2016 Lane Reports

The Lawyer As Social Engineer: A Call To Service

The Lane Report, October 2016
Monday, October 3, 2016 10:00 am
by Marc J. Lane

Too many people are living on the outskirts of hope.  Some 50 million Americans are living below the poverty line.  And the challenges that poverty brings with it are tougher than ever.

Yet the social sector is under enormous stress.  Nonprofits can no longer count on government contracts and grants, and charitable resources are inadequate to fund the deepening problems too many face.

While public and social-sector programming has improved the lives of countless people so, increasingly, have market-based business initiatives.

Alone and in combination with government and philanthropic efforts, disruptive business strategies are effectively addressing the most intractable of social problems.  For-profit, social-purpose businesses are defining success in terms of both financial and social returns.

While some non-profits are closing or consolidating for lack of funding, others are becoming entrepreneurial, supplementing charitable donations and government grants with revenue earned by businesses they own and run, instrumentalities of mission in their own right. Progressive nonprofits are partnering with each other, and even with traditional businesses, breaking down cultural barriers, leveraging their competencies, and gaining economies of scale.  

And a growing number of impact investors are deploying capital to test and develop market-based solutions to social problems.

Many attorneys are contributing to the development of this evolving Impact Ecosystem.  We’re teaching, writing and lecturing.  We’re active in bar associations and other professional associations.  And we’re fielding questions from clients who see themselves as stakeholders at the intersection of mission and markets. 

Some of us are counselling clients about the opportunities presented by Low-profit Limited Liability companies which may facilitate foundations’ program-related investments and engage diverse stakeholders around a clear and unambiguous ordering of statutorily imposed fiduciary priorities, charitable or educational priorities that can’t be waived or negotiated away.  Or Benefit Corporations, mission-driven ventures mandated to pursue a public benefit while, at the same time, building a community of like-minded entrepreneurs.  Or Pay For Success initiatives, futures contracts on social impact.

But I encourage my fellow attorneys to be agents of change in still another way, as advocates of socially innovative public policies. 

I was privileged to draft Illinois’ L3C law and had a hand in drafting other states’ laws.  Given the level of support for the L3C in Illinois, then-Governor Pat Quinn invited me to draft an executive order creating the Governor’s Task Force on Social Innovation, Entrepreneurship, and Enterprise, his think tank on issues of social innovation.  The Governor appointed me to chair and populate the Task Force which went on to develop the State’s first Pay for Success initiative - - to improve outcomes for at-risk youth involved in both the child welfare and juvenile justice systems.  All of us who served on the Task Force are proud of that achievement and the other results of our efforts.

Building on the success of the Task Force, the Cook County Commission on Social Innovation has now been created by the Cook County Board, and I was happy to draft the authorizing ordinance.  The Commission, which is chaired by Cook County Commissioner Jesus “Chuy” Garcia and which I am honored to serve as Vice Chair, will optimize the County Board’s role as an agent of positive social change - - as a convener, as a catalyst, and as a collaborator.  The Commission will incubate actionable, data-driven social policy recommendations for the County Board’s consideration, some socially impactful in the short term, others over the long term.

In its quest to attack concentrated poverty, the Commission is expected to support the work of the Illinois International Port District and other government units to revitalize the Port of Chicago, collateral damage of de-industrialization, through impact investment, philanthropy or both, not only maximizing its commercial potential in concert with other Great Lakes ports, but also maximizing its social potential as an engine of economic development in those communities facing the greatest economic challenges.

The Commission will explore the ways it can help leverage the buying power of place-based anchor institutions – including universities, hospitals and museums – to enable new worker-owned cooperatives to empower the County’s unemployed and underemployed.

The Commission will work constructively with the Illinois Medical District to encourage the incubation and spawning of innovative, mission-driven health-related businesses.

The Commission will evaluate opportunities to help Cook County residents in food deserts band together build and maintain neighborhood stores. They might adopt membership models, connect with local businesses or nonprofits, and even rely on newly sanctioned crowd-funding opportunities.

And the Commission hopes to collaborate with the Cook County Land Bank Authority, supporting the efforts of social entrepreneurs and investors eager to redevelop and re-use vacant, abandoned, foreclosed and tax delinquent properties in an effort to promote affordable housing, economic development, conservation and job creation.

These initiatives and others the Commission considers won’t be zero-sum transactions.  The Commission’s aim is nothing short of transformation.

The Cook County Commission on Social Innovation will also serve as the County’s social innovation laboratory, bringing together stakeholders and experts upon whom the County’s agencies and departments can rely as they create innovative solutions to social problems.  My hope and expectation are that it will become a model other cities, counties and states throughout the nation replicate as each in its own way attacks the pain of poverty.

In my view, all lawyers have the privilege and the responsibility to help guide the public agenda.  Our commitment to social justice, our training and skills, and the influence we enjoy uniquely position us to harness the power of the marketplace to drive positive social change.

Charles Hamilton Houston, Howard University Law School’s legendary dean and a champion of civil rights, provocatively observed, “A lawyer is either a social engineer or a parasite on society.”  By empowering nonprofits, entrepreneurs, socially conscious individuals, foundations and impact investors, the lawyer empowers those he or she may never meet, but whose lives will change forever.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems.

A SIB isn't a traditional bond where investors are guaranteed a fixed return but a contract among a government agency that agrees to pay for improved social outcomes, a private financing intermediary and private investors. SIBs shift the risk of experimenting with promising but untested intervention strategies from government to private capital markets, with public funds expended only after targeted social benefits have been achieved.

Peterborough's problem was daunting: Sixty percent of prisoners serving short-term sentences historically had gone on to re-offend within a year after their release. But policymakers were confident that a solution was within their reach. They attracted private investment to pay experienced social service agencies to provide intensive, multidisciplinary support to short-term prisoners, preparing them to re-enter society and succeed outside the penal system.

The government decided which goals would be supported, but exactly how those goals would be achieved was left to the private sector. It was the investors, through a bond-issuing organization, who ultimately endorsed the allocation of investment proceeds — how much would be invested in job training, drug rehabilitation and other interventions.

If the Peterborough plan eventually shrinks recidivism rates by 7.5 percent or more, the government will repay the investors' capital and share the taxpayers' savings with them, delivering up to a 13 percent return. If the target isn't hit, the investment will have failed and the government will owe the investors nothing.

Illinois' SIB effort was spearheaded by the state's Task Force on Social Innovation, Entrepreneurship and Enterprise — the governor's think tank on social issues, which I am privileged to chair — with support from Harvard University's John F. Kennedy School of Government, the Rockefeller Foundation and the Aurora-based Dunham Fund. A request for information issued by the Office of Management and Budget on May 13 yielded responses from service providers eager not only to reduce recidivism here but also to create jobs, revitalize communities, improve public health outcomes, curb youth violence, cut high school dropout rates and alleviate poverty.

Now the governor has issued a request for proposals intended to spur better outcomes for Illinois' most at-risk youth — by increasing placement stability and reducing re-arrests for youth in the state's Department of Children and Family Services, and by improving educational achievement and living-wage employment opportunities justice-involved youth most likely to re-offend upon returning to their communities.

Kudos to Mr. Quinn for bringing SIBs to Illinois. May they soon start delivering on their promise.

- See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf
The world's first social impact bond, or SIB, was introduced in 2010 to fund innovative social programs that realistically might reduce recidivism by ex-offenders in Peterborough, England, and, with it, the public costs of housing and feeding repeat offenders. Prudently building on the strengths of that initiative, Illinois Gov. Pat Quinn is rolling out SIBs to help solve some of the state's most vexing social problems. - See more at: http://www.chicagobusiness.com/article/20131007/OPINION/131009850/a-new-kind-of-futures-contract-for-illinois#sthash.ThgxeiFt.dpuf

Marc J. Lane is a Chicago attorney and financial adviser and the vice chair of the Cook County Commission on Social Innovation.

Adapted from Marc Lane's September 23, 2016 guest post which appeared on BeyondAdvisers.com. Copyright © 2016 by BeyondAdvisers.com.


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