Article II: Social Ventures in Africa: What can go Wrong? by Brian Ray Dinning, social venture lawyer

Article 2:  Social Ventures in Africa:  What can go Wrong?

By:  Brian Ray Dinning, JD, LLM and Social Venture Lawyer

June 29, 2012

Sometimes committing your life to a worthy cause like social ventures comes with many challenges and obstacles such as:  differing world views, different goals and objectives (especially from banks and investors who have financial goals rather than the founders and social venture partners who generally have charitable and social goals as well as financial goals), the unpredictable nature of people and a limitless host of other complications and factors.  Business and social ventures are hard work – let alone business and social ventures in Africa, where resources, personnel and supplies can be scarce and corruption, violence and theft are rampant.

 

The US Government published that over 50% of all businesses started in the US fail within the first five years.[1]  New Venture Lab – Equipping Christian Entrepreneurs, quotes interesting statistics from Harvard Business School noting that the failure rate of businesses can be as high as 95% (depending on how you define failure).  Their website, quoting a Harvard Business professor, provides:

 

“Most companies fail. It’s an unsettling fact for bright-eyed entrepreneurs, but old news to start-up veterans. 

 

But here’s the good news: Experienced entrepreneurs know that running a company that eventually fails can actually help a career, but only if the executives are willing to view failure as a potential for improvement.

 

The statistics are disheartening no matter how an entrepreneur defines failure. If failure means liquidating all assets, with investors losing most or all the money they put into the company, then the failure rate for start-ups is 30 to 40 percent, according to Shikhar Ghosh, a senior lecturer at Harvard Business School who has held top executive positions at some eight technology-based start-ups. If failure refers to failing to see the projected return on investment, then the failure rate is 70 to 80 percent. And if failure is defined as declaring a projection and then falling short of meeting it, then the failure rate is a whopping 90 to 95 percent.

 

“Very few companies achieve their initial projections,” says Ghosh. “Failure is the norm.”[2]

 

 

While this is the reality for businesses in the United States, a University of South Africa study indicates that the rate of small business failure in South Africa can be as high as 80%.[3]  MIT and other business schools note that the failure rate of social ventures will likely follow that of other for-profit businesses.

 

The challenge is to continue working to improve the lives of the 400 million people living on less than $1.25 per day in Africa regardless of past failures or challenges.  As Nelson Mandela states, “The greatest glory in living lies not in never falling, but in rising every time we fall.”  Quoting Vinod Khosla, billionaire venture capitalist and co-founder of Sun Microsystems: “There needs to be more experiments in building sustainable businesses going after the market for the poor. It has to be done in a sustainable way. There is not enough money to be given away in the world to make the poor well off.”[4] Researchers on social ventures at Duke note that: “We live in an age in which the boundaries between the government, nonprofit, and business sectors are blurring. This blurring results from a search for more innovative, cost-effective, and sustainable ways to address social problems and deliver socially important goods, such as basic education and health care.”[5]

 

Furthermore, Dees and Anderson realize that social venture projects and social entrepreneurs focus on the social impact of social venture projects and business-minded people focus on the financial returns thereby creating complexity.  “It is extremely hard to make strategic decisions about resource allocation or practical cost/quality tradeoffs when the social impact of these decisions is nearly impossible to measure in an efficient, timely, and reliable fashion.  It can become all too easy to focus too heavily on the more familiar, tangible and straightforward economic measures of success.”[6]

 

Businesses including social ventures fail for many reasons.  A New York Times columnist notes the top 10 reasons for small business failure:

 

“1. The math just doesn’t work. There is not enough demand for the product or service at a price that will produce a profit for the company.

 

2. Owners who cannot get out of their own way. They may be stubborn, risk averse, conflict averse — meaning they need to be liked by everyone (even employees and vendors who can’t do their jobs). They may be perfectionist, greedy, self-righteous, paranoid, indignant or insecure. You get the idea. Sometimes, you can even tell these owners the problem, and they will recognize that you are right — but continue to make the same mistakes over and over.

 

3. Out-of-control growth. This one might be the saddest of all reasons for failure — a successful business that is ruined by over-expansion. This would include moving into markets that are not as profitable, experiencing growing pains that damage the business, or borrowing too much money in an attempt to keep growth at a particular rate. Sometimes less is more.

 

4. Poor accounting. You cannot be in control of a business if you don’t know what is going on. With bad numbers, or no numbers, a company is flying blind, and it happens all of the time. Why? For one thing, it is a common — and disastrous — misconception that an outside accounting firm hired primarily to do the taxes will keep watch over the business. In reality, that is the job of the chief financial officer, one of the many hats an entrepreneur has to wear until a real one is hired.

 

5. Lack of a cash cushion. If we have learned anything from this recession (I know it’s “over” but my customers don’t seem to have gotten the memo), it’s that business is cyclical and that bad things can and will happen over time — the loss of an important customer or critical employee, the arrival of a new competitor, the filing of a lawsuit. These things can all stress the finances of a company. If that company is already out of cash (and borrowing potential), it may not be able to recover.

 

6. Operational mediocrity. I have never met a business owner who described his or her operation as mediocre. But we can’t all be above average. Repeat and referral business is critical for most businesses, as is some degree of marketing (depending on the business).

 

7. Operational inefficiencies. Paying too much for rent, labor, and materials. Now more than ever, the lean companies are at an advantage. Not having the tenacity or stomach to negotiate terms that are reflective of today’s economy may leave a company uncompetitive.

 

8. Dysfunctional management. Lack of focus, vision, planning, standards and everything else that goes into good management. Throw fighting partners or unhappy relatives into the mix and you have a disaster.

 

9. The lack of a succession plan. We’re talking nepotism, power struggles, significant players being replaced by people who are in over their heads — all reasons many family businesses do not make it to the next generation.

 

10. A declining market. Book stores, music stores, printing businesses and many others are dealing with changes in technology, consumer demand, and competition from huge companies with more buying power and advertising dollars.

 

In life, you may have forgiving friends and relatives, but entrepreneurship is rarely forgiving. Eventually, everything shows up in the soup. If people don’t like the soup, employees stop working for you, and customers stop doing business with you.  And that is why businesses fail.”[7]

 

 

Aside from the ten reasons noted above, in my experience with social ventures in Africa, the ventures did not work out as planned because of differences in goals and objectives between the partners, tension between the profit-making side and the social aspect of helping people and outlandish, intentional and unprofessional (and sometimes criminal) behavior and actions of others which interfered with, delayed or handicapped the social ventures.

 

Of all the reasons for small business and social venture failure noted above, it would be the outlandish, intentional and unprofessional (and sometimes criminal) behavior and actions of others, which caused our social ventures in Africa to either fail, be delayed or become handicapped.  In order to fully illustrate this point and to tell my side of the story, I will publish this seven part series complete with documents, video, photos, letters and email.

 

In addition to documents, video, photos, letters and email, there are also witnesses to most or all of this outlandish behavior including from the perpetrators themselves.  While some of these people are looking forward to a day in court against me, they will have to take the witness stand (under penalties of perjury) and answer for their outlandish behavior and actions and, hopefully, they will understand how their actions harmed the social venture projects, other investors and donors and the local people of Africa.

 

 

Article 3 is entitled:  Social Ventures in Africa:  Wextrust Capital – The Good, the Bad and the Ugly.

 

 

 

 

 

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[1] Small Business Administration

[2] http://www.newventurelab.com

[3] Mabaso, NR, University of South Africa (March 2008).

[4] MIT Entrepreneurship Review: From the Lab to the Land: Social Entrepreneurs Explore Appropriate Technology Dissemination (Nov. 26, 2010).

[5] Dees and Anderson, Duke Social Entrepreneurship: “For Profit Social Ventures,” (2003).

[6] Id.

[7] Goltz, J., “Top 10 Reasons Small Businesses Fail,” New York Times (Jan. 5, 2011).

George Clooney on Sudan and Africa by Brian Dinning, JD, LLM

George Clooney on Sudan and Crisis in Africa

Call it a publicity stunt – but George Clooney put his life and reputation  on the line to help those in need in Africa.  Because of his activism more people know about the humanitarian crisis in Sudan today than they did yesterday, because of George Clooney’s arrest during a protest outside the country’s embassy in Washington.

Image 1 of 2

George Clooney arrested Photo: REUTERS

Like George Clooney, I have dedicated my life to those in need in Africa.  My beliefs come from my dedication to the service of God and to my beliefs from the Bible which tells us to care for the orphans, the widows and the needy.  So, like George Clooney, I, Brian Ray Dinning, will work to help as many people in need in Africa as I can – even if this means the loss of reputation, the loss of liberty or imprisonment by an injustice system or people or the loss of my life.  

Because some things are more than a belief.  Our great Nation and its Founding Fathers believed this to be true.  Nelson Mandela, the great freedom fighter from South Africa, believed this as well.  The care of the poor, the widows and orphans of Africa is a fight worth fighting for.  The life of a child is precious – whether in the US, Europe or Africa.  Hats off to George Clooney and his father for their convictions and sacrifice.  I only hope and pray that I can help the needy children and people in Africa with the talents, gifts and abilities that God has given me and I hope that others join with us in making our World a better place for all.

Brian Ray Dinning

Thank you!

Thank you all for the kind support through calls, emails and comments about the lawsuit filed in the Suffolk Circuit Court in Suffolk, Virginia against the small group of collaborators in the aggressive negative press campaign against me and the social benefit ventures that I work on in Africa.

Thanks also to the Rico Law Blog for the write up on the lawsuit at ricolawblog.wordpress.com.

 

New Legislation designed to help “social ventures” by Brian Ray Dinning, tax lawyer

Passing unanimously in the Virginia House of Delegates is the new “social venture” vehicle called the “B Corporation” or “Benefit Corporation” which is a vehicle designed to promote the social ventures that I and others have been promoting in Africa and elsewhere around the world. With the structure of a corporation and some unique characteristics of tax exempt charitable organizations, this is the wave of the future with six States adopting similar legislation and up to 18 other states with laws in the works.

Interestingly, this movement stems back to a lot of original work by nonprofit guru, Michael I. Sanders. In helping him with research on “Partnerships and Joint Ventures Involving Tax Exempt Organizations (Wiley & Sons 1994), I learned the foundational work on social ventures which has culminated in the need for structures like Virginia’s B Corporation.

Please read the exempt from the Squire Sanders law firm website below:

As of July 1, 2011, Virginia becomes one of the early adopters among states that will permit social entrepreneurs to legally create a new corporate form known as a “benefit corporation.” This new form of corporate entity is intended to permit social entrepreneurs to codify their missions in their corporate charters. This permits the board of directors and management of a benefit corporation to pursue and take societal benefits and social goals into account in exercising their fiduciary discretion instead of being required to act strictly in the best interest of shareholders, a change that eliminates concerns over liability for breach of fiduciary duty under existing corporate law.

Pursuing Public Benefit

The law is modeled on a similar statute enacted by Maryland in 2010, and similar proposals are pending in a number of other states. Virginia’s legislation improves upon Maryland’s statute and makes Virginia the preferred jurisdiction for social entrepreneurs. Virginia’s benefit corporation statute, which is codified as Sections 13.1-782 to -791 of the Virginia Stock Corporation Act, requires that the corporation’s purpose include pursuit of “general public benefit.” The legislation broadly defines “general public benefit” to mean “a material positive impact on society and the environment taken as a whole, as measured by a third-party standard, from the business and operations of a benefit corporation.” However, it also allows benefit corporations to pursue specific public good purposes, including any benefit that serves one or more public welfare, religious, charitable, scientific, literary or educational purposes, or another purpose or benefit beyond the strict interest of the shareholders of the benefit corporation, such as:

Providing low-income or underserved individuals or communities with beneficial products or services;
Promoting economic opportunity for individuals or communities beyond the creation of jobs in the normal course of business;
Preserving or improving the environment;
Improving human health;
Promoting the arts, sciences or advancement of knowledge; or
Increasing the flow of capital to entities with a public benefit purpose.

The statute allows entrepreneurs to commit their for-profit ventures to a specific public good, requires directors and officers to take specified public good interest into account in corporate decisions and actions, and requires them to report on contributions to that goal and submit to auditing of their impact. The statute includes remedial provisions for shareholders to take action against directors and officers who fail to consider the specific public benefit in their decision making and actions. Having official “benefit corporation” status allows entrepreneurs to consider stakeholders such as employees, communities or the environment in business decisions.

Eliminating Risk of Lawsuits and Reducing Costs

Under existing corporate law, company directors may face lawsuits for acting on social objectives if contrary to the financial interest of shareholders, but this statute eliminates that risk. Social entrepreneurs have often faced difficulty fitting their hybrid missions of making money and doing good into existing business entity forms. The variety of arrangements historically utilized (e.g., nonprofits controlling for-profits) can be costly to set up and operate, and often limit the ability to raise money from outside investors. By allowing for the adoption of the “benefit corporation” form of entity, Virginia has permitted its economic institutions – in this case the laws that govern corporations – to keep up with the growing interest in the social enterprise sector.

Many expect that the new legal designation will unlock new capital for social ventures from investors who want to park their money in mission-driven companies.

Enacting the Law

Virginia Gov. Bob McDonnell (R.) signed the bill on March 26, 2011 at the end of Virginia’s legislative session. The bill, sponsored by Democratic state delegate Jennifer McClellan, passed Virginia’s Senate unanimously and passed the House of Delegates by a vote of 97-0.

The last great coal reserve in Africa by B. Ray Dinning tax lawyer

That is why I have been telling members of my Profit Hunter investment service about one forgotten corner of Africa that is emerging as the world’s new energy hotspot.

You see, the former Portuguese colony of Mozambique is sitting on the Southern Hemisphere’s biggest coal reserves.

In fact, this may be the last great coal reserve in the world.

And demand for coal among energy companies and steel producers is soaring…

So those reserves are suddenly receiving a lot of attention.

The sums involved are huge…

And here at Profit Hunter, we have found a backdoor way to get a slice of the action.

The last great coal reserve in the world

Mozambique isn’t one of the first places that comes to mind when you start thinking about investment opportunities. But the former Portuguese colony on the east coast of Africa offers huge opportunities for savvy investors.

The Moatize basin in the country’s remote Tete province may be the last untapped great coal reserve in the world. Moatize holds an estimated 2.5 billion tonnes of coal. That’s enough to keep producing for decades to come. And demand is set to keep rising.

Coal is already the world’s biggest source of energy for electricity production. And it will be the second fastest growing source of energy after natural gas between now and 2030.

So there is a real investment opportunity here.

Just consider: China is building new coal-fired power plants at a rate of about one per week! And then there is India. Asia’s other giant plans on adding more than 400,000 Megawatts of new capacity by 2030 – and the bulk of that is going to be powered by coal. So, the coal story still has a long way to go.

Because coal isn’t just a vital source of energy. It is also crucial for the production of steel.

And that has attracted some of the world’s biggest companies.

The world’s biggest iron-ore producer has invested…

Brazilian steel giant, Vale do Rio Doce, will spend $1.4 billion to build a giant coal mine at Moatize. And production is set to begin by 2011. The mine is expected to produce 8.5 million tonnes of coking coal and 2.5 million tonnes of thermal coal a year. So it serves both the steel and energy industries.

That could eventually rise to as much as 40 million tonnes per year. And there is enough coal in there to keep the mine going for the next 25 years.

Vale is the world’s biggest iron-ore producer. It supplies more than a third of the world’s iron-ore exports. So the sheer size of their investment in Moatize tells you how big a profit opportunity they have spotted here.

And so has the world’s biggest steel producer…

But Vale isn’t the only one trying to get its hands on Mozambique’s coal. Steel giant Arcelor-Mittal bought 35 per cent of the Rio Minjova company, which owns coal exploration rights in Tete. And it’s got the option to become the majority owner if exploration proves successful. Arcelor-Mittal is the world’s biggest steel company. It is controlled by Britain’s richest man – Lakshmi Mittal.

Then there is India’s Tata Steel. These are the chaps who bought Anglo-Dutch steel company Corus in 2006. Now it has teamed-up with Australia’s Riversdale Mining and is carrying out a feasibility study to produce coal from land on which it holds rights in Mozambique.

Welcome to Africa! B.Ray Dinning Tax and Business

INTERNATIONAL TAX PARTNERS

Practice Profile for Brian Dinning, JD, LLM (tax)

Brian Dinning’s has practiced international and domestic tax, business and mergers and acquisitions law since 1990.  Today, Mr. Dinning’s consulting practice focuses on domestic and international business entity taxation including corporate, non-profit, partnership and joint venture tax law, mergers and acquisitions, and business transactions.

Mr. Dinning advises clients on the formation, structure and taxation of business ventures, start-up enterprises and joint ventures between the tax-exempt and for-profit corporation. He has structured several multi-million dollar domestic and international joint ventures.  With specialized expertise in energy, energy tax credits and domestic and international energy transactions, Mr. Dinning represents small to large energy clients with tax credit opinion letters, energy ventures and tax credit syndication.

Mr. Dinning represents a diverse spectrum of clients: corporations; partnerships; limited liability companies; universities; energy and renewable energy projects; high-technology ventures; health-care entities; charitable and educational organizations; contractors and developers; syndications; and private individuals. He has assisted in tax administration and litigation at the federal, state and local level. He specializes in domestic and international tax and corporate planning.

 

Education

LL.M in Taxation, Georgetown University Law Center, 1993

J.D.  Regent University School of Law, 1990
B.A. Grove City College, 1987

Bar and Court Admissions

District of Columbia

Virginia
United States Tax Court
United States Court of Federal Claims

Points of Distinction

Mr. Dinning has structured numerous international companies and multi-national joint ventures including several for a Fortune 500 Company in the energy industry. This work includes traveling with the client, conceiving and organizing the business structure, negotiating the terms of agreement with the boards and/or officers of the foreign participant, leading a team of domestic and international lawyers, accountants and business advisors in drafting the agreements, solving any problems and closing the transaction.

Mr. Dinning has extensive experience in tax credit transactions under Section 29, Section 42, Section 45 and other energy related tax credits and tax incentive transactions.

Mr. Dinning’s experience in structuring the business activities of domestic and international organizations includes setting up asset protection strategies, tax minimization structures, international business entities, offshore trust companies, tax-haven manufacturing entities and licensing agreements.

Mr. Dinning was one of the key attorneys representing the developers of the Gallery Place/MCI Center Development providing guidance on District of Columbia Tax Exempt Bond Financing.

Finally, Mr. Dinning was the sole attorney in the merger of two Tax Law Specialty Law Firms in Washington, DC, which included negotiating the transaction, preparation of the tax-free merger documentation and closing the transaction to a successful conclusion.  Mr. Dinning has presented for several international charities to their major donors and has performed extensive and complex charitable, tax and estate planning for the major donors.  Clients include three universities, international charities, large hospital and international social venture organizations.

Activities

Mr. Dinning served as an Adjunct Professor of Law at Regent University School of Law in Corporate Taxation, Business Planning. He has been Guest Lecturer on Non-Profit Organizations, Charitable Trusts and Mergers and Acquisitions.

Publications/Speeches

Mr. Dinning has conducted research and writing on non-profit organizations including significant research, drafting and editing of a treatise entitled, “Sanders, Partnership and Joint Ventures Involving Tax Exempt Organization,” (John Wiley & Sons 1994) and the First Supplement. This treatise is used as the primary textbook for non-profit organization at both Georgetown and George Washington LL.M programs.

Mr. Dinning was a Guest Speaker at the World African Growth Opportunity Act Conference for the U.S. State Department in Washington, DC and Dakar, Senegal. The topic was “Beyond Micro Enterprise: Structuring Social Entrepreneurship Ventures.”

Mr. Dinning was a Guest Speaker for the U.S. Department of Commerce on “Doing Business in Africa:

Structuring Partnerships and Joint Ventures that work.”

Previous Work

Mr. Dinning worked at law firms in Washington, DC, Maryland and Virginia. Mr. Dinning was a Federal Judicial Law Clerk to the Honorable Paul T. Baird, United States Claims Court in Washington, DC. Mr. Dinning also served as a Staff Attorney and Senior Staff Attorney at the United States Court of Federal Claims.

Brian Dinning is an an avid photographer, safari enthusiast and world traveler who seeks to work with other cultures and people groups to create a safer, more green friendly world.

Brian Dinning has been working on an innovative sustainable resources and development model for use in developing countries around the world and especially in Africa.

Brian Dinning’s goal is to promote sustainability, professionalism and good stewardship in our project areas of expertise.

Brian Dinning works as a consultant to promote Sustainable Resource Development in Africa.  The Toronto Globe named this the “Century of Africa” and Africa has become the world focal point in this century.

Brian Dinning provides consulting and development services in three main areas:

*    Resource Security including Food and Water Security

*    Green Energy and Sustainable Development

*     Legal, Tax and Business Consulting Specializing in Africa