ENTR 4800 Class 6 - HR, Operational & Legal Considerations


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Theory: What are the unique HR and operational considerations that social entrepreneurs need to incorporate in their social enterprise?

Practice: What strategies and techniques can social entrepreneurs apply to effectively execute the operational and HR aspects of their social venture?

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ENTR 4800 Class 6 - HR, Operational & Legal Considerations

  1. 1. ENTR 4800: Introduction to Social Entrepreneurship Class 6: Operational, HR and Legal Considerations Monday, October 24, 2011Instructors:Norm Tasevski (norm@socialentrepreneurship.ca)Assaf Weisz (assaf@socialentrepreneurship.ca) 1
  2. 2. © Norm Tasevski & Karim Harji
  3. 3. © Norm Tasevski & Karim HarjiAgenda• Greyston Bakery• HR Considerations• Operational Considerations• Legal Considerations• What did we learn?• Next Week 3
  4. 4. HR Considerations… 4
  5. 5. © Norm Tasevski & Karim HarjiWhere does HR Fit? 5
  6. 6. © Norm Tasevski & Karim HarjiA Caveat… Think of your HR from the perspective of “running a business”, not “running a charity” 6
  7. 7. © Norm Tasevski & Karim HarjiA Second Caveat…Your HR Strategy must align with your business model and align with organizational values 7
  8. 8. What if you were a…Product-based Social Business… Tethered Social Enterprise…Employment-Based Social Business… Accessibility-Based Platform… 8
  9. 9. 1. Product-Based © Norm Tasevski & Karim Harji A business/business model that provides products or services with social benefit.
  10. 10. 2. Employment-Based © Norm Tasevski & Karim Harji A business that hires marginalized people in good employment opportunities.
  11. 11. 3. Tethered © Norm Tasevski & Karim HarjiAn enterprise started by a charity or non-profit thatgenerates revenue for the organization.
  12. 12. 4. Accessibility-Based © Norm Tasevski & Karim Harji A business that maintains a purposely low profit margin to make their products accessible.
  13. 13. © Norm Tasevski & Karim HarjiOther HR Considerations…• Who/what do you need?• How do you find the right people?• How do you define what they do?• How (and from where) do you pay them? 13
  14. 14. © Norm Tasevski & Karim HarjiExercise:What HR Strategy makes sense for…Your venture??? 14
  15. 15. © Norm Tasevski & Karim Harji 15
  16. 16. © Norm Tasevski & Karim HarjiBalancing Financial and SocialTensions• “Social cost”• Business acumen• Two missions – may lead to confusion/conflict 16
  17. 17. © Norm Tasevski & Karim HarjiSummary: Key Questions• Who will manage the business?• How do you plan to staff the venture?• Will staff require special training or accreditation?• Will the non-profit’s clients be hired? If so, are there any special accommodations that will require additional staff or other resources?• Will staff work on contract, for honoraria, or on a permanent basis?• Do you have a person with business experience and/or training on staff and how will that person be utilized?• Does the staffing plan match your operational needs and revenue growth projections?• How will the staffing needs change as the enterprise grows?• Are any of the positions transitional by design? If so, how will the high turnover rates be accounted for in the enterprise?• How easy will it be to attract qualified staff with anticipated working conditions and salaries?• What is the organizational chart? What is the accountability of each staff member?Source: http://www.enterprisingnonprofits.ca/sites/www.enterprisingnonprofits.ca/files/uploads/SEGUIDE_Web_Chapter_Five.pdf 17
  18. 18. Operational Considerations… 18
  19. 19. © Norm Tasevski & Karim HarjiDAY 1 What do you do first? 19
  20. 20. © Norm Tasevski & Karim HarjiDAY 180 What does your average week look like? 20
  21. 21. © Norm Tasevski & Karim HarjiHow do you…Operationalize your Value Proposition?Your venture??? 21
  22. 22. © Norm Tasevski & Karim HarjiHow do you…Operationalize your “Customer” function?Your venture??? 22
  23. 23. © Norm Tasevski & Karim HarjiHow do you…Operationalize your Channels?Your venture??? 23
  24. 24. © Norm Tasevski & Karim HarjiHow do you…Operationalize your “Relationships” function?Your venture??? 24
  25. 25. © Norm Tasevski & Karim HarjiHow do you…Operationalize your Key Resources?Your venture??? 25
  26. 26. © Norm Tasevski & Karim HarjiHow do you…Operationalize your Key Activities?Your venture??? 26
  27. 27. © Norm Tasevski & Karim HarjiHow do you…Operationalize your Partner Development?Your venture??? 27
  28. 28. © Norm Tasevski & Karim HarjiSummary: Key Questions• How will you operationalize each segment of the business model?• How will you ensure that you adequately understand and capture your considerations and assumptions? 28
  29. 29. © Norm Tasevski & Karim HarjiSome Resources: MaRS workbooks1. Building an A-Team• What values do you seek in new hires?• As the company grows, what new hires will you need and when?• What skills do successful employees at your company require?• What qualities do your employees need to make them excellent?• How should you screen and interview to find the best candidates?• How do you make an official offer of employment?2. Compensation• What forms of compensation are most effective for a start-up?• How do I structure my employee stock option plan?• What benefits am I legally required to provide and how much will they cost?• How do I build a realistic and comprehensive HR budget?3. HR at Work• How do I effectively bring new people on board?• How do I establish and conduct performance reviews?• What are the essential HR policies and procedures I need to have in place?• How do I create an effective employee handbook? 29
  30. 30. Break 30
  31. 31. Legal Forms Applicable to SocialEnterprise… 31
  32. 32. © Norm Tasevski & Karim HarjiA Caveat…There is no defined (national or provincial) legal form for social enterprise in Canada 32
  33. 33. © Norm Tasevski & Karim HarjiA Second Caveat… Form follows function 33
  34. 34. For-Profit Non-Profit Corporation Corporation Partnership Charity Sole Co-OperativeProprietorship Corporation 34
  35. 35. © Norm Tasevski & Karim Harji For-Profit Corporation • Incorporated under the Business Corporations Act (Ontario) (the “OBCA”) or the Canada Business Corporations Act (federal) (the “CBCA”) • With share capital• Most flex in terms of • Pay corporate tax profit-making activities • Cannot access grants• Can access all forms • Cultural/psychological of investment (debt, barriers with operating a equity, etc) “for-profit social• Provides clarity of business” purpose (i.e. the financial bottom line)• Limited personal liability 35
  36. 36. © Norm Tasevski & Karim Harji Charity • Incorporated via Letters Patent under the Corporations Act (Ontario) or Canada Corporations Act (federal) • Without share capital• Don’t pay corporate • Least flex in terms of tax on earnings profit-making activities• Can issue tax receipts • Limited in the types of investments you can• Can access many access (e.g. equity) government/foundatio n/corporate grants • Time-consuming! • Psychological barriers with operating a “social business” • An aversion to “risk taking” • Can lose status if “too successful” 36
  37. 37. © Norm Tasevski & Karim Harji Sole Proprietorship • Registered via Business Names Act (Ontario) or Canada Corporations Act (federal) • Without share capital• The simplest (and • Unlimited liability!! quickest) legal form • The business is the• You have full control of entrepreneur business decisions • Hard to find investors• Flexibility to make • Limited creative input business decisions (i.e. you’re the only one quickly with ideas!)• No separate filing for • Less “professional” than income tax other forms 37
  38. 38. © Norm Tasevski & Karim Harji Non-Profit Corporation • Incorporated via Letters Patent under Corporations Act (Ontario) or Canada Corporations Act (Federal) • Generally without share capital• Can access grants • Can’t issue tax receipts• Can access debt • Limited in the types of financing investments you can• Tax exempt as long as access (e.g. equity) organized and • Psychological barriers operated for defined with operating a “social social/community business” benefit • Can lose status if “too• Some NPs are more successful” open to (limited) risk- taking 38
  39. 39. © Norm Tasevski & Karim Harji Partnership • Registered under the Partnerships Act (Ontario) • With or without share capital • Usually organized using a Partnership Agreement• Similar benefits to sole • For most partnerships, proprietorship unlimited liability! (at• Combines least in Canada…) skills/competencies of • Acrimony between two people partners is common• Can sign contracts • Difficult to find investors and borrow money in its own right 39
  40. 40. © Norm Tasevski & Karim Harji Co-Operative Corporation • Incorporated under the Co-Operative Corporations Act (Ontario) or Canada Cooperatives Act (Federal) • Wither with or without share capital• Well-established • Cannot issue tax receipts structures • Generally not exempt• Integrates the concept from paying tax of “community benefit” • Psychological barriers already with operating a “social business” • Difficulty making decisions (too many people at the table) 40
  41. 41. © Norm Tasevski & Karim HarjiExercise:Which legal form makes sense for…Your venture??? 41
  42. 42. © Norm Tasevski & Karim HarjiCRA Guidelines• Direction (law, regulations, guidelines, precedents) around social enterprise are not completely clear• Community economic development (CED)-specific exemptions: – Relief of unemployment: training business. – Relief of poverty through operating stores: business that provides low-cost necessities. – Relief of people with disabilities: “social business.” – Relieving suffering in economically challenged communities• Federal view of the business activity may differ from any provincial position 42
  43. 43. © Norm Tasevski & Karim Harji 43
  44. 44. © Norm Tasevski & Karim HarjiAn Evolving Conversation… 44
  45. 45. © Norm Tasevski & Karim HarjiHybrid Structures 45
  46. 46. © Norm Tasevski & Karim HarjiTalk to a Lawyer! 46
  47. 47. Legal Innovations… 47
  48. 48. © Norm Tasevski & Karim HarjiLegal Innovation: CIC (UK)• Established to trade (goods or services) for the community good• Requires “community interest statement” application to the CIC Regulator. Publically-available annual reports required to confirm (adherence to) community interest requirement• May issue shares in order to raise capital• Cap on returns (dividends paid) set by the Regulator• Subject to an “asset lock” – Assets and profits must be permanently retained by the CICs for community benefit, or transferred to another CIC subject to an asset lock, or to a charity• Taxed in the same manner as other businesses 48
  49. 49. © Norm Tasevski & Karim HarjiLegal Innovation: L3C (US)• Variation on American Limited Liability Companies (LLCs)• LLC investors are members rather than shareholders• Terms of the operating agreement guarantee the public benefit nature of the entity’s work• Like LLCs, L3Cs are not subject to federal income tax themselves, but the income they pay to members is taxable according to the rates applicable to each member• Able to attract private capital through the sale of shares and other securities, various forms of loans, or other commercial financial arrangements.• Ability to receive Program Related Investments from foundations• No asset lock and no dividend cap 49
  50. 50. © Norm Tasevski & Karim HarjiLegal Innovation: B Corp (US)• To be certified as a B corporation under the B Lab system, the corporation must: – Achieve a minimum score of 80 (out of 200) on the B Ratings System, a tool to assess a companys social and environmental performance. – Agree to make legal changes to its articles of incorporation to expand the responsibilities of the company to include consideration of stakeholder interests. – Pay B Lab an annual licensing fee. – Recertification is required every two years. 50
  51. 51. © Norm Tasevski & Karim Harji 51
  52. 52. © Norm Tasevski & Karim HarjiSummary: Key Questions• Is the venture’s primary mission mostly social or profit?• What are the founders’ views, skills, motives, and intentions? How closely held is the organization?• What is the market for the primary activities (goods/services)?• How much money is needed and where will you get it?• What level of risk and liability is your organization willing to take?• What will be the relationship between the enterprise and the parent organization? Will the enterprise be a separate entity? What is the governance structure of the enterprise (separately and in relation to the parent organization)? 52
  53. 53. © Norm Tasevski & Karim HarjiWhat did we learn? 53