Economic development is slowly moving towards a more comprehensive triple bottom line approach (people, planet, profits) for measuring the true impact of our efforts.
This is the second article in a series on the evolution and future direction of economic development. The first article was titled, “Economic Developers: A Story You Can Tell.”
Last week a local businessman asked me if I had seen the first round of presidential debates. Before I could answer he said, “The candidates would have you believe all businesses are bad.” What I heard from him was bewilderment, defensiveness, perhaps even defiance—as if he were protesting: ‘We aren’t the bad guys!’
Private enterprise is under the microscope as the divide between the haves and the have nots in America widens. By extension, economic development professionals who champion business growth are also fair game for scrutiny. The facts of economic disparity are evident, the ill will is real, and the disagreement over what to do about it runs deep.
What can the economic development profession do to bridge the income divide and heal economic wounds felt within our communities and nation? What role do local policies and programs play in contributing to the inequities present in society? Is it possible and appropriate for us to differentiate a good from a bad business? Can we find consensus to answer to these questions?
Instead of making value judgements for what is a good versus a bad business, we might ask: a) What does higher purpose business practice look like? b) Which companies are doing it? c) How can we as economic developers support more of it for our communities? In other words, how do we ensure that our economic development efforts help businesses grow to produce the most positive outcomes for our communities?
Profits with Purpose
Ryan Honeyman of LIFT Economy has studied businesses that are doing well by “doing good.” He sees an exciting movement afoot wherein certain businesses are out to “redefine success in business by using their innovation, speed, and capacity for growth not only to make money but also to help alleviate poverty, build stronger communities, restore the environment, and inspire us to work for a higher purpose.”1
The businesses that are part of the movement are B corporations, which is a legal incorporation in 37 states, the District of Columbia, Puerto Rico and dozens of countries around the world where legislation has been passed. These businesses are causing textbooks to be rewritten. In fact, more than one thousand faculty members in more than 500 colleges and universities now teach about B Corps.2
B stands for benefit corporation. In The B Corp Handbook: How You Can Use Business as a Force for Good, Honeyman explains that B Corporations want to build a new sector of the economy in which “the race to the top isn’t to be the best in the world but to be the best for the world.”
This is as committed as it gets, where corporate social responsibility is more than the do-good, quasi-philanthropic office or side effort of the company, it is the company. The key distinction of a B Corporation from other forms of incorporation (C or S Corporations, ESOPs, LLCs, partnerships, sole proprietorships, etc.) is that directors and officers agree to make decisions not just in the best financial interests of shareholders, but rather, are required to govern also in the best interests of employees, customers, communities, the local and global environment and economy as well.3
Leading the Way
Examples of benefit corporations include: Athleta, Eileen Fisher, Fat Tire Brewing Company, Fetzer Vineyards, Kickstarter, Patagonia, Seventh Generation, and Stonyfield Farm. Some certified benefit corporations have done so well in this new world that they are being acquired by larger corporations. Unilever now owns the exemplar of them all, Ben & Jerry’s, and five other benefit companies. Anheuser-Busch, Campbell, Coca-Cola, Gap, Land O’ Lakes, Nestle, Procter & Gamble all have acquired B Corps that now operate as subsidiaries.
Benefit corporation status can help protect the broader mission of a company that becomes a takeover target. Without this legal construct the brand and benefits can lose out. In 2017, a hedge fund took a large equity stake in Whole Foods Market and began making demands to maximize profits at the expense of its marketed value proposition. The process ended with the CEO of Whole Foods reluctantly arranging a sale to Amazon. He believes that investors seeking short-term profits often work against the larger goals of society. After going through the ordeal, he publicly wondered if Whole Foods had been a B Corp whether that could have changed the outcome. He said, “I think B Corps and benefit corporations are a tip of a reform movement that capitalism needs as a whole.”4
A few years ago, I met with Jay Coen Gilbert who founded B Lab, a nonprofit organization that helped create the benefit corporation classification. He described to me how B Lab sets the standards for certifying B companies. Approximately one-third of benefit corporations in the world are now certified. The B certification logo shown here (look for it on the back of some products) marks a company that has been certified as having met the most rigorous standards for good business practices such as equitable pay and benefits, environmental stewardship, ethical sourcing, employee engagement, and more. Think of it as getting a LEED Platinum rating for buildings, only much more impactful.
Setting the Bar for Economic Development
What would happen if each economic development organization in the world identified just one B Corp closest to them, met with its people, understood their passion-driven approach and how their purpose produces profit? 5 Imagine the positive impacts of applying the lessons learned into ongoing education, marketing, business expansion, retention and attraction efforts.
Currently, the International Economic Development Council (IEDC) certifies economic development professionals (CEcD) and conducts accreditation for economic development organizations. What if IEDC took a page from the B movement and included in its skills-based and programmatic examinations demonstrated knowledge and commitment to advance activity that is “the best for the world.” When viewed this way, it is easy to see how the bar for excellence and leadership can be set higher.
In the early days of the economic development profession, the most basic hurdle that had to be cleared to justify support for a business or high-profile project was to meet the “but for” rule. That is, “But for our efforts, would this development occur anyway?” If the answer was no, then actions in making it happen and any related public incentives provided to it in the name of job creation and additional private investment were deemed justifiable. It was more of a trust-us-test than anything else. Thankfully, after years of tripping over what was essentially an abstract argument with no convincing answers, the but for test faded from our lexicon.
The profession focused next on clearing a self-imposed second hurdle which it almost always had an excellent chance of stepping over. Here, what is needed is to show a positive return on investment (ROI) of public dollars in a given project in the form of future tax revenues to offset an initial outlay within a reasonable time period, say three to five years. ROI continues to be relied upon as a fundamental decision tool for deploying economic development resources.
This is like doing basic arithmetic with a calculator when the rest of the world has mastered the application of complex algorithms. There is no economic or financial model that can suitably take into consideration the multitude of qualitative variables of economic development investments that impact people’s lives and communities in which they live.
To state the obvious: not all business activity and economic development projects are equal. Some produce far better benefits to the larger community than others, and many that seem to be no brainers in terms of numbers of jobs and return on capital investment can end up costing a community greatly in the long run. Development can be made to work, but at what cost and who really benefits?
Economic development is slowly moving towards a more comprehensive triple bottom line approach (people, planet, profits) for measuring the true impact of our efforts. The business world is moving faster. It has the B Corp certification process that serves as a guide for how we might help bridge the wealth divide, bring about greater equity and expect more for our communities and ourselves.
The “but for” argument is history. The bar to clear now is, “Who for?”
1 The B Corp Handbook: How You Can Use Business as a Force for Good by Ryan Honeyman and Tiffany Jana (2019)
3 To learn more about B Corps, read Benefit Corporation Law and Governance, Pursuing Profit with Purpose by Frederick H. Alexander.
4 The B Corp Handbook: How You Can Use Business as a Force for Good
5 To find out if you have a certified B Corp near you, go to: https://bcorporation.net/about-b-lab .