Fixes looks at solutions to social problems and why they work.
Associated PressProtesters in front of Ben and Jerry’s in Burlington, Vt. in 1999 voiced their opposition to Unilever’s planned acquisition of the ice cream company.
Eleven years ago, the Vermont-based ice cream-maker Ben and Jerry’s found itself in a position other companies might have found enviable. Several firms were bidding to buy it. The top bid was from the Dutch conglomerate Unilever.
But Ben Cohen and Jerry Greenberg didn’t want to sell to Unilever. They had built the company with the mission of serving what has come to be known as the “triple bottom line” — profits, people and planet. The company offered voter registration along with its ice cream, paid employees living wages and good benefits, donated 7.5 percent of its profits to charity, and bought Brazil nuts from a cooperative of indigenous Amazon farmers and brownies from a bakery famous for hiring people fresh out of prison. Ben and Jerry worried that a Unilever-owned company would quickly become focused purely on profit.
They put together a group called Hot Fudge partners and made a counteroffer. But it could only muster an offer of $38 a share, while Unilever was offering $43.60.
It was not enough. The law states that the duty of a business’s directors is to maximize profits for shareholders. Obviously, there are many ways to maximize profits; even costly socially responsible activities can do just that in the long term. But when a business is on the block, there is often no more long term for shareholders. The difference in the prices offered by Hot Fudge Partners and Unilever offered was too great. The directors of Ben and Jerry’s felt that if they had accepted the lower offer, they could have expected a lawsuit from shareholders — which they would likely have lost. The company was acquired by Unilever in April 2000.
Ben and Jerry’s is far from alone. The typical pattern for a new, successful, triple-bottom-line company is that it quickly gets gobbled up by a major corporation — usually the leader in its field.
Silk Soymilk was bought by Dean Foods, America’s largest dairy company, and today Silk is no longer organic. Horizon Organic Milk is also now owned by Dean Foods. The organic brands Cascadian Farms and Muir Glen are now part of General Mills. The natural toothpaste-maker Tom’s of Maine was bought in 2006 by Colgate-Palmolive. The juice-maker Odwalla’s Web site advertises it as “earth-friendly” and as “a business with a heart” but nowhere on the site will you find the information that it is a wholly-owned subsidiary of Coca-Cola. Stonyfield Farms yogurt company is owned by Dannon. The Body Shop was bought by L’Oreal in 2006. The cereal maker Kashi was bought in 2000 by Kellogg, Naked Juice is owned by Pepsico and granola-maker Back to Nature and Boca Burger are subsidiaries of Kraft.
Sometimes these sales are love matches, giving the mission-driven entrepreneur capital and logistical support to grow the business while retaining the company’s original values and practices. But some are forced marriages. No matter how the parties meet, the clash of corporate culture can be overwhelming, and the worry is that gradually the mission will erode — at least the parts of it less visible to consumers — in favor of a focus purely on profit.
Under Unilever, Ben and Jerry’s has hewed pretty closely to its original mission. The company no longer calls all its ice cream “all natural” — ingredients such as partially-hydrogenated soybean oil have crept in. But the company uses humanely-produced eggs, is moving towards all fair trade ingredients, and its foundation gives away about $1.8 million annually. It publicly celebrated Vermont’s gay-marriage law with the temporary renaming of its Chubby Hubby flavor as Hubby Hubby. And of course, Butter Pecan became Yes, Pecan! to mark Barack Obama’s election.
Unilever has continued these activities because the company feels that they are good for business. But this could turn around at any moment; there are no guarantees that responsible practices will continue after a sale.
What’s a triple-bottom-line business to do?
In 2000 there was no recourse. Now there is: become a B Corp.
To become a certified B Corp, or benefit corporation, a business must pass an examination of how it treats its employees, the environment and the community. A non-profit organization called B Lab sets out the requirements and certifies businesses that meet the standard. The idea is that while any company can claim to be a good corporate citizen, a B Corp can prove it — something valuable for consumers and investors.
B Corps must also procure shareholders’ agreement for a revision of the bylaws to allow business decisions to consider the impact not only on shareholders, but also the workforce, community and the environment. Shareholders are allowed to sue if they feel the directors aren’t doing enough to take social responsibility into account.
A B Corp can turn down a high bid in favor of a buyer more committed to responsible behavior without worry of lawsuits. The change also solves other problems faced by mission-driven companies. “The top concern we hear is ‘I’m scared to take in outside money because I’m going to be pushed to do things I don’t want to do,’ ” said Jay Coen Gilbert, one of the founders of B Corp. “That sort of fear often makes companies not want to take in outside capital, which restricts their growth.” The changes in bylaws can give small businesses the assurance they need to be able to grow.
B Lab was founded in October 2006, and the first B Corporation was certified the next year. The nonprofit was the brainchild of three longtime friends: Coen Gilbert, Bart Houlahan and Andrew Kassoy. Coen Gilbert and Houlahan had founded and run AND 1, a highly successful basketball shoe and apparel business. Kassoy was a private equity investor. “AND 1 would have been within sniffing distance of a B Corp on employee ownership and charitable giving, but it was not created with the express intent of creating a positive impact,” said Coen Gilbert. “We were doing the best we could within a business model not set up for it. When we had a chance at act two, we said ‘wouldn’t it be cool to work with entrepreneurs who had that express purpose.’ ”
Today there are over 400 certified B Corps, in 60 different industries. For various reasons, including the difficulty of convincing thousands of small investors to agree to the legal revisions, there are no B Corps that are publicly traded companies.
Four states have so far passed legislation backing B Corps: Vermont, Maryland, New Jersey and Virginia. The city of Philadelphia gives tax breaks to B Corps. B Corps can exist without such laws, but the laws give increased legitimacy and longevity to the concept and add legal clout to the revised by-laws.
The King Arthur Flour company occupies a building it calls Camelot about an hour’s drive from Ben and Jerry’s, in Norwich, Vt. Camelot has a turret, a drawbridge and a throne in the lobby for visitors. Employees with five years’ tenure get knighted — with an actual sword — by King Arthur’s chief executive, Steve Voigt.
The company is the second-largest flour maker in America; last year was the most profitable in its 200-year history. When the Sands family, owner of the company for five generations, decided to leave the business in 1996, it began to sell shares to its employees, and by 2003 King Arthur was fully employee-owned. The company’s books are open to all employees to see, and every month King Arthur has a town meeting, where all 200 employees meet to hash out problems.
King Arthur was one of the first companies to become a B Corp. “We were managing that way anyway,” said Voigt. “We were looking at changing our by-laws.” And the lesson of King Arthur’s neighbor, Ben and Jerry’s, was not lost. “We hope to be around another 200 years as this kind of company,” said Sarah McGinley-Smith, who heads the company’s social responsibility efforts. “This was a way to hard-wire some of those values in place.”
Voigt had been looking for a way to assess how well the company was meeting its social responsibility goals, but the existing scorecards were largely designed for much bigger companies and were too expensive. The B-Lab scorecard was a good fit.
It brought good news and bad. “We always knew we did very well in the employee area,” said McGinley-Smith. But on the environment, she said, “our score compared to other people was pretty low.”
Voigt used the low environmental score to persuade the company to make changes. He hired an environmental consulting firm to examine exactly where King Arthur was failing and recommend improvements. It turned out that the biggest environmental impact came in the water it took to grow wheat. King Arthur’s general manager for flour started talking to its farmers about a practice known as no-till or dry-land farming, which uses significantly less water. But such a change could not happen quickly, so King Arthur began to buy more from farmers who were already using the practice. McGinley-Smith said that between 5 and 10 percent of its wheat has shifted to dry-land farming. “For us, the B Corp process helped us bump up the environment in our priorities and put resources to it,” she said. On the next assessment, three years later, the company improved its environmental score.
Not many C.E.O.’s — or leaders of any other organization, for that matter — welcome public assessment by outsiders. Volunteering to be assessed is a sign of commitment to the triple bottom line. “This was as much fun as going to the dentist,” said David Bolotsky, the C.E.O. of Uncommon Goods, a Brooklyn-based online retailer of handmade and recycled products. “You have to go through a rigorous questionnaire, a lot of which was pretty uncomfortable.” Uncommon Goods scores well on how it treats the environment, its open-book management style, benefits for employees and charitable giving, and not so well on diversity and local purchasing.
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“We got a passing but far from perfect grade,” Bolotsky said. “There are things where we really stink — diversity in our management team. We are not where we should be and B Corp highlights that and we’re working on it. There are a lot of people in the socially responsible world who are very self-satisfied. They feel like ‘I’m a good person with good intentions running a business therefore I’m having a positive impact.’ The fact is often you can do a lot better.”
Many companies seek a brand image as a good-guy or green company, but until now, consumers had no way to know whether it was true. “The world is awash in green-washing,” said Peter Strugatz, a founder of IceStone, a B Corp that makes environmentally friendly countertops. B Corp is a club for the ones who are serious. But it costs money to join — a sliding scale ranging from $500 per year for really tiny companies to $25,000 per year for companies with more than $100 million in annual sales — and can lead businesses into making expensive changes. On Friday, I’ll look at how businesses balance the demands of social responsibility with the demands of shareholders, and whether becoming a B Corp can be good for the most traditional bottom line: profit.
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Tina Rosenberg won a Pulitzer Prize for her book “The Haunted Land: Facing Europe’s Ghosts After Communism.” She is a former editorial writer for The Times and now a contributing writer for the paper’s Sunday magazine. Her new book is “Join the Club: How Peer Pressure Can Transform the World.”
Article source: http://opinionator.blogs.nytimes.com/2011/04/11/a-scorecard-for-companies-with-a-conscience/
