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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 these questions?
Instead of making value judgments about 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.”
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.
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.
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.”