The Good, The Bad and the Well-intentioned.
So is anyone getting this right? What are some of the classic well-intentioned mistakes? And who is just getting it wrong?
Perhaps the best example of multiple leverage points leading to a combination of small businesses whose individual and self-interested actions are adding up to a new vision of a collective whole is B Corporation. To pull from their website:
B Corporations address two critical problems which hinder the creation of social and environmental impact through business:
~The existence of shareholder primacy which makes it difficult for corporations to take employee, community, and environmental interests into consideration when making decisions; and
~The absence of transparent standards which makes it difficult for all of us to tell the difference between a ‘good company’ and just good marketing.
B Corps (as their constituents are called) are independent businesses who seek to use their enterprises to create social and/or environmental change while providing shareholder value. B Corps clearly articulate their social mission and make clear to investors and shareholders that they will be pursuing that mission. Investors then understand or can investigate any inherent risks or trade-offs between these and their profit-maximizing counterparts. Nonetheless, companies like New Leaf Paper, Numi Tea and Method cleaning products are all making great progress both financially and socially.
As of this writing there are around 220 B Corps, covering 54 industries and $1.1 billion in revenue. Though aggregate revenues like that don’t even crack the Fortune 500, it still represents an impressive cohort for less than 2 years time. That revenue figure is, however, 5x that of the highest single small business for 2009, according to Fortune Small Business. Thus, it is possible to conceptualize how a large group of individual enterprises can leverage consumers and investors to move the current paradigm to a new one. It is just the beginning.
B Corporation is also working in a variety of areas to facilitate this type of movement, from developing new measures of accountability to deriving methodologies for “impact investing” to developing a new corporate form for public companies to legally pursue multiple bottom lines (social, environmental and financial) without fear of shareholder reprisal.
In the world of venture capital, Vinod Khosla is a household name. Khosla, co-founder of Sun Microsystems and investor in many Silicon Valley start-ups, opened his investment eyes in recent years to alternative energy. He quickly became known for his investments in corn-based ethanol (Khosla Ventures, his firm, deals in the various aspects of clean technology). Make no mistake, Khosla is motivated by financial return on investment, but rightfully sees clean technology as the coming revolution– environmentally we have no choice to financially it makes sense. For him, a win-win would be significant financial returns from companies that are doing something to help the planet at a scale that could produce those returns. Energy production is one such area.
For a brief time, corn-based ethanol was the much-ballyhooed answer to all of our energy production problem. This is America. We grow a lot of corn. We can make fuel out of it. Perfect! Plus, though most American agricultural products are actually produced by large corporate farms, American’s still value the ideal of small family farms and thus garnering government support is easy. Again, a win-win.
The problem as we now know, a problem that would have been clear if Khosla and others had done environmental as well as financial due-diligence, is that corn-based ethanol is both very energy intensive to produce, it uses foodstuff required elsewhere and to make a serious dent in our fossil-fuel consumption, we’d need more land for cultivation than is even remotely possible.
This is a great example of a situation where there was actually consumer, investor and government alignment, but where the prospect of financial payoff trumped the long-term goal of sustainable energy production. As an impact investment, the profit motive outweighed the change motive causing improper or minimized due-diligence. Khosla Ventures’ clean technology investments going forward will no doubt provide much needed funding to innovative companies working to solve energy issues, but the well-intentioned but misguided corn-based ethanol enthusiasm on behalf of consumers, investors and congressmen reminds us to ask all the right questions with regard to multiple returns on investment.
I know this is almost too easy, but I’m going to use oil companies as an example anyway. Many of us have seen the major oil companies such as BP and Chevron work to rebrand themselves as ‘energy companies,’ beyond petroleum, and touting their renewable energy investments that will at least augment fossil fuels in the future. The reality is that the top ten oil companies on the planet spend less than 1% of their capital expenditures on renewable energy. It is hard to escape the disingenuous nature of their claims. In 2007 Shell had to pull down ads in the UK which overstated their green efforts.
It is not difficult to see why the oil companies feel they need not make substantive change toward a renewables future. They lack the necessary three-point nudging I suggest above.
Though cars like the Prius have gained in popularity and some of the more egregious vehicles like Hummers have lossed market share, consumers have done little to drive less, demand more efficient cars or put pressure on oil (or car) companies to truly explore alternatives to fossil fuels.
Government, especially in the US, has done virtually nothing to give oil companies incentives to invest heavily in non-fossil fuel directions, nor has it made any significant progress in increasing vehicle efficiency standards.
Investors, of course, have put little pressure on oil companies as, well, they make tremendous amounts of money. Four of the top ten companies on the 2009 Fortune 500, including the top spot, were oil companies (and two more were auto makers). The top two most profitable corporations this year were also oil companies. Highest paid CEOs? Two of the top three are oil companies (Wal-Mart being the remaining one). It is not hard to understand why a market built on short-term returns would favor these companies.
So to conclude this three-part piece, it is my contention that the best hope we have of making substantive change, of achieving the vision of a world where people/planet/profit actually reinforce each other rather than detract, is to push corporations from multiple leverage points to make the changes in products, services and processes that they lack the incentive to make on their own. This requires proactive actions on behalf of consumers, investors and governments. While much of the world will continue with incremental change, look to the aggregate power of small business and consumer actions to truly make a course correction that, while it may seem small now, will land us in a very different place than we would otherwise find ourselves.
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