A Politically Correct Poison Pill

Here’s something really ingenious: a unique capitalization structure ensuring that a not-only-for-profit retains its social mission, even if another company buys it.

The structure was devised by Good Capital, and a company in its investment portfolio, Better World Books. BWB is a for-profit social venture that sells more than 6 million used textbooks gathered from donation drives on campuses, plus other books from libraries, then gives part of the proceeds to non-profit literacy partners (more than $5 million in the past four years). Obviously, by doing so, the company also prevents the books from ending up in landfills.

BWB is giving a 5% ownership stake to such literacy partners as Books for Africa, Worldfund and the Robinson Community Learning Center.  And they’re ensuring that the stock will be vested on the basis of shareholders successfully achieving their own literacy goals:

Better World Books plans to supplement the initial round of stock options with subsequent rounds of performance based options, which reward its literacy partners for their successes in promoting and supporting literacy; for the synergies they create with Better World Books; and for their innovativeness in addressing literacy and education challenges in the United States and around the world. These stock option grants will be based upon the partners’ ability to achieve their own internal metrics for delivering on specified goals and objectives as well as how effectively they promote the collection and sales of books collected in book drives that provide Better World Books with its inventory.

via Social Entrepreneurship – Change.org: Better World Books to Offer Equity to Non-Profit Partners.

What it comes down to is, if a company wants to buy BWB, the literacy partners will be part of the negotiations – or, at least, their interests will be represented. And it’s unlikely they’d favor a vote for anything that would dilute literacy, in part because that mission is related to the value of their stock options.

The company has other attributes that make it improbable that a purchaser would be foolish enough to tinker with BWB’s core objective. Most important, the mission is what’s made BWB so popular on campus. Students who help gather books, or buy them, feel part of a bona fide movement. And any company that decides to buy BWB would be really dumb to play around with that formula.

I’m not sure this approach can be replicated in the majority of not-only-for-profits. But the concept – a social objective that’s essential to a company’s brand, with a capitalization structure able to motivate shareholders to maintain the mission – is pretty darn smart.