US firms put social values before big profits
- 20 May 2012
- From the section Business
Tough decisions are often inevitable if a business wants to make money.
But in the next few weeks, half a dozen US states are expected to pass legislation that will for the first time protect companies which value their social impact as much as the bottom line.
Whether it's buying locally, protecting the environment or launching community projects, the new "benefit corporations" have a common mission - to do well by doing good.
"It's becoming a national movement," says Penny Jones-Napier, owner of the Big Bad Woof pet store in Hyattsville, Maryland, the first business in the US to adopt the new benefit corporation designation. "What started with small businesses is moving into the mainstream."
As a benefit corporation, Big Bad Woof is protected from legal action if it makes decisions that aren't in the financial interests of its shareholders.
The company can support local suppliers for instance, even though that might not be the cheapest option and could reduce the profit margin.
Ms Jones-Napier says her customers are also happy to pay extra to support the company's values. Since opening in August, she says the store has made $500,000 (£310,000), and is on track for an annual turnover of $1.4m.
"Benefit corporations are brilliant because they allow companies to pursue profit - for which no-one should apologise - and at the same time have a positive impact on society," says corporate legal expert Laura Jordan of The Capital Law Firm in Washington DC.
Whereas the two goals were once seen as incompatible, people in their 20s and 30s regard them as complementary, she says. "They want to use the power of business to change the world."
Benefit corporations must set out clearly in their business charters what they will contribute and how it will improve society. The social mission becomes part of the company's DNA, says Ms Jordan.
Seven states, including New York and California, have already adopted the new business class. These seven states combined produce a third of America's annual economic output, which makes their support for benefit corporations significant, says Andrew Kassoy, co-founder of B Lab.
A non-profit organisation, B Lab was launched five years ago to harness the power of small businesses to help solve social and environmental problems. It offers certificates called a B Corp for businesses that meet minimum performance standards and consider the interests of stakeholders as well as shareholders.
"It's a bit like the Fairtrade certificate for coffee, only B Corp applies to the whole business," says Mr Kassoy. Benefit corporations emerged a few years later as a logical extension of that grassroots movement, he adds.
Last year, Farm Community Consulting became the first company in Virginia to become a benefit corporation. It's an adjunct to Blue Ridge Produce, a local food aggregation business.
"I have been interested in philanthropy for a long time," says chairman Jim Epstein. "When the concept of B Corp came along it totally resonated with me and how I saw the future."
His business helps small farmers connect with wholesalers, supermarkets and distributors. "It's a move away from big agriculture," he says.
"Being a benefit corporation adds an extra layer of legitimacy. It's a public declaration that we've made. It's still a long way from becoming mainstream, but it's exciting because the idea is in the public consciousness."
The company is little more than a year old but employs five people and reports a turnover of $3m. Mr Epstein believes it represents a new business model that will one day replace the "amoral" practices of big corporations.
Washington DC, the US capital, is now also considering legislation that will allow companies to become benefit corporations.
The move is being welcomed by Matt Kavanagh, co-founder of Blue Planet, a diving company in Washington with a commitment to ocean conservation. He says the current lack of legal protection that becoming a benefit corporation would offer has hindered the growth of his business.
"Because of the way the corporate structure works, there is no option for us to make decisions that don't maximise profit." he says. "If we were to take on outside investors, they could say that our job, having taken their investment, is to maximise their return.
"We've made the active decision that it's better not to have outside investors if it means we would have to forgo our social mission.
"But none of us in the company have the capital to move this forward, so we're growing, but at half or a quarter of the speed that we could if we were able to attract outside investment."
There are still fewer than 100 benefit corporations in the US, but Mr Kassoy expects that number to grow rapidly over the next few years.
"The greatest energy is coming from a new generation of entrepreneurs who are being supported by a new generation of workers who won't check their values at the door.
"And consumers want to see these entrepreneurs succeed if they do business in a different way."