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What happens when good business and good deeds collide
In 2009, when GreenChoice Bank was just getting its sea legs, Chief Operating Officer Steve Sherman wanted to make sure that the bank lived up to its promise to be “conscious about more than your money.” That quickly led to an important question — how much more should GreenChoice be conscious of?
“I remember in my naive exuberance that everything was as sustainably oriented as possible,” he says. “I probably wasted four hours finding the best recycled paper for our paper checks.”
Sherman’s bank is licensed under Illinois state law as a benefit corporation, a designation that’s been around since Jan. 1. Benefit corporations are for-profit businesses that have observance of the “general public benefit” baked into their articles of incorporation. As a benefit corporation, GreenChoice Bank gives cover to its executives to pursue goals beyond profit maximization for investors. GreenChoice Bank and Chicago’s other licensed benefit corporations must observe a triple bottom line, holding themselves accountable not only to profit generation, but their impact on the community and the planet.
“Profit-seeking and social mission can go together and be mutually reinforcing, but that won’t always be the case. Consistently, they’re going to face choices between pursuing of their social mission and more profit,” says Dana Brakman Reiser, a professor at Brooklyn Law School who studies the law of social enterprises.
For executives like Sherman, that ambiguity builds a point of constant tension into the decision-making process. If you’re not careful, you can spend an entire afternoon scouring the Internet for recycled checks. “Drawing the line is sometimes difficult because it’s tempting to take this as far as you can, but there does come a point where it’s neither cost-effective nor an efficient use of your time to pursue the perfect solution,” Sherman says.
One of Sherman’s clients is Mightybytes, a website design firm that was one of the first in the state to become a certified benefit corporation. Tim Frick, the firm’s founder, says revenue has increased 87 percent since becoming a benefit corporation. Nevertheless, Frick is faced with balancing his passion for social good with finite resources and the need to turn a profit.
“At the end of the day, I’m a small, 15-person company. I don’t have deep pockets to do this with,” Frick says. “We aspire to have the greatest benefits package of any firm in Chicago, but again, we’re a small little company, so we just do that in increments. We introduce new benefits every single year, but it’s not a gold chalice yet.”
Even for firms with deep pockets, it’s difficult to determine how best to reconcile the profit motive with the elements of the social mission. Ben & Jerry’s is the granddaddy of benefit corporations, closely identifying itself with a set of values decades before conscientious consumerism became a buzz phrase. It’s also highly profitable, due in large part to the pack of brand evangelists who have latched onto the gourmet ice cream maker’s social mission.
But the company has had difficulty figuring out how to square its values with its industrial scale. CEO Jostein Solheim points to a failed attempt to source blueberries from Native Americans in Alaska. Turns out there wasn’t a sufficient supply to bring it to market.
“Making the product and selling it is quite easy compared to having a positive impact,” Solheim says. “It’s very easy to get paralysis by analysis because you never know the perfect solution.”
In Illinois, the law requires that companies provide an annual report that details their social accomplishments. However, according to Christine Franklin, a Chicago attorney who co-chairs the banking and financial services committee of the ABA’s administrative law and regulatory practice section, the contours of that requirement have yet to be fully explained. “It’s not specifically defined in the sense of who you have to go to. It doesn’t have to be audited or certified or notarized in that sense.”
Some have questioned whether that unclear standard provides the necessary guidance to keep corporations accountable. “[Benefit corporations] don’t fulfill their promise because they lack coherent standard and enforcement mechanisms,” Brakman Reiser says. “[The] statutes that are out there give instruction to do both, but they don’t give any guidance on how much of each one and how to trade them off against each other.”
Though the Illinois benefit corporation legislation doesn’t have much in the way of teeth, there is more rigorous independent verification available. Both Mightybytes and GreenChoice are licensed by nonprofit B Labs, a vetting process that requires companies to submit documentation of their social performance and score at least 80 out of 200 on its B-Impact assessment scale. B Lab also audits 10 percent of its certified corporations each year and requires biannual recertification.
Brayden King, a sociologist and associate professor of management at Northwestern’s Kellogg School of Management, studies activism and social responsibility in companies. While King believes that Illinois’ initial wave of smaller benefit corporations is well-positioned to stay the course, he points to the Hershey Co.’s history as an example of social mission drift. The chocolate giant began in the early 20th century with the intent of helping orphans and the poor. Today, Hershey’s original open-handed purpose is a footnote.
“Problems don’t become manifest until the organization becomes more successful, larger. Then pressures to maximize profits rather than just be profitable begin to clash with social mission of organization,” King says.
Even if that more intensive vetting process breeds an additional level of trust, King remains skeptical that many customers care much about a company’s articles of incorporation. “Consumers are pretty inertial. The very small group of socially conscious consumers doesn’t drive an impact in the marketplace,” he says. Instead, King argues, the major benefits come in the form of an edge in building supply-chain relationships with other companies, recruiting talent, and landing government contracts.
If benefit corporations’ branding succeeds in becoming as well-known as the LEED or Fair Trade certification, companies may pounce on its loose legal boundaries to use the designation as a marketing tool. “I think a lot of green-washing is going on in the impact investing and social enterprise field right now. Not just under the B-corp umbrella — you see it with some managers who label themselves an impact fund,” says Christa Velasquez, a lecturer at the University of Chicago who specializes in impact investing and social enterprises. “Then you scratch the surface, and they’re doing all the things I’m trying to fight against.”
For now, Chicago’s benefit corporations community appears small enough to be able to police itself, and early adopters tend to be self-selecting. Frick offers a 20 percent discount to any clients that are B-corps and estimates that 14 or 15 of his suppliers are also certified by B Labs. Sherman says GreenChoice Bank operates in the same manner. “We do business with a number of other B-corps in Illinois, and we do it because of that status,” he says. What’s important is that we’re mindful of the choices we make. Let’s at least have that conversation.”
ABOVE: Tim Frick, founder and CEO of Mightybytes, left, and web developer Whit Nelson. Sun-Times Media file photo