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Good Companies for Bad Times

April 2010 While on a recent flight to the annual meeting of the Social Venture Network, an association of socially-conscious business leaders, I had a chance conversation with the woman sitting next to me. Explaining that I was writing a book about ‘good companies,’ she innocently asked “Isn’t that an oxymoron?” Clearly she was influenced by the news from Wall Street. I told her that a new breed of positive impact companies and social enterprises are quietly emerging around the world to reshape business. These are socially responsible companies which are working to change the face of business. Companies like Exchange Bank which has used its profits to pay for the education of thousands of Sonoma County high school graduates for over 40 years. Like Pax Streamline a Marin County company which is producing solar powered air conditioning units; and Strauss Creamery which produces organic milk and generates its own electricity. These enterprises absorb the very best from the public, private and voluntary sectors to protect the environment, build community and work for the common good. Every company impacts the world; many impact the world in ways they hardly imagine. For every Wall Street ‘Bad Samaritan” there are many little enterprises like Benetech, producer of reading machines for the blind and Indigenous Designs a Santa Rosa, California based fair trade manufacturer of stylish clothing produced high in the Andes. This prototypic good company promotes social justice by paying premium wages to the women cooperatives, using natural dyes and reinvesting in their communities. Why aren’t there more good companies? The fact is that companies seeking to promote social aims are subject to legal constraints restricting their ability to access financial markets. Some flexibility under current corporate law permits pursuit of broader social aims, but in practice investors are put off when a for-profit company has a social mission. To respond to the limitations of current legal forms, new structures are emerging that could facilitate a seamless web between corporate action and the public interest. Environmental leaders A growing range of concerns are driving businesses to be concerned about the environment include the rising cost of solid waste disposal, adequacy of water supplies and aggravated health risks, to name a few. Globally, we are fast approaching unmanageable levels of toxic, chemical and hazardous waste. Additionally, collapsing aquifers and widespread contamination of water supplies adds further risk factors, uncertainties and costs which challenge businesses. New Leaf Paper leads the paper industry in the development and distribution of environmentally responsible printing and office papers, many made with 100% post-consumer recycled content; our inventory products are all made with electricity that is offset with certified renewable wind energy certificates. Real Goods Solar Living Center has been a leader in the solar industry since the 1980s. Starting as a retail store in rural Willits, California, then as a mail order business it has grown to a multi-million dollar business selling solar goods and educating the public via its mail order catalogues, its state of the arts Solar Living Center, its educational programs and its community development green jobs initiative. Interface is a global carpet company which manufactures on four continents and services more than 110 locations worldwide. When CEO Ray Anderson challenged this research group to come up with an environmental policy and mission: to reach sustainability and to become a restorative enterprise, what resulted was a new strategic business model based on reduce; reuse, reclaim, recycle, redesign, adopt best practices, and challenge the suppliers to do the same. Many other companies like SunPower and Seventh Generation work actively to build sustainable businesses. Reforming the Corporation Among the new corporate models is the B-Corporation, a community of companies that brand themselves as ‘beneficial to society.’ Speaking at the founding meeting of B-Corp in San Francisco, B-Corp co-founder, Jay Coen Gilbert declared to an audience of over 100 companies “We are setting out tonight to transform the economic landscape. We foresee an economic democracy which will harness private interests to serve the public interest earning fair returns for shareholders, but not at the expense of the legitimate interests of other stakeholders and without compromising the ability of future generations to meet their needs. “ B-Corporations agree to undergo a rigorous screening on several categories of social and environmental performance. These companies are required to incorporate stakeholder –not just shareholder—governance provisions into their legal charter. And they are required to give something back to the community. In addition, there is the Minnesota Responsible Business Corporation Act. This voluntary cutting edge, corporate form allows a company to add the letters “SRC” after its corporate name indicating that it is a “Socially Responsible Corporation.” The legislation is intended to permit companies to integrate a dual focus on financial success and social responsibility. The SRC must consider the interests of the stockholders, customers and creditors, the public interest and the long term as well as short term interests of its stakeholders. SRC’s would no longer be required by law, as they are now, to maximize short-term profits. Moreover, employees would elect to percent of the members of the board of directors and the company would be required to issue an annual public interest report. The Low Profit Limited Liability Company ( L3C ) promises a for-profit company with a non-profit soul. This variant of the LLC, (Limited Liability Company), the corporate form recognized in all 50 states, allows profits to be used to finance social activities including low cost housing, urban redevelopment or educational programs and also to pay modest dividends to investors. These corporate forms parallel British reforms enacted in 2005 creating the Community Interest Company (CIC). “A CIC is a limited liability company that is designed for use by those who want to conduct a business for the community benefit, and not purely for financial advantage.” A CIC must pass a “community interest test” to ensure that it operates in the public interest and it must file annual report detailing how it spends its funds. Non-profit charities cannot qualify as CIC’s but they may invest in them or own them. A crisis can provoke positive change; the Love Canal resulted in the passage of the Environmental Protection Act by the US Congress in 1971. The CERES Principles for responsible banking came about after the Exxon-Valdez oil spill. And toy giant Mattel’s recall of toys forced the company to change its management and environmental practices. The current spate of financial crises demonstrates that if corporations are to serve public well-being then a change in the existing corporate forms to reflect our changing values should be a top item on our agenda of reform in the new decade. Robert H. Girling, Professor in the School of Business and Economics at California State University, Sonoma is a Fulbright Senior Scholar. He received his Ph. D. from Stanford University and has taught and consulted in 15 countries. He is writing a book about Good Companies.