| By Eve Kushner
Rajen Thapa grew up unthinkably poor in the Indian province of West Bengal, tending family water buffalo and befriending “untouchables” doomed to a life of cleaning toilets. But he studied hard and won a scholarship to boarding school, becoming the only member of his partially illiterate family to attend college. Now 43 and one of the owners of Taste of the Himalayas, Thapa works 10-hour days at his Berkeley restaurant to earn as much as possible.
It seems logical that Thapa would want considerable distance from the poverty he once knew, but that’s not what drives his work ethic. Every month Thapa and his family scrape together $2,000 and send it to Nepal to fund the Modern Preparatory Secondary Boarding School that he created more than a decade ago.
Thapa, who graduated from Kalimpong College in West Bengal, feels so grateful for his own education that, he says, “I realized I should do something. So I devoted my life to helping underprivileged children.”
Thapa isn’t the only one in the East Bay turning a capitalist enterprise into a boon for others. He’s part of a new sector of the economy that has philanthropic ideals woven into the corporate mission. This sector—neither nonprofit nor for-profit—is sometimes called “for-benefit” and emerged more than two decades ago in the form of Ben & Jerry’s, Stonyfield Farm and Working Assets, among others. The trend has taken off in both big and small ways nationwide. And in the progressive East Bay, the model is blossoming.
These for-benefit companies aren’t just the philanthropic arms of huge corporations that donate a pittance to generate positive public relations. Instead, for-benefit companies form with a philanthropic core so as to satisfy what experts call the “triple bottom line”: people, the planet and profits.
To most of these “social entrepreneurs,” the giving doesn’t feel like a sacrifice. When asked whether she feels the pinch of donating 10 percent of profits, CEO Priya Haji of Berkeley-based World of Good says, “Well, you’ve got to have your principles, right? From the investors to the employees, everyone who’s part of our company understands that that’s what we do. It’s just core to who we are.”
To conceptualize a traditional for-profit business model, imagine a spoked-wheel where profit is at the hub, says Jay Coen Gilbert, founder of B Lab, a Philadelphia nonprofit dedicated to this new sector of the economy. Just one spoke leads to beneficiaries of that profit—the shareholders who own the stock. By contrast, purpose is at the hub of a stakeholder corporation, and multiple spokes lead to beneficiaries. These may include investors, employees, suppliers, customers, the community in which the company operates and even the environment. Stakeholders are those affected, positively or negatively, by the company’s activities.
The need for a new business model comes partly from financial pressures on nonprofits and for-profits. The nonprofit sector is constrained by perpetual lack of funding. For-profit corporations, on the other hand, are limited by investor demands and are legally required to maximize returns to shareholders, even if they are in favor of corporate social responsibility. “You’re legally bound—you have a fiduciary responsibility, a legal responsibility, to maximize returns for your shareholders, and that has nothing to do with your employees; it has nothing to do with your suppliers; it has nothing to do with the environment; nothing to do with your community. Just your investor,” says Coen Gilbert.
He also notes that some people in the for-profit world have become hip to a disconnect in the corporate culture. That is, it makes little sense for companies to cause problems (like destroying the environment or increasing the gap between rich and poor) and then to donate some of their profits to fix those very ills. “That’s a broken system,” he says.
The for-benefit or triple bottom line corporation is still technically a for-profit company with a key difference: it has stakeholders instead of just shareholders.
Making the conceptual shift from stockholders to stakeholders feels at once challenging and ridiculously simple. People often ask Mike Hannigan, president of the Oakland office supplies company Give Something Back, which donates 100 percent of its profits to community organizations, how a successful company can give away all of its profits. Hannigan understands that the idea may seem counterintuitive, but says every successful company gives away its profits: to stockholders or investors. “It doesn’t go under a mattress!” he says. In the case of Give Something Back, Hannigan says all he’s doing is redirecting the profit to the community, the principal stakeholder.
As the owners of Give Something Back, Hannigan and company CEO Sean Marx should have the right to claim profits. But they have configured the bylaws to show that they forfeit their right to the money. Profits are used for social change on several fronts.
The company hires residents from the nearby low-income neighborhood just off Hegenberger Road—some of whom are ex-cons and many of whom don’t have significant education or work experience—in order to put wealth directly back into the community. If the new hires don’t work out or if they jeopardize company productivity, they lose their jobs. Simple as that.
The company funnels most of its profits into community organizations selected by clients. To date, Give Something Back has donated $3 million to local nonprofits.
“What we’re doing is using the marketplace to create wealth, but wealth on behalf of the community rather than wealth on behalf of individual stockholders,” Hannigan says. For him, this higher purpose is the priority, and the product itself is irrelevant; though he sells desks, copiers, printers, toner and paper clips, he says he could just as easily hawk tires.
In the socially responsible business community, some disagree with this last bit of thinking, emphasizing that products should be good for people and the planet. But Don Shaffer, national coordinator of San Francisco–based Business Alliance for Local Living Economies (BALLE), the largest and fastest-growing network of for-profit social entrepreneurs, agrees with Hannigan. “I don’t think an organic yogurt company is necessarily more virtuous than what Mike Hannigan is doing,” he says.
Although it’s difficult to date the beginning of a movement, Coen Gilbert feels that the for-benefit trend may have been 35 years in the making. He credits “the crunchy-granola farmers’ market crowd,” and before them, environmentalists. Certain names recur in everyone’s list of triple bottom line pioneers: Ben & Jerry’s, Stonyfield Farm, Patagonia, White Dog Café, Newman’s Own, The Body Shop, Odwalla, Timberland, Whole Foods and Tom’s of Maine, to name a few. “They proved that you can do well and do good at the same time,” says Coen Gilbert.
But proving you could do both was no mean feat, because conventional wisdom dictated that such businesses wouldn’t survive. If a for-profit company exists to maximize shareholder earnings, then how can it even attempt to accomplish other things?
Early social entrepreneurs met with ridicule when they set out to make products in factories with safer working conditions and with more eco-friendly materials and methods, all while knowing that these products might cost more to make and buy. Traditional businesspeople warned that consumers would never pay extra for benefits they couldn’t see and that these ventures would surely sink.
Those critics were wrong on several accounts. First, socially responsible products aren’t always more expensive. For example, Hannigan’s office supplies, Newman’s Own spaghetti sauces and Taste of the Himalayas’ meals cost no more than the going rate. Second, even when triple bottom line products do cost 10 or 20 percent more (because some environmentally conscious manufacturing processes are more expensive and because a socially responsible business might, for instance, pay a higher portion of employee health insurance), consumers are clearly willing to ante up for products that match their values. Third, to make their products competitive, triple bottom line companies often cut other expenses. The owners might work in modest offices, fly coach and take lower salaries. Hannigan and his partner have each capped their annual earnings at $96,000.
Regardless of whether a triple bottom line product is priced competitively, Hannigan, Haji and Coen Gilbert agree that it has to stand on its own merits in order to appeal to customers who won’t buy it for its ethical value alone.
Skepticism still permeates the for-profit world when it comes to responsible practices and products, says Coen Gilbert: “If you’re trying to run a business in a different kind of a way, you’re immediately looked at like you’ve got three heads: ‘What are you talking about? We’re here to make money.’” But he sees an improvement in the situation, as does Shaffer. When Ben & Jerry’s started, people thought it was very strange to use only local farmers as dairy sources, but that has changed due to awareness. “Now we’re beyond quite a bit of that strangeness,” Shaffer says.
Hannigan says that when he first considered starting a company and donating 100 percent of its profits, he had to convince himself that it was a good idea. And even now, 15 years after opening, he often downplays the social benefits when talking to clients, telling them almost as a postscript that their money will help the women’s cancer health center or other good causes. Hannigan says misconceptions come with the for-benefit model. Some consumers assume his prices are higher, and many of his own customers still don’t grasp his business model. But as more triple bottom line companies succeed, he says, “The marketplace will embrace this idea.”
Now that every other new car in the East Bay seems to be a Prius, fair-trade coffee fills Costco shelves and Safeway has an organic produce section, it seems we’ve entered a new era. The higher demand means more volume and thus lower prices on these goods.
Each year, consumers spend $229 billion on goods and services related to health, the environment, social justice, personal development and sustainable living, according to Lifestyles of Health and Sustainability (LOHAS), a Colorado organization that tracks this marketplace. At the outset, for-benefit companies mainly sold food, but have now expanded to clothing, home and garden and even financial services.
As of 2005, people had invested about $2.3 trillion in socially responsible U.S. companies, according to the Social Investment Forum. And, says Hannigan, more and more venture capitalists want to invest in companies that sell green products or have progressive employment practices. He notes that after Pierre Omidyar, founder of eBay, sold his company for $10 billion, he took a year to consider his options, then resolved to use that wealth to develop businesses that have a social mission. Since he founded Omidyar Network in 2004, he has funded roughly 75 organizations, including Ashoka (which gives social entrepreneurs financial support and access to a global network of relationships), Secrecy Commons (which aims to increase transparency in the democratic process by challenging excessive governmental secrecy) and Haji’s World of Good. Hannigan feels convinced that Omidyar is the first of many enlightened billionaires to come.
Indeed, the founders of Google are following closely behind, having established Google.org a few years ago with seed money of nearly $1 billion. To ameliorate global poverty, disease and environmental problems, this foundation will fund nonprofits and create and invest in for-profit start-ups pursuing worthy causes. In an unprecedented arrangement, Google.org itself has a for-profit status and will pay taxes. The founders believe that, by using a for-profit framework, they can extend their reach, partnering with venture capitalists, lobbying Congress and ultimately generating much more revenue to apply to the world’s problems.
Top business schools are riding this wave of interest in for-benefit businesses. In the last five years, Haas, Stanford, Wharton, Harvard, the University of Michigan and almost every other major business school have added courses on social responsibility. Will Rosenzweig, co-author of The Republic of Tea: How an Idea Becomes a Business, says students pressed Berkeley’s Haas to include this kind of curriculum and to entice industry experts like him to join the faculty. After his 1996 course on socially responsible entrepreneurship became one of the most popular electives at Haas, Columbia and the London Business School invited him to teach the same class. He likens himself to Johnny Appleseed, dropping the seeds of responsible business practices in the right places at the right time.
Rosenzweig estimates that a quarter of Haas students now take social entrepreneurship classes, a good indication that MBAs think the subject is legitimate and not alternative, he says. As further proof of mainstream recognition, he cites the 2006 Nobel Peace Prize, which went to social entrepreneur Muhammad Yunus. Through Grameen Bank, which he founded in Bangladesh in 1976, Yunus lends small amounts of money to impoverished individuals to help them start micro-businesses and thereby attain economic self-sufficiency. This has lifted millions of Grameen borrowers out of acute poverty.
Media indicators say social entrepreneurship is anything but marginal: Stonyfield Farm, a company based in Londonderry, New Hampshire, landed on the cover of the October BusinessWeek in a story about the organic food industry and CEO Gary Hirshberg’s struggle to maintain Stonyfield’s values now that French food giant Groupe Danone has bought an 85 percent stake in the company. Newsweek’s July cover story explored the green revolution. In October 2005, Reason magazine hosted a debate between free-market economist Milton Friedman, Whole Foods CEO John Mackey and Cypress Semiconductor CEO T. J. Rodgers, exploring the social responsibility of business. Says Coen Gilbert, “This is not a fringe, Berkeley debate. This is a debate happening on Wall Street and Main Street, not just Telegraph Avenue.”
Why are so many for-benefit companies and products emerging now? Some experts say we’re drawn to this sector because of an increasing gap between rich and poor, impending environmental doom, high oil prices, an over-dependence on foreign oil, wars over oil, public disgust with corporate malfeasance (Enron, for example) and companies’ lack of accountability.
Others argue that when we hear about leaders’ bad behavior, we don’t feel hamstrung but rather revved up to take an active role in the world and to make a statement through our consumption. A consumer might think, “To hell with Ken Lay and George Bush! I’ll get off the grid and buy a veggie-oil-powered car.”
Of course, we might embrace those options regardless of our leaders’ actions. Rosenzweig feels that human consciousness has transformed, making us grasp that it’s crucial to be socially and environmentally responsible, particularly as we’re all so interdependent. BALLE coordinator Don Shaffer agrees that consumers have started to connect the dots; realizing that the average orange, peach or avocado may have traveled more than 1,000 miles before reaching the store, they instead opt to buy locally grown produce.
Coen Gilbert sees the attraction to triple bottom line goods somewhat differently. In his view, even if we didn’t feel that environmental and social collapse were imminent, it just feels better to buy from for-benefit companies, because they do good in the world. “If I know that every act of consumption is an act of creation, that’s a powerful place to be,” he says. He also points out that there’s a convergence among entrepreneurs, investors and consumers, who appear to be thinking along similar lines. “It takes all three to drive the marketplace,” he says.
Clearly, given these real and potential changes, the emergence of the triple bottom line sector doesn’t just mean that eco-friendly detergents will take up more shelf space alongside older brands. Rather, this new, holistic approach to business carries the potential to change traditional companies—and with them the entire economy. For example, in Haji’s view, when consumers gravitate toward for-benefit companies, traditional retailers will take notice of the competition and start offering similar choices, as well as obtaining products in more ethical ways. She asserts that this has already happened with fair-trade coffee and organics, which are increasingly available to consumers because merchants have responded to customer demand.
The for-benefit sector may well shift us to what environmentalist entrepreneur Paul Hawken has called a “restorative economy,” which will ideally cure the ills of the current one. At the very least, we might realize Haji’s vision of a “more conscious economy,” wherein consumers and investors better understand the effects of their choices.
Unfortunately, it’s hard for investors or consumers to know whether companies are environmentally and socially responsible. When companies claim to be doing good deeds, confusion mounts, leading some industry experts to advocate for a holistic metric or branding label, such as the fair-trade stamp on imported coffee, which assures consumers and potential investors that they can trust the product and needn’t do further research. Coen Gilbert envisions a symbol for “benefit,” comparable to a © or ® mark.
But it’s tricky to know how to qualify companies for this kind of branding. Must they be environmentally conscious and give away a certain portion of profits and employ a set number of minorities who receive a fixed set of health benefits? To navigate these issues, the for-benefit crowd (including Coen Gilbert) has collaborated with Betsy Power from Hawken’s Natural Capital Institute in Sausalito to launch a database called WiserBusiness in 2007. The free, online database will allow consumers to search a company name or a brand name, producing a snapshot of the company’s sustainability practices and enabling users to see through marketing ploys and “greenwashing,” which occurs when companies falsely pass off products as eco-friendly. Power says WiserBusiness will provide information about both triple bottom line and traditional companies, indicating how responsible or harmful they are in all spheres.
When companies set environmentally and socially responsible goals, those aren’t always easy to reconcile with raw business strategy. At Give Something Back, Hannigan’s employees voluntarily participate in AIDS walks and help Habitat for Humanity. He applauds such efforts but says such volunteerism must “be done in a way that doesn’t jeopardize the primary goal of the company, which is to be here when customers need us and answer their questions and take care of their problems. Because it all starts with that.”
He similarly concedes to customer needs in terms of how hard his salespeople push recycled products. He says Give Something Back tries to educate customers about environmental concerns but ultimately has to give people what they want.
Even when it comes to donating profits, Hannigan has opted for self-preservation on occasion. In 2004, Give Something Back bought a large office building for about $3 million (with a $300,000 down payment) and therefore held off on sharing profits that year. The choice makes perfect sense to Hannigan, who emphasizes that the purchase was a necessary long-term investment and an excellent decision from a financial point of view. The company has also installed solar panels with a pricetag of $300,000. Says Hannigan, “Our goal is to donate as much as we can without jeopardizing our ability to survive another year in a competitive marketplace. If we feel that our cash balances in the bank are insufficient in case we ran into lean times, then we’ll hold off on donations.”
But he has made plenty of choices that have everything to do with morals, not money. His business mission incorporates goals of diversity and more time for employees to spend with their families. Hannigan longs to ramp up revenues so he can donate more. “Our goal is not to build a small, comfortable company,” he says. “Our goal is to create as large an economic powerhouse business as we can. The bigger we get, the more profitable we are, the more money that’s funneled to community organizations.”
Growth, however, can foist new problems on triple bottom line companies. Coen Gilbert creates a hypothetical scenario: “If I’m Odwalla, I can sell to another round of investors, or I can sell to Coke. If I sell to Coke, what happens to my brand? The whole reason we created Odwalla is I want to give to the environment. I want to give 10 percent to charity. I want to have these wonderful organic juices. I want to support local farmers.”
As he points out, it’s uncertain how a company’s original ideals would weather a sale or, for that matter, the death of its owner. Coen Gilbert says a legal framework to incorporate stakeholder interests does exist within current corporate law, should companies choose to adopt it. Even so, he supports formal legal recognition and tax-preferred status for corporations in this sector. Just as the government has rendered 501(c)3 nonprofits tax-exempt, for-benefit companies could one day have a different tax status from traditional companies.
Betsy Power, from Hawken’s group, believes that this sort of altered tax status could provide powerful incentives for companies to act in responsible ways. She says the government often gives large companies incentives to do the wrong thing instead of giving small companies incentives to do the right thing. But she asserts that even without government incentives, traditional businesses can start valuing the triple bottom line, particularly by adopting better environmental practices.
Don Shaffer of BALLE says dozens of companies have already changed midstream. His organization works with many businesses that are just now learning about the term “triple bottom line” and what it means for their companies to be more sustainable, and he’s hopeful that so many businesspeople are asking, “What can I do?” The most well-known corporate move in this direction came from Interface Corporation, the world’s largest producer of commercial carpets. As owner Ray Anderson wrote in Mid-Course Correction: Toward a Sustainable Enterprise: The Interface Model, he had essentially disregarded the environment for decades and then did an about-face after reading Hawken’s Ecology of Commerce in 1994. This book prompted an epiphany about environmental problems and the way Interface contributed to those. By 1995, Anderson began changing company procedures. His company now aims for complete sustainability in 2020—for example, by breaking its dependence on petroleum and producing zero waste in all its processes. People who initially saw Anderson’s values shift as strange now recognize him as a pioneer in sustainable business practices. Epiphanies like that may become more of a norm than an anomaly as “for-benefit” and “triple bottom line” move into our everyday vernacular.
Changing the economic system as we’ve known it may sound radical, but as Coen Gilbert sees it, “This is just the next evolution of capitalism.”
Eve Kushner, a Berkeley freelancer, has profiled numerous people with passions, visions and missions. These articles have appeared in The Monthly, the San Francisco Chronicle and an as-yet-unpublished book. Visit her work at www.evekushner.com.
School days: The Modern Preparatory Secondary Boarding School in Nepal was founded by Rajen Thapa, co-owner of Berkeley’s Taste of the Himalayas. Photo courtesy Rajen Thapa.
Clif Bar employees volunteer with Habitat for Humanity and many other nonprofits on company time. Photo courtesy Clif Bar & Co.
Mike Hannigan gives back 100 percent of the profits from his Oakland office supplies company to community organizations. Photo by Pat Mazzera.