This spring LISI co-creators hosted a workshop covering investment governance structures at the GAIL (Global Alliance of Impact Lawyers) Annual Summit in London, England. Feedback was positive and we managed to spread the word about ongoing LISI projects. We also had a blast.

‍

Workshop on the impact law landscape

The 2023 GAIL Summit focused on collaboration and disruption in the impact law landscape. Legal professionals from all over the world attended sessions over two inspiring days. We had a great time hosting our interactive workshop – it was a serious contender for our favourite LISI excursion yet.

Over 70 people participated in our workshop, and we received more than 500 engagements with the questions we asked via Mentimeter. This meant lots of great minds thinking together about anchoring impact in investment structures. And we love to see it!

Attendees included impact lawyers, sustainable finance lawyers, governance experts, and ESG and regulatory professionals. Members of GAIL hail from a range of jurisdictions, backgrounds, and cultures.

And their insights were incredibly illuminating.

‍

‍

Some of the pressing impact questions we asked…

‍…Which governance models are best for impact? 

The most frequent response? Shareholders focused on impact. With the second-most voted being legal incorporation for purpose. The sustainability expertise of both the board and B-Corp made it to the top 5, and independent oversight committees and golden share occupied the bottom 2. Steward ownership came in 4th. 

When we asked the same question to a more diverse audience or experts and non-experts, independent oversight committees always ranked in the top 3 for types of governance structures for impact.   

In LISI’s Impact Term Sheet, the governance elements we tackle are: 

• the board and its duties
• the optionality of an independent governance body
• structures to align employee interest and success
• principles of remuneration and rewards
• reserved matters
• stakeholder integration
• founder commitment

Have a look at our suggested proposals and guidance notes here.

…What can equity learn from debt?

We loved this question. Here are some responses shared by attendees: 

• financial returns cap
• pari passu (equal footing) and risk sharing
• patience and exit triggers
• defined purpose and reporting
• convertible features
• long term incentivisation

During the many conversations we had around steward ownership structures, one thought that frequently cropped up was how this form of equity assumes many debt-like elements.

Great food for thought! Stay tuned as we develop more resources addressing these topics. If you think of using the Impact Term Sheet for a debt structure please get in touch with us.

‍

‍

…Should a third party be able to hold directors responsible for achieving impact targets? If so, who should that be?

This one prompted much debate – which we loved to see, of course! The top response was that this should fall to the affected stakeholders. 

The second most frequent response? That shareholders should hold the board accountable. And the third was an independent oversight committee. The last choice was directors holding themselves accountable (in the case of an autonomous board, for instance).

For more ongoing debates on this topic, follow the B-Corp movement around saving Article 25 of the Corporate Sustainability Due Diligence (CSDD) Directive.

How did we tackle this in the Impact Term Sheet?

LISI's Impact Term Sheet creates alignment between investors and investees around guiding principles and a shared vision for the company's mission, growth and impact journey. Accountability starts with transparency, and the reporting section of the Impact Term Sheet is founded on this principle. 

Stakeholders play a key role in a company's success, so we included a clause guiding parties in how to identify those stakeholders from the outset. Together with the creation of a stakeholder grievance management ecosystem. 

‍

‍

…Do structures that protect mission and impact make it easier or more difficult to exit – and therefore less attractive to invest? 

Opinion was split between "Yes, and that's an issue" and "Yes, and that's a small price to pay.” With the former getting the most votes. Meanwhile, 18% of participants thought this wasn't an issue. 

Accordingly, we can conclude that anchoring mission and impact protection in investment structures will lead to some sort of compromise or deviation from current market practice around exits. 

A company is an ecosystem of aligned people, and it should be equipped to enable a common and unifying vision amongst all those who contribute and share in its successes.

Founders and shareholders alike should think about a governance model that aligns with their vision for the company in the long term. and make those choices clear. All while leaving room for discussion when other investors come on board. 

‍

‍

… What was one takeaway from the workshop?

At the end of each break-out session, we asked attendees to share a key takeaway. Here are some of our favourite responses:

"Information is useful only if used: otherwise resources are wasted preparing reporting materials, just to check a box." 

"Accountability for purpose should sit with the board and impact should be embedded in company documents." 

"Will investor parties be willing to concede power in the battle of the forms?"

"Commit to increasing investment when reaching impact milestones." (We have lots of thoughts about this one! Check out the section of the Impact Term Sheet covering the adjustment of company valuation).

‍

Concluding our workshop on investment governance structures

One final takeaway we thought encapsulated our work and the aims of the Impact Term Sheet was:

"It's not profit or purpose, it's profit and purpose." 

Well put indeed!

If you want to know how LISI addressed these topics during the co-creation process of the Impact Term Sheet, make sure to download a copy.

‍