Falcon Rock: Reaching Beyond Shareholder Primacy

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As Managing Director of Falcon Rock, I personally dedicate many of my workdays to working directly with startups or enterprising nonprofits to manage their social and environmental impact. Whether that work involves developing the ventures that Falcon Rock has invested in, or consulting for our clients, I review the day-to-day operations, vision and leadership, and long-term development goals of startups on a daily basis. 

My particular field of interest is social entrepreneurship. I believe that startups that provide products or services which create measurable, positive, social and financial impact beyond financial return have a competitive edge in today’s millennial-driven economy. 

However, challenges that can occur for impact-focused ventures seeking to grow and scale internationally can be primarily due to a lack of knowledge about the legal structures, such as the Low-Profit Limited Liability Company (L3C) and the Public Benefit Corporation (PBC) in the United States, and the Community Interest Company (CIC) in the United Kingdom that can support a social venture in clearly defining its purpose and protecting its priorities. Benefit-focused legal structures ensure that a venture’s current or future shareholders are aware that their mission-driven approach (people, purpose, planet and profit) is an element of their venture that cannot be subjugated to the financial interests of their shareholders. 

I’d like to see more countries throughout the world draw from the leadership of the USA, UK and Italy, with its Società Benefit, as the first benefit-focused legal structure for EU-based companies. “The Società Benefit is a new legal tool to create a solid foundation for long term mission alignment and value creation. It protects mission through capital raises and leadership changes, creates more flexibility when evaluating potential sale and liquidity options, and prepares businesses to lead a mission-driven life post-IPO.” (See Reference 4) 

As a company, our day-to-day work at Falcon Rock involves supporting the growth and development of startups and ventures seeking to improve their positive impact. If such startups and ventures started out with a mission that prioritised impact from the very beginning, a tremendous roadblock for their future growth is the lack of local company structures that move away from the long-accepted notion of “shareholder primacy”. 

The September 2019 issue of “The Lane Report” by the Law Offices of Marc J. Lane, a pioneering Attorney who launched the concept of “Advocacy Investing” and who is an active supporter of social enterprise development across the world, posed the question, “Is Shareholder Primacy Dead?”. The newsletter introduced how economist Milton Freidman famously argued in favour of shareholder primacy through a 1970 essay, in which he wrote, “In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires…the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation…and his primary responsibility is to them.” Ideas such as these are in direct opposition to the mission and purpose of social enterprises, and therefore it is in fact social entrepreneurs themselves who must do their own due diligence to ensure that an investor is right for their venture. This adds an additional layer of responsibility to the development work of social venture leaders, as they must not only prepare their project proposals, pitch decks, pitches, and due diligence documents for potential investors, but they must also invest additional time and effort into screening investors who are interested in their business. 

Unfortunately, what can often happen is that promising impact-focused ventures can be excluded from opportunities due to having rejected an investor who does not understand why “shareholder primacy” simply doesn’t apply to their potential deal. 

According to Marc J. Lane, “The consequences (of shareholder primacy) have been a fixation on short-term financial performance, an outsized focus on share price, and an unconscionably rapid increase in executives’ pay coupled with a drag on their capacity to build businesses for the long term, all to the detriment of a company’s diverse stakeholders….Progressive executives have long known that successfully growing corporations requires taking the concerns of all of their stakeholders into account”.

 At Falcon Rock, our process of evaluating startups as clients or investees includes assessing a venture’s impact on all of its stakeholders. We provide consulting services related to impact management, including those that support the process of establishing and operating Stakeholder Boards. Given that we, as a team, prioritise impact-focused and mission-driven ventures, sometimes our own work can be misunderstood and taken out of context by potential clients. For this reason, we are primarily dedicated to our own impact investing initiatives and managing the business development and marketing of our investees in-house, similarly to how merchant banks function. By ensuring our own priorities are in order, we’ve been able to send a stronger and more constructive message to our potential clients and new partners through FalconRock.net, an online community that connects our existing network members with one another. 

According to Impact Investor Dmitry Fotiyev, Co-Founder and Managing Partner of Brightmore Capital, an investment management and advisory firm working to empower a new generation of West African entrepreneurs, “we need to continue working to shatter the myth that achieving impact necessitates compromising on financial returns”. The “Making an Impact” article published by Dolfin, a brokerage and asset management firm based in London, UK, which manages $3.2bn USD in assets, on 26 June 2019 shares that, “One misperception is that impact investing generally underperforms non-impact. That is changing as the market matures and many impact investments have gained a track record showing outperformance of non-impact funds over five years or more. According to GIIN statistics, 91 per cent of respondents said their impact investments have met or exceeded their expectations for financial performance; and 97 per cent said they had met or exceeded expectations on impact”. (See Reference 5)

The message that we at Falcon Rock would like to send out as a team is:

Prioritising social and environmental impact above financial return may be a challenge at first, especially in relation to communicating your business model. However, it’s a challenge that, if overcome, definitely leads to long-term opportunity and sustainable, regenerative growth.


1. The Accessible, Accountable Executive: Evolving Expectations for the C-Suite – By Marcia Newbert, VP, Edelman Digital & Dan Webber, GM, Edelman D.C. – Edelman Digital Trends Report 2019 https://edelmandigital.com/trends/c-suite-social-media-responsibility/

2. The New Face of Wealth and Legacy: How Women are Redefining Wealth, Giving and Legacy Planning – By The Economist Intelligence Unit – 2018 https://www.rbcwealthmanagement.com/us/en/research-insights/the-new-face-of-wealth-and-legacy-how-women-are-redefining-wealth-giving-and-legacy-planning/detail/

3. Why Social Impact is a C-Suite Issue – By Paul Polizotto – 12 July 2019https://chiefexecutive.net/why-social-impact-is-a-c-suite-issue/

4.  Società Benefit – English Information http://www.societabenefit.net/english-information/

5. Making an Impact – Impact investing is set for rapid expansion, writes Relationship Manager Anny Giavelli – 26 June 2019  https://dolfin.com/diary/making-an-impact/

Miriam Davidovic

Miriam Davidovic

As the CEO and Managing Director of Falcon Rock, I lead a team of mission-driven individuals working to realize sustainable rural innovation, organic agriculture development, fair and inclusive employment. Falcon Rock is an impact investing firm focused on early-stage sustainable companies, a network of rural innovation hubs, and a tech platform that connects leaders dedicated to measurable social and environmental impact.

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