Balancing profit and purpose

The Nobel Laureate economist Milton Friedman in a 1970 New York Times article famously wrote, “The social responsibility of business is to increase its profits.”

“The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.” Friedman wrote. “In fact they are―or would be if they or anyone else took them seriously―preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

That idea held sway in U.S. business schools and corporations until summed up Hollywood-style 17 years later by the character Gordon Gekko in the movie “Wall Street”: Greed is good.

But the countercurrent of belief in a business’ social responsibility never died. In fact, it evolved, driven by growing social inequality, environmental degradation, and a rising generation of socially minded entrepreneurs. One manifestation is the B Corporation, a type of company that seeks to use business as a force for good. 

Today in Rochester, a growing number of certified B Corps are pursuing a business model that attempts to balance profit and purpose.   

GreenSpark Energy—in 2017 named one of Rochester’s fastest-growing companies by the Greater Rochester Chamber of Commerce—mounts solar panels on homes and businesses all around the region. Headwater Food Hub distributes local and sustainably grown produce, meat and dairy products. Pharos International Inc. makes print management software that reduces waste. 

They are among approximately half a dozen B Corps in the Rochester area. Some of them are propagating the B Corp approach by mentoring other companies. Anne Sherman, director of operations and sustainability at the furniture and design company Staach—a certified B Corp—helped bring a short version of the B Corp assessment tool to Rochester through what became the MeasureUP initiative. (See related article.) 

What is a B Corp? 

A B Corp is a company certified as such by B Lab, a Pennsylvania nonprofit corporation created in 2006 by Jay Coen Gilbert, Bart Houlahan and Andrew Kassoy. The trio aimed to create a global movement of companies that meet high standards of verified social and environmental performance, public transparency and legal accountability.

Economist Friedman in his 1970 article complained that “the discussions of the ‘social responsibilities of business’ are notable for their analytical looseness and lack of rigor.”

He never met a B Corp. 

One of the B Corp mantras is “measure what matters.” Elements of a system often remain invisible until measured. The full B Impact Assessment is a detailed online questionnaire covering five key impact areas:   

• governance: mission, ethics, accountability, transparency 
• workers: compensation, benefits, health, safety, ownership, training, job flexibility
• community: diversity, job creation, supplier relations, charitable giving, community service 
• environment: stewardship, resource use, emissions, facilities, supply chain, and
• customers: relevant to health care and education providers, for example, this category addresses impact on underserved communities.

The results are tabulated into a score. Companies that score 80 or higher may submit confidential documentation to validate their responses for certification, which must be renewed every three years. As of this week, there were 2,778 B Corps in 60 countries across 150 industries.  

The metrics are the message

SWBR principal and chief marketing officer David Beinetti drives an electric car and grows his own vegetables on a small family farm. Yet he works in an industry where the amount of refuse produced by construction projects boggles the mind. A leader in sustainable design, SWBR has architected LEED-certified buildings for the University of Rochester and Rochester Institute of Technology. When feasible, it counsels clients to reuse existing building stock rather than generate more waste and consumption.  

Beinetti’s involvement with Rochester sustainability initiatives goes back decades. Approximately eight years ago, he learned about the B Corp model and led SWBR to take the assessment. Given how “good” he thought the company was, the results surprised him. 

“It was an eye-opener, a bit of a revelation,” he says. “It’s a weighty assessment that requires a range of individuals in a corporation to weigh in and provide information.

“We took the assessment (and) were sufficiently embarrassed, given how we were preaching to our clients and educating our own folks internally, yet being inconsistent. We realized we had a lot of work to do.” 

One area where SWBR found it fell short of its own values was diversity. 

“We saw we were a bunch of old white guys running a business,” Beinetti says. 

In response, SWBR created an internal working group, diverse in representation, that articulated and codified SWBR’s cultural values in its policy manual. Trainings followed, and annual assessments. Today, a quick look at the smiling faces on SWBR’s “People” page does show a fair representation of women, younger people and some ethnic diversity. 

The company made other changes too. To improve employees’ work/life balance, SWBR provisioned laptop computers enabling staff to telecommute. Its offices are designed to let in natural light, and use furnishings that don’t emit harmful chemicals. To source from responsible supply chains, the company communicates its purchasing policies to vendors and gives them time to align with requirements. 

Many of the changes made at SWBR have to do with environmental sustainability. The company has taken steps to reduce consumption, and it uses recycled paper. Every week, SWBR collects, weighs, sorts and recycles its office waste. Organic waste like plate scrapings and banana peels are collected in cans and composted. 

SWBR’s list of socially impactful activities goes on, and the company has signed on to the American Institute of Architects 2030 Commitment toward a carbon-neutral future. Although its B Impact Assessment score is high enough to qualify for B Corp status, the company has not yet completed the process. Even when it does, Beinetti says, the responsibility journey never ends.    

“We’ve made a lot of gains, but it’s like climbing Mount Everest,” Beinetti says. “As soon as we get to base station number one, we realize there are six more stations. It’s a long climb, but we’re doing it together.” 

Beyond shareholder value

One of the tenets of a B Corp is that it exists not just to maximize shareholder value, but also to consider its impact on workers, customers, the community and the environment. 

But how many shareholders in the world are willing to give up the primacy of their profits?

“It depends of how you define profit,” says Kenneth Rhee, dean of the Nazareth College School of Management. “Will I lose in the short term? The answer may be ‘yes.’ It depends on your time frame.” 

GreenSpark, the alternative energy company, is owned by a few dozen people—employees, former employees, friends and family, says Chief Operations Officer George McConochie. These investors accept that the company’s purpose extends beyond maximizing shareholder value.  

“We’re a good long-term investment prospect, but we don’t drive for quarter-to-quarter profit at the risk of long-term sustainability,” he says. 

GreenSpark was certified as a B Corp in 2015. McConochie, who led the process, says it took a year to establish the necessary policies and processes.

“The point of B Corp certification is that you’re really committed to accountability for metrics and establishing processes for measuring them,” he says. “It has to be a genuine effort. It has to be sincere.”

A major area of focus, when it came to matching GreenSpark’s practices to its intentions, was directing how it spends its money—the vendors from which it buys equipment, the subcontractors, lawyers, accountants it hires, the health insurance it chooses. Like SWBR, GreenSpark looks closely at its supply chain to ensure vendor business practices align with the company’s corporate values.

The most tangible benefit to GreenSpark of being a B Corp is in employee recruitment and retention, McConochie says. Many customers are unaware of what a B Corp is, and in any case most base their purchasing decisions on the financial benefits of saving energy.      

“First and foremost, you need to deliver a good product or service to your customer,” he says. “In that sense, we’re not that different from any other business.”

McConochie meets with Rochester B Corp peers every so often but he doesn’t live in a B Corp bubble. He also is involved with business organizations such as the regional economic development council.  Sometimes the peers he meets there have a hard time understanding why GreenSpark would change its bylaws for environmental and community accountability, he says; in the traditional business philosophy represented by Friedman, it would be up to the individual, not the corporation, to pursue social good. Despite their differences, however, McConochie sees common goals.   

“There are really big problems facing our communities, our society, our civilization,” McConochie says. “B Corp is a meaningful path to take, but I don’t think it’s the be-all and end-all, or right for everyone. 

Feeding social change

On a recent Thursday at Three Heads Brewing in Rochester, the Good Food Collective set up a row of tables and covered them with crates of that week’s pickup selection—frozen corn, lettuce, bread, oranges and such; the stacked containers and faint cooler smell reminded me of my food co-op days. Customers, who had prepaid for the food, sauntered in to pick up their groceries and visit with the staff. At the other end of the room the Three Heads bar was pouring beer, and in the middle patrons sat at tables, drinking and chatting. 

The Good Food Collective is the direct-to-consumer operation of Headwater Food Hub, an Ontario-based distributor of local and sustainably grown produce, meat, dairy and other products. The Rochester area spends just a fraction of its yearly food expenditures on locally grown products, says Ryan Pierson, director of the Good Food Collective. Headwater Food Hub wants to change that. Its wholesale operation bridges local farmers with local restaurants and schools. And, the company was a driving force behind the South Wedge Farmers Market.    

“We see local food as a powerful tool to change the local economy, local ecology and local social dynamics,” Pierson says. “From the beginning, this was a business designed to create social change.” 

Rochester Food Hub works with more than 100 local farmers, in an industry not known for a data-oriented mindset. The B Corp process brings its business practices into sharp focus. 

“It’s a third-party certification that says we walk the talk,” Pierson says. “It’s a rigorous discipline, from what we pay farmers to the soap we put in our bathrooms.”

B Corps and benefit corporations are different things 

A 20-minute drive from Headwater Food Hub’s Ontario warehouse are the Linden Oaks offices of Pharos. Sustainability is in the company’s DNA, says Brandon Heffernan, marketing manager. Pharos print management software helps organizations reduce their ink, paper and energy consumption to create more efficient and sustainable office printing environments. Beyond that, as a B Corp the company gives employees days off to volunteer; controls the gap between its highest- and lowest-paid workers; and, among other things, tries to purchase from other B Corps.

“We solidified how we feel about ourselves,” Heffernan says. “We feel part of something more important.”

Pharos in addition to being a B Corp is a benefit corporation. They’re not the same thing, although often confused. B Corps are certified as such by B Lab, after assessment and review. The benefit corporation, in contrast, is a legal structure for a business, like an LLC or a corporation. The status is available in approximately 33 U.S. states, including New York. Benefit corporations are legally empowered to pursue positive stakeholder impact alongside profit. 

Accountable Capitalism Act sparks controversy 

B Corp and benefit corporation status are voluntary; no government entity tells a company it has to be either one. In August, however, Sen. Elizabeth Warren, D-Mass., introduced the Accountable Capitalism Act. Derived from the benefit corporation model, the law would require American corporations with more than $1 billion in annual revenue to obtain a federal charter as a “United States corporation” obligated to consider the interests of all corporate stakeholders. 

The proposal won a letter of academic and investor support, but also provoked a storm of controversy. 

“It will help destroy capitalism,” Harvard economic professor Jeffrey Miron said on CNBC, arguing that the act would create a new, complicated set of rules for the government to enforce—a recipe more for crony capitalism than productive capitalism. 

“It is socialism,” wrote Heritage Foundation fellow Lee Edwards in the conservative publication National Review.

On the other side of the political spectrum, Nobel Laureate economist Joseph Stiglitz blasts self-proclaimed “change agents” whose meager reforms of capitalism merely reinforce the status quo of growing inequality. 

The writer Anand Giridharadas, in his book “Winners Take All: The Elite Charade of Changing the World,” observes that “a new breed of community-minded so-called B Corporations has been born, reflecting a faith that more enlightened corporate self-interest — rather than, say, public regulation — is the surest guarantor of the public welfare.” 

Companies that hold twin goals of changing the world and making profit, he continues, “might have heard of companies becoming B Corporations and signing on to a new ‘Declaration of Interdependence,’ which committed them to using ‘business as a force for good’ and fostering ‘the change we seek.’”

A skeptic, Giridharadas quotes writer Audre Lorde: “The master’s tools will never dismantle the master’s house.”

B Lab co-founder Jay Coen Gilbert responded in Forbes that Giridharadas “offers a binary view of market-driven vs. government-driven solutions, overlooking the historic interplay between the public and private sectors.”

Whatever the answers to these questions, expect the debate to continue as Warren runs for president. 

Conscious capitalism

Politics aside, Rochester, B Corps and their supporters are moving forward on the basis that they have found a credible, actionable way to align their own values and business practices.  

“I’m not going to pretend to know the solution to all of capitalism’s ills,” GreenSpark’s McConochie says. “B Corps are a step in the right direction.”

Indeed, some local B Corp proponents see the movement as more evolutionary than revolutionary. Long before B Corps existed, Chairman Robert Wegman of Wegmans Food Markets, Inc. was investing in employee education. Xerox Corp. in 1989 won the Malcolm Baldrige National Quality Award, based on performance criteria including societal responsibility, ethics and transparency.  

A thread of social consciousness has always run through Rochester businesses, says Tom Brady, founder of Conscious Capitalism ROC. He sees B Corps as an extension of that tradition—and a powerful force because of their rigorous ongoing measurements.

Conscious Capitalism Inc., is a membership organization that seeks to promote capitalism as a force for social good. Brady started the Rochester chapter some six years ago and runs it with his son, Andrew. The ideas they espouse, he says, are taking significant root. 

“If I talk to people and they’re rolling their eyes, I know I must be on the leading edge,” Brady says. “But as many eyes aren’t rolling as they used to.” 

Brady cites statistics from the YPO’s 2019 Global Leadership Survey as evidence of a massive cultural shift in opinion about the role of business. More than 92 percent of both CEOs and younger-generation respondents thought business should have a positive impact on society beyond pursuing profits and wealth. Of chief executives surveyed, 74 percent said they had changed perspective on the role of their leadership in the past five years.

“That’s crazy, wow,” Brady says. “Malcolm Gladwell talks about the tipping point. We’re beyond the tipping point, but we don’t even recognize it.”

A sign of change

The Friedman free-market philosophy influenced a generation of business schools, spreading from the University of Chicago to the University of Rochester’s Simon Business School and beyond. But 10 or 20 years ago something started to change: Instead of “shareholders,” people started talking about “stakeholders”—a term that also encompasses employees and other elements of community. 

“When I was in business school, we never talked about ‘stakeholders,’ Nazareth College’s Rhee says. “We started out thinking that capitalism is based on maximizing shareholder profits—that management represents stockholders and your job is to maximize their well-being. But (then) the language started to change.”

The Simon Business School could not be reached for comment. 

Nazareth’s Rhee says he sees the younger generation of business students thinking about more than generating profits for companies. They’re thinking about the consequences of their actions. They want to do something good for the environment.  

The 2,778 B Corps certified today represent a tiny fraction of the world’s millions of corporations, Rhee notes. But their existence is a sign of changing times.   

“Fifteen, 20 years from now, maybe everyone will be doing something similar,” Rhee says. “I don’t see it happening right away, (but) I think it’s coming. I like to think of it as a win/win.” 

“If we destroy the environment, we’ll all pay the price in the long run,” he continues. “If you consider the impact your actions will have 20 years from now as well as two months from now, that’s good leadership.”