Incorporating the Environment

What belongs to everybody belongs to nobody – and everybody eventually destroys it.

A recurring and intriguing theme in this week’s readings was the idea of economic demand management and questioning what we define as ‘growth’.  Paul Hawken’s description in “Natural Capitalism” says it well:

Currently, economists count most industrial, environmental, and social waste as GDP, right along with bananas, cars, and Barbie dolls.  Growth includes all expenditures, regardless of whether society benefits or loses.  This includes the cost of emergency room services, prisons, toxic cleanups, homeless shelters, lawsuits, cancer treatments, divorces, and every piece of litter along the side of every highway.

Instead of counting decay as economic growth, we need to subtract decline from revenue to see if we are getting ahead or falling behind.  Unfortunately, where economic growth is concerned, the government uses a calculator with no minus sign.

Involved in a possible paradigm shift, though, are many issues.  The government and big business are increasingly becoming involved in social and environmental policy.  Some businesses in particular are taking the lead, and there’s a new way of distinguishing them from the crowd.  But is this self-identification doing more harm than good?

Benefit Corporations

In April of 2010, Maryland became the first state to pass Benefit Corporation legislation.  Since then, 11 other states have followed suit (Indiana is not currently one of them).  Benefit Corporations are “a class of corporation required by law to create general benefit for society as well as for shareholders.”  They 1) have a corporate purpose to create a material positive impact on society and the environment, 2) redefine fiduciary duty to require consideration of non-financial interests when making decisions, and 3) report on overall social and environmental performance using recognized third party standards.  This legislation is an attempt to legally codify firms that have a social mission as part of their core reason for existence, and many feel the new framework brings some legitimacy to the table.  In an article in The Economist, Yvon Chouinard, the founder of Patagonia, talks about the implications he sees in the new legislation.  Benefit Corporations are thought to exist in the space between for-profit and non-profit entities and provide a way for companies to avoid the “pressure to abandon social goals in favor of increasing profits” as well as the restricted “ability to raise capital when they need to grow,” leaving them free to pursue their goals efficiently.  A PBS report looks at the implications of this legislation:

At the Net Impact Conference in Baltimore, Maryland a few weeks ago, I had the chance to sit in on two interesting panels that involved this topic.  One specifically discussed Benefit Corporations and Certified B Corporations, which are related but different from one another.  While Benefit Corporation is a legal status administered by the state, B-Corp Certification is a brand certification administered by the non-profit B Lab as "having met a high standard of overall social and environmental performance" and is available in all states and countries worldwide.  (Check out the link above or read this article for more info on B-Corps.)  The panelists included Andrew Kassoy, Co-Founder of B Lab; Gary Skulnik, President and Co-Founder of Clean Currents; and David Griswold, Founder and President of Sustainable Harvest Coffee Importers.  While the discussion was incredibly informative about what exactly Benefit Corporations and Certified B-Corps are, how they differ from one another, how businesses go about obtaining these titles, and what benefits they're gaining from them, I couldn't help but wonder if there was more to the story.

As luck would have it, the topic came up again in a later panel that same day.  Lynn Stout, a professor at Cornell Law School, was asked for her thoughts on Benefit Corporations.  And while I think we can all attest to the importance of a company’s stated social and/or environmental mission, Lynn’s response characterized the B-Corp versus C-Corp mentality as “perpetuating the shareholder value myth” (which also happens to be the title of her book).  Essentially, she questioned the need for a separate legal status when the greater public good should be a concern of all corporations.  (For more on the movement away from a sole focus on shareholder value, read this article from The New York Times.)  It seems Judith Samuelson, Executive Director of the Aspen Institute’s Business and Society Program, agrees.  In a Huffington Post blog, she argues that “all businesses should have a public purpose, not just ‘B-Corps’”.  And while I can understand the desire for a legitimate title that helps to ensure that a company is meeting the goals of a triple bottom line, the argument against keeping social and environmental issues in a niche setting is not one that should be taken lightly.

So for me, the debate continues.  I can fully understand wanting to avoid the tragedy of the commons by legally binding a business to creating positive social and environmental impact, especially when we consider changing management philosophies.  But shouldn’t we be requiring this of them all?