Commentary: Do Well by Doing Good

Lead Author: Dr. Jeff Howe

Publish date: 05.23.2011

 

As part of a mission to foster sustainability and responsible behavior, Dovetail has made the training and development of leaders of organizations focused on social and environmental responsibility a high priority.  In the past the definition of those companies has been ascribed either to their nonprofit status or been somewhat subjective.  Recently, however, a new business sector, which some have described as the Fourth Sector, has arisen as a means to characterize firms for whom business is about more than money.

 

Factors supporting this trend include:

 

  • The Great Recession with its significant creation of new businesses and dramatic change in financial situation of many individuals
  • Growing impact of the millennial generation (those born between 1981 and 2000), which has grown up with major environmental issues on TV and with a motivation to do something more meaningful than just make money.
  • Increased visibility of global environmental issues and disparity in the world between the “haves and have-nots.” 

 

The defining characteristic of all Fourth Sector organizations is that they integrate social and environmental aims with business approaches. (The three current sectors are for profit, not for profit, and public.) Some Fourth Sector organizations go further by embodying features like inclusive governance, transparent reporting, fair compensation, environmental responsibility, community service, and contribution of profits to the common good.

 

As the Fourth Sector has become more formalized, its boundaries have become clearer. A range of efforts is underway globally to refine the criteria for the archetypal Fourth Sector organization, which is often referred to as the “For-Benefit,” “Benefit,” or simply “B”-corporation.

 

In most states today, corporate board members can only be held legally accountable for generating a financial return to the company and can be sued for focusing on other areas at the expense of profitability.  To address this issue a number of states are looking at or have passed legislation to specifically recognize Benefit Corporations.

 

Benefit corporations effectively blend the altruism of nonprofits with the business acumen of for-profit companies. Companies can consider the needs of customers, workers, the community or the environment and be well within their legal rights. These hybrid entities pay taxes and, in theory, can have shareholders without the risk of being sued for not maximizing profits.  However, as with traditional for-profit corporations, b-corps are required by law in most states to produce shareholder value. The difference is that they are equally accountable for having a positive impact on society and the environment.

 

In 2010, Maryland passed the nation’s first law acknowledging the unique status of benefit corporations.  Maryland’s law requires b-corps to provide public benefits such as “preserving the environment” and “improving human health.” All decisions made by Maryland b-corps must be weighed not just in light of shareholder or investor value, but also equally in terms of “community and societal considerations” and “the local and global environment.”  In return, b-corp board members are freed from the sole requirement of generating maximum profit.

 

Senator Jamie Raskin, who sponsored the bill, wrote that Maryland’s law is a boon for “enlightened and progressive businesspeople” who are “stifled by the straitjacket requirements…of corporate law.”

 

Other states have followed suit.  Vermont passed similar legislation in 2010, and New Jersey and Virginia have followed this year. In addition, lawmakers in California, Colorado, Hawaii, Michigan, New York, North Carolina, and Pennsylvania have also introduced legislation. (California lawmakers are proposing “flexible purpose” corporations.)

 

However, a lot of companies don’t want to wait for legislation to make their commitment official. To address this issue, a nonprofit, B Lab, was created. The partners wanted to give socially and environmentally conscious companies and their investors a new set of rules. They formed B Lab in 2006 with a three-part plan: Create a new legally recognized corporate form, build a community of certified benefit corporations, and create an investment rating system for companies and funds.

 

This latter activity is where B Lab’s most visible work lies. It offers a free “legal roadmap" to b-corp status with suggested language to be added to a corporate charter, as well as certification. To become a “certified B corporation", a company must achieve a baseline score on B Lab’s “impact assessment,” complete an impact assessment review with B Lab staff, and rewrite its articles of incorporation to include its social or environmental mission. If the state of incorporation also has b-corp legislation, B-Lab notes “that’s the icing on the (ethically sourced chocolate) cake.”

 

Nearly 400 companies in 60 industries and several countries have been certified since 2007. Dansko, Method, and Numi Organic Tea are some of the more widely known brands that have taken this route.

 

In his book “Drive: The Surprising Truth About What Motivates Us” Daniel Pink analyzed the trend that is driving Benefit Corporations and the basic human needs that are supported by this new corporate structure.  He suggests that humans have the deep need to direct our own lives, to learn and create new things, and to do better by the world and ourselves. Thus success becomes about developing greater individual Autonomy, Mastery, and Purpose.  For-Benefit organizations provide a home for highly skilled individuals seeking creative outlets and a matching purpose.

 

Today, Dovetail is working with both not-for-profit and for-benefit organizations to develop the sense of a common purpose, team learning, whole systems thinking, and personal mastery necessary to be highly successful organizations.  To this end we have added an extensive new section to our website under the “helping people” heading, through which we provide information, education, services and tools that help organizations optimize their resources to achieve maximum success.

 

“Do well by doing good” is a phrase often attributed to Ben Franklin and linked to questions about why he gave away his inventions rather than maximizing personal financial benefit from their use.  When asked about this approach he commented that it is to the benefit of all that the knowledge and ideas of one be shared with all. It is Dovetail’s aim to provide leaders at Benefit Corporations the best leadership practices available to ensure that their goals of doing good lead them to do well.

 

Dr. Jeff Howe

May 2011