The Bedrosian Center welcomed several new faculty affiliates for the 2015-2016 school year- today, we’ve put Alex Graddy-Reed in the spotlight. Graddy-Reed is an Assistant Professor at the USC Price School where her research focuses on philanthropy, social innovation, and grantmakers’ strategies to be more outcome and impact minded. Dr. Graddy-Reed recently sat down with the Bedrosian Center to talk about her current research on the role of hybrid organizations in providing for the public good.
Give us an overview of your research.
My current research is looking at the role of social innovation in society at providing public good through private organizations. My research within this is [specifically] looking at the rise of hybrid organizational forms- which would be L3Cs, Benefit Corporations- and if these new organizational structures are actually going to make a difference in providing for the public good, or are they more of a marketing campaign for still for-profit organizations to capture more of the market share.
An L3C is a low-profit, limited liability corporation. It’s a for-profit entity that has an explicit social mission, and the aim is that by having this low-profit status, they could then capture private foundation investments. Traditionally, private foundations only make grants to nonprofits, but this is an outlet for them to be able to invest in for-profit organizations while still meeting their tax expectations.
The Benefit Corporation is also a for-profit with a social mission but there’s no tax benefit, there’s no funding from foundations. It’s just to protect organizations that want to pursue a social mission in case their shareholders say “you’re not making enough profits for us.”
Why is it important to study this topic?
People are spending a lot of time in each state across the country right now debating whether or not to incorporate these new legal structures. Some states have implemented some and not others- North Carolina implemented the L3C and then revoked it – so there’s been a lot of public time and tax payer dollars spent on deciding whether or not these are good structures and helpful structures, but we still don’t know what they really do.
North Carolina said they did not know how to evaluate these organizations, which is fair because once you’re an L3C, what does it mean to have a social mission and make a profit? What does it mean to balance those two things? There’s no guidance there, there’s no reporting requirements, so it’s kind of just this open benefit left to the trust of the organizations.
Have you noticed any trends in these legislative debates?
Most states have some version of a social enterprise structure, either an L3C or a Benefit Corporation, or a Social Purpose Corporation- a couple states have that- or Flexible Purpose- California has that. The majority of states have something. So we have a number of these organizations but we have yet to see if they’re going to make substantial change.
What role does governance play in this research?
Definitely governance and institutions is key to understanding this issue, and understanding what the processes and decision making are that are playing a role in letting these new hybrids form and experiment with these new approaches to public good provision.
Do you think any of these hybrid models have been successful?
I think legal structures depend so much on what your organization is doing, because there are pros to being a nonprofit, a for-profit, a hybrid. It just depends on, “what’s your product or service, what’s your target audience?” I do think we need to spend more time looking to see if these hybrid entities are able to accomplish more, if they are able to bring in those new capital structures. That’s going to be a huge implication because nonprofits are struggling so much with getting funding.
Where are you looking to take your research next?
Next I’ll probably be looking at collaboration and cross-sector partnerships because that’s kind of the big push right now in the world of public good provision, that we need to work across sectors. These hybrid entities are kind of an attempt to do that, to bridge the public and the private and the nonprofit, so to see, are these partnerships really forming, are they making a difference? People really want to see accelerated progress, but of everything we’ve tried, nothing seems to work at accelerating, so is this [new attempt] going to work or not?
This interview has been edited for brevity and clarity.