is important to attracting and retaining customers will want to ensure mission continuity in order to preserve value following the transaction. Otherwise, following the merger, the activities of the combined company may not align with a mission-driven investor’s investment philosophy, or the combined company may lose customers who were attracted to the mission.To determine whether there is mission alignment and ensure mission continuity, a company considering a business combination should consider reverse due diligence on the counterparty/acquirer. Sending a due-diligence request list to the potential acquirer, which includes questions related to environmental, social, and governance (ESG) issues, is critical in order to determine whether there is mission alignment. The thoughtfulness and completeness of a party’s responses to such inquiries signals commitment to mission. While many of the responses may be qualitative, it is important to emphasize benchmarking when data is available in order to determine how the counterparty/acquirer compares with others in the industry and other potential counterparties/acquirers in a competitive process. Furthermore, when analyzing supply chains of the counterparty/acquirer, it is important to consider what is being monitored and reported and whether any third-party verifications are available. Where one party does not monitor or report customary metrics or there are no third-party verifications available, companies where mission is important should consider whether there is actually mission alignment between the parties.<h5>Considerations During Negotiations</h5>Entity/Transaction Structure:  To Ensure Mission Success Post-ClosingIf a target company has not yet converted into an alternative entity, the target (or the selling stockholders or members) should consider converting the target company as part of the transaction. Note that benefit corporations, SPCs, and PBCs each require periodic impact reporting, which will enable monitoring of post-closing mission lock. Both the benefit corporation and SPC require that such reporting be made public. While public reporting creates a public-relations incentive and increases the credibility of the commitment to maintain mission lock, private reporting is sufficient for monitoring and enforcing post-closing mission lock. A buyer’s willingness to convert the post-closing company into an alternative entity in connection with the transaction signals their intent to maintain mission.Whether or not the target company is converted, protective provisions can be included in the target company’s charter, or in a stockholders’ agreement, to block the ability to change the target company’s mission. Rollover equity (held by founders or other key sellers) can be given the right to enforce such protective provisions. It should be noted that, at least in traditional corporate forms, in any direct conflict between mission-protective provisions and traditional fiduciary duties, fiduciary duties are likely to prevail. Limited liability companies, with their more contract-based governance structure, could provide additional latitude to preserve mission through governance. One further post-closing governance mechanism to be considered would be the requirement to form an impact committee that is empowered to exercise oversight over mission-related activities. The degree to which such a committee may affect change (particularly when there are trade-offs between bottom line and impact focus) should be considered in light of the conflict in fiduciary duties discussed above. If an impact committee is not formed, parties should consider having one board member with “sustainability” expertise.To the extent that the value of the target company is derived from intellectual property, such intellectual property could be held separately from the acquirer corporate structure, with the continued right to the inbound license at least partially based on mission focus, including ongoing reporting and benchmark achievement requirements.<h5>Considerations for Post-Closing Matters</h5>Enforcing Mission Continuity Post-ClosingOne way to enforce mission post-closing is to provide for the acceleration of payment of contingent consideration, in the case of an earn-out, or a release of escrowed proceeds, if there is a material deviation from the agreed upon mission following closing. This will align an acquirer’s financial interest with the mission, or the acquirer will face an immediate cost. In order to ensure that acceleration is not improperly demanded, acceleration should be tied to measurable metrics and, if available, third-party verifications and certifications (or loss thereof).A requirement for third-party evaluation and/or certification can provide some level of comfort that the acquired entity will continue to pursue its social purpose. Parties should consider whether “B Corp.” certification is appropriate, though such certification will require conversion to a benefit corporation or similar entity. Note that a B Corp. is not a type of legal entity but is a certification promulgated by the non-profit B Lab.<h5>Potential Challenges and Risks</h5>Sellers may meet resistance to any deal terms that limit an acquirer’s governance powers post-closing, especially in a challenging market. A seller may have difficulty in convincing an acquirer that the seller’s mission has value that needs to be protected or, even if the seller can make that case, that such value needs to be protected by post-closing rights granted to selling equity holders. An acquirer may view post-closing, mission-imposed limitations as impeding their ability to operate the business as they see fit and limiting value, so care must be taken to frame these limitations as accretive to value.Although, as discussed above, an acquirer’s offer may be rejected by a board if it does not address the specific or general public purpose that is aligned with the target’s purpose, where there are multiple potential acquirers and one potential acquirer offers substantially more value but is not mission aligned, a board of a PBC may be required to recommend that the company convert into a traditional corporation.  Such conversion would add potential complexity because stockholders in a PBC have dissenter’s rights in connection with a conversion to a traditional corporation.Selecting a new corporate form and implementing a transition can be a complex process, and many of the new corporate forms described above have not been well-tested in state courts. There are dozens of different forms, with significant differences between forms. Even within a particular state’s regime, the laws providing for the new corporate forms can seem to be inconsistent with each other.To the extent sellers are relying on impact-related reporting, either for diligence or post-closing compliance matters, such reporting itself will present its own challenges. Most companies who do report on impact matters are years behind in their reporting. Different corporate forms and certifying authorities require different reporting standards. For public companies, impact reporting needs to be harmonized with public filings.<h5>Conclusion</h5>Market forces following the outbreak of COVID-19 will present challenges to many companies. In these uncertain times, some companies may need, or decide, to pursue strategic alternatives. Mission-driven businesses should consider whether and how to preserve mission in connection with such potential transactions. Companies will need to consider the various stakeholders to craft the right strategic approach to preserve mission. Changes to corporate form, whether before or in connection with a transaction, may assist in preserving mission, but such changes are not without their challenges. The benefits and burdens of increased reporting and complex fiduciary duties must be considered. With the proper structuring and balancing, a company may be able to continue to address the needs of stakeholders, preserve mission, and increase value.<a id="_ftn1" href="#_ftnref1">[1]</a> See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).

Susan (Suz) Mac Cormac, San Francisco partner, has extensive experience in corporate law, ESG, social enterprise and impact investing, and venture capital.

Susan H. Mac Cormac | Corporate + ESG Attorney

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Shai Kalansky's practice focuses on corporate and transactional matters, including mergers and acquisitions (representing both buyers and sellers), venture capital financings, and a broad range of sec

Shai Kalansky

Maintaining Impact Through M&A

As the COVID-19 crisis continues to make capital markets, including venture capital, an uncertain source of financing, founders and boards of impact businesses 

Maintaining Impact Through M&A

In this special shelter-in-place edition of “Impactful Conversations” podcast, MoFo fund formation lawyer Sean Byrne interviews Buckhill Capital General Partner Henrik Jones about collaborating with MoFo to create a new investment term, the <a href="https://media2.mofo.com/v3/assets/blt5775cc69c999c255/blt3552ffb72677ac42/62731c4823c6cf2a1c3af72d/grunin-prize-schematic.pdf">Carried Interest by Verified Impact Calculations (CIVIC)</a>. The CIVIC links a fund’s carried interest to quantifiable impact metrics, and thus has the potential to create billions of dollars of incentives for institutional investment managers to pursue impact goals alongside financial returns. This project is a finalist for NYU’s Grunin Prize for Social Entrepreneurship.Listen to the <a href="https://www.mofo.com/resources/video-audio/200527-impactful-conversations-henrik-jones.html">full podcast</a>.

Impactful Conversations: An Interview with Henrik Jones at Buckhill Capital

In this special shelter-in-place edition of “Impactful Conversations” podcast, MoFo fund formation lawyer Sean Byrne interviews Buckhill Capital General Partner

Impactful Conversations: An Interview with Henrik Jones at Buckhill Capital

For the second time in a little over a decade, the United States is facing an economic crisis on a near-unprecedented scale, while simultaneously battling the worst pandemic in over a century. To date, over 80,000 people have died in the United States from COVID-19, and more than 33 million Americans have filed for unemployment benefits since the beginning of the shutdowns across the country. The impact of COVID-19 on the human and economic well-being of Americans and people across the world will undoubtedly leave few, if any, unburdened in its wake.However, the data is revealing that low-income communities and communities of color are disproportionately impacted by infections and fatalities<a href="#_ftn1" name="_ftnref1">[1]</a> and also stand to suffer the most from the economic fallout.<a href="#_ftn2" name="_ftnref2">[2]</a> As recovery efforts progress, it is not only critical that the needs of these communities are brought to the forefront due to the disparate economic impact they are likely to face, but also that alternative forms of support and investment are considered in order to build a more equitable economy.As with prior crises, Americans look to the government and philanthropy for aid to meet their basic needs of survival. However, funding under certain federal programs has already been depleted, and less than 20% of the CARES Act was apportioned for small businesses.<a href="#_ftn3" name="_ftnref3">[3]</a> Additionally, a report by the Center for Responsible Lending estimates that “upwards of 90% of businesses owned by people of color have been, or will likely be, shut out of the Paycheck Protection Program.”<a href="#_ftn4" name="_ftnref4">[4]</a> Nonprofits, while receiving an influx of donations, are stretched thin due to increasing demand for their services on already-limited budgets, and, if 2008 is any indicator, charitable-giving will likely decrease as we enter a recession.<a href="#_ftn5" name="_ftnref5">[5]</a> While the government and philanthropy are the primary sources of relief, it is necessary to ask what role the private sector can and should play, both in the immediate crisis and in the long-term.In August 2019, a group of nearly 200 chief executives from various companies, including several Fortune 500 companies, asked a similar question on the role of corporations. The group issued a statement arguing that the role of corporations should be redefined from solely maximizing shareholder value to also “invest[ing] in their employees, protect[ing] the environment and deal[ing] fairly and ethically with their suppliers.”<a href="#_ftn6" name="_ftnref6">[6]</a> The New York Times noted that until “investors start measuring companies by their social impact instead of their quarterly returns, systemic change may prove elusive.”<a href="#_ftn7" name="_ftnref7">[7]</a>In response to this challenge, some groups focused on impact investing—investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return—are pioneering an innovative approach called restorative investing. Restorative investing, based in part on the principles of restorative economics, seeks to address systemic injustices that extract from and penalize communities of color, the poor, and the working class by making investments that “generate community wealth, produce governance structures that benefit the whole, and build community power.”<a href="#_ftn8" name="_ftnref8">[8]</a>An example of restorative investing in action is the Boston Impact Initiative (BII), a place‑based impact investment fund that is committed to investing in communities that have been impacted by racial, social, and economic inequality. The Ujima Fund is another Boston-based economic development and community-organizing collective that is co-designed, governed by, and grounded in working-class communities of color. BII, the Ujima Fund, and other restorative investing approaches are building on the following principles developed by the nonprofit, Transform Finance: (i) engaging communities in design, governance, and ownership, (ii) adding more value than you extract, and (iii) fairly balancing risk and return among investors, entrepreneurs, and communities.<a href="#_ftn9" name="_ftnref9">[9]</a>These principles highlight that, while investing capital in underserved communities is important, equity is also about power and that too often impact-investing initiatives fail to include the beneficiaries who may better understand the problem and potential solution.<a href="#_ftn10" name="_ftnref10">[10]</a> As Rodney Foxworth, CEO of Common Future, emphasizes, restorative investing recognizes “the urgent moral, economic, and ecological imperative to share and redirect power and promote collective well-being and social equity,” and such urgency will only be heightened by the current crisis.<a href="#_ftn11" name="_ftnref11">[11]</a>Coming out of the 2008 recession, wealth inequality grew along racial and ethnic lines,<a href="#_ftn12" name="_ftnref12">[12]</a> and, in 2016, wealth inequality between upper-income families and lower and middle-income families reached the highest levels recorded.<a href="#_ftn13" name="_ftnref13">[13]</a> A similar outcome stemming from this financial crisis threatens a potentially untenable environment, which is why some companies and investors are looking to promote a new approach to impact investing. If ever there was a need to strengthen and support our local economies, specifically communities of color, now is the time in order to avoid the recovery disparities of the 2008 recession and to support a more equitable economy.<a href="#_ftnref1" name="_ftn1">[1]</a> <a href="https://time.com/5821212/coronavirus-low-income-communities/">https://time.com/5821212/coronavirus-low-income-communities/</a>.<a href="#_ftnref2" name="_ftn2">[2]</a> <a href="https://www.brookings.edu/blog/the-avenue/2020/04/08/coronavirus-economic-relief-cannot-neglect-black-owned-business/">https://www.brookings.edu/blog/the-avenue/2020/04/08/coronavirus-economic-relief-cannot-neglect-black-owned-business/</a>.<a href="#_ftnref3" name="_ftn3">[3]</a> <a href="https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package">https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package</a>.<a href="#_ftnref4" name="_ftn4">[4]</a> <a href="https://www.cbsnews.com/news/women-minority-business-owners-paycheck-protection-program-loans/">https://www.cbsnews.com/news/women-minority-business-owners-paycheck-protection-program-loans/</a>.<a href="#_ftnref5" name="_ftn5">[5]</a> Rob Reich, Just Giving: Why Philanthropy Is Failing Democracy and How It Can Do Better (Princeton University Press, 2018), 72.<a href="#_ftnref6" name="_ftn6">[6]</a> <a href="https://www.nytimes.com/2019/08/19/business/business-roundtable-ceos-corporations.html">https://www.nytimes.com/2019/08/19/business/business-roundtable-ceos-corporations.html</a>.<a href="#_ftnref7" name="_ftn7">[7]</a> Id.<a href="#_ftnref8" name="_ftn8">[8]</a> <a href="https://www.nwamakaagbo.com/restorative-economics">https://www.nwamakaagbo.com/restorative-economics</a>.<a href="#_ftnref9" name="_ftn9">[9]</a> Morgan Simon, Real Impact: The New Economics of Social Change (Bold Type Books, 2017), 98.<a href="#_ftnref10" name="_ftn10">[10]</a> Anand Giridharadas, Winners Take All: The Elite Charade of Changing the World (Dell, 2018), 151–152.<a href="#_ftnref11" name="_ftn11">[11]</a> <a href="https://missioninvestors.org/resources/impact-investing-can-fight-racism-and-wealth-gaps-if-conducted-new-ways">https://missioninvestors.org/resources/impact-investing-can-fight-racism-and-wealth-gaps-if-conducted-new-ways</a>.<a href="#_ftnref12" name="_ftn12">[12]</a> <a href="https://www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession/">https://www.pewresearch.org/fact-tank/2014/12/12/racial-wealth-gaps-great-recession/</a>.<a href="#_ftnref13" name="_ftn13">[13]</a> <a href="https://www.pewresearch.org/fact-tank/2017/11/01/how-wealth-inequality-has-changed-in-the-u-s-since-the-great-recession-by-race-ethnicity-and-income/">https://www.pewresearch.org/fact-tank/2017/11/01/how-wealth-inequality-has-changed-in-the-u-s-since-the-great-recession-by-race-ethnicity-and-income/</a>.

Restorative Investing: How the Impact Investing Model Could Be Used to Support Vulnerable Communities in the Time of COVID-19

For the second time in a little over a decade, the United States is facing an economic crisis on a near-unprecedented scale, while simultaneously battling the w

Restorative Investing: How the Impact Investing Model Could Be Used to Support Vulnerable Communities in the Time of COVID-19