Supportive Ecosystem
In each of the traditional three sectors (for-profit, nonprofit, and public), organizations rely on a specialized supportive ecosystem to operate successfully. This includes financial markets, policy and regulation, training and educational systems, measurement and reporting standards, and more. The fourth sector does not have a robust, tailored ecosystem of its own, so for-benefit organizations have to rely predominantly on the ecosystems of the traditional three sectors. This often forces them to make unwanted trade-offs that compromise their impact in one way or another.
In the same way that for-profits cannot effectively rely on the supportive ecosystem of the nonprofit sector, and vice versa, for-benefits should not be expected to rely on the ecosystems of the for-profit or nonprofit sectors. For example, current legal and tax structures make it difficult for for-benefits to integrate commercial and mission-related activities. There are no broadly accepted standards for triple-bottom-line measurement and reporting of performance; educational systems are not adequately training managers or support professionals to operate in an environment that demands integration of business and mission logics; and financial markets are bifurcated between philanthropic and private investment, making it difficult for for-benefits to access risk or growth capital that is mission-aligned.
To illustrate, if a startup for-benefit organization chooses a for-profit legal form, it will have difficulty embedding commitment to its mission into its structure, thus risking mission drift as it grows and new investors and management enter the picture. On the other hand, if the for-benefit selects a nonprofit form to protect its mission, it will face difficulty accessing private capital, making it much harder to reach scale.
Despite the broad recognition of the critical need to harness business and market-based approaches to address the global challenges we are facing, none of the three traditional sectors are optimized to support organizations that seek to integrate the logics of business and social purpose into one entity. In fact, they are generally designed to keep these pursuits apart.
To scale the fourth sector and unleash the power of business to solve pressing social and environmental challenges at scale, there needs to be a massive effort to develop strong and cohesive supportive ecosystems that make it easier for for-benefit enterprises to thrive everywhere in the world.
An Emerging Fourth Sector Ecosystem
The good news is that as the fourth sector has been growing over the past several decades, so has a supportive ecosystem around it. For example:
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We have seen the emergence of financial instruments, funds, and intermediaries that facilitate investments that seek positive social and environmental impacts alongside profits.
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A number of countries have adopted new corporate forms legislation and other enabling public policy to recognize and regulate for-benefit organizations.
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New assessment and reporting tools and accounting standards have been emerging that seek to integrate financial, social and environmental performance.
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Educational and training programs have been created to cultivate the technical, management and leadership skills required for operating in the fourth sector.
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A growing number of lawyers, accountants, consultants and other technical assistance providers now specialize in for-benefit enterprises.
Unfortunately, however, despite all its progress and promise, the fourth sector is still poorly understood and weakly supported. While we have seen impressive developments across all elements of a fourth sector ecosystem around the world, these remain nascent, fragmented, and highly incoherent from the point of view of for-benefit enterprises on the ground. For the fourth sector to be able to mature and fulfill its potential, its ecosystem needs to be developed in a more deliberate, coordinated, and accelerated manner. While this is a formidable challenge, such mobilization also presents tremendous opportunities.
Elements of a Supportive Ecosystem:
Financial Markets
The standard for-profit and nonprofit channels to capital are not suitable for the fourth sector. New kinds of investment funds, intermediaries, exchanges, instruments, and institutions that take into account both the financial and public benefit aims of investors, donors, and for-benefit enterprises are needed.
Public Policy
For-benefit enterprises lack their own distinct policy environment and are therefore typically forced to conform to the policy regimes of nonprofits or for-profits. To avoid the tradeoffs that come with this, the fourth sector needs its own enabling policy environment, including conducive legal forms and tax treatment for for-benefit organizations and investors, along with a range of other regulatory reforms that support for-benefits and ensure their accountability.
Education & Training
Dissemination of fourth sector concepts and know-how requires the active participation of our formal and informal educational institutions. Credible educational and training infrastructure for transmitting knowledge about the fourth sector and training its workforce are in development, but need to be expanded and standardized to meet the growing demand.
Marketing & Communications Channels
To market themselves and communicate their messages to customers and other stakeholders authentically and effectively, organizations with a true, demonstrable commitment to social and environmental performance must be able to distinguish themselves from those who are less sincere or effective. This requires specialized marketing, communications, and public relations support as well as alternative media channels that are aligned with fourth sector values.
Assessment & Reporting Standards
For for-benefit enterprises to be seen as credible and trustworthy, new integrated metrics are required that assess social and environmental value creation and impacts alongside financial performance. There must also be protocols for ensuring for-benefit organizations are fully accountable, not only to shareholders, but to all stakeholders.
Ratings & Certification
Using the new metrics for value creation and the associated accountability protocols, ratings and certification platforms need to be created to verify and compare operating performance and social contribution of for-benefit organizations.
Technical Assistance
Fourth sector entrepreneurs require legal, accounting, strategic, marketing, technology and other types of support from professionals properly trained in the emerging laws, standards, practices, protocols, procedures, technologies, and other aspects of the emerging for-benefit ecosystem.
Research & Understanding
Academia, research institutions, and think tanks must integrate fourth sector ideas, language, thinking, and practice into their curricula and research agendas to advance the frontiers of theory and knowledge about the fourth sector and its ecosystem.
Culture
Fourth sector concepts and language must be absorbed into mainstream culture in order for the sector to attract the broad engagement required to realize its potential. Such a transformation will require inspiring a shift in attitudes, priorities, and values. The outdated mindset of business solely as a means for financial gain needs to be replaced with a vision of business as a force for the betterment of the world as a whole; as does the bias that the provision of social good is solely the domain of governments and nonprofits.
Connection & Representation
Membership and trade associations, networks, affinity groups, and gatherings are needed to connect and support the various constituencies within the fourth sector and its ecosystem. They can facilitate knowledge transfer, drive changes in public policy and other aspects of the ecosystem, create visibility for the sector and the organizations involved in it, and provide support services for members. New networking structures are also needed to enable collaboration and interoperability among those engaged in the development of the fourth sector ecosystem.
Conflict Management
The for-benefit model is premised on all stakeholders being considered core to the organization. Differing and often competing interests of stakeholder groups within an organization will inevitably produce healthy tensions. New mechanisms for effective conflict management and dispute resolution are needed to resolve tensions and promote win-win solutions.