Quote of the Day – On Bicycle-Sharing Systems

November 9th, 2008

The New York Times has an article today about bicycle-sharing programs in major European cities.  Here’s a gem of a quote about the civic benefit, earned on top of environmental improvements:

“The critical mass of bikes on the road has pacified traffic,” said Gilles Vesco, vice mayor in charge of the program in Lyon. “Now, the street belongs to everybody and needs to be better shared. It has become a more convivial public space.”

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The Selfish Side of 1% for the Planet

June 16th, 2008

My last post was a wonky one on changes in California law that affect company management’s ability to consider social good as well as shareholder value.  Here is a complementary piece to that, courtesy of Harvard Business School’s Working Knowledge newsletter.

Spending on Happiness — HBS Working Knowledge

The jist of the piece is that we spend our lives trying to accumulate money, but succeeding at that doesn’t make us any happier.  Instead, the researchers found that spending money on other people does increase happiness.

The article talks specifically about personal spending, but I am willing to bet that it holds true for companies as well.  Knowing that your company gives away money to help outside causes increases loyalty toward the business.

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Directors’ Duties to Shareholders and Society at Large

June 12th, 2008

There is a long-standing debate about the obligations of a company’s management to consider the needs of society at large. Economist Milton Friedman is famous for opining (to paraphrase) that the only duty of a company’s Board of Directors is to make money for the company’s shareholders.

In my view, this opinion completely sidesteps the issue of what time scale to consider, but it is entirely possible that a company could make tremendous short-term profit at the expense of segments of society at large, the environment, etc.

The California State Legislature has an opinion on this issue, too. There is a bill pending there (A.B. 2944 for the research-inclined) that would change the statutory duties of a director to include not only the company’s welfare, but society as well. The current duties of a director are to deliberate:

in good faith, in a manner that such director believes to be in the best interests of the corporation and its shareholders and with such care, including reasonable inquiry, as an ordinarily prudent person in a likeposition would use under similar circumstances.

As amended, a director would be permitted, but not required, to consider:

(i) The long-term and short-term interests of the corporation and its shareholders;

(ii) The effects that the corporation’s actions may have in the short term or long term upon any of the following:

(A) prospects for potential growth, development, productivity, and profitability of the corporation;

(B) The economy of the state and the nation;

(C) The corporation’s employees, suppliers, customers, and creditors;

(D) Community and societal considerations; and

(E) The environment.

Pros/Cons Analysis:

From the social welfare side, this bill would say clearly that directors need not hew to the Friedman viewpoint and may take a broad view of corporate duties. On the other hand, the list of factors a director may consider is long and not well-defined. Merely deciding on the company/shareholders’ best interests is difficult enough and it is not clear to me that this language adds anything that is not implicit in Board deliberations anyway. Would this language be useful in preventing a company from, say, strip-mining with knowledge that heavy metals will leach into groundwater?

The answer is “no, not by itself”.  However, this language does open the door for the B Corporation I have written about previously. B Corporations say loudly and clearly that their duties are to consider shareholder value alongside social benefits.  As noted at the top of this post, that is not a universally-held viewpoint.  Shareholders, directors, executives and the courts that eventually ajudicate questions of shareholder duty need some encouragement- not to mention law- to let them know that there can be more than one bottom line.

I am told that although 31 US states have similar laws on the books, this bill has been opposed from several sides.  Having passed the Assembly it is in the State Senate currently, but its odds of making it out and across the Governor’s desk are uncertain.  These things can take time, I suppose.  If it doesn’t happen this year, let’s hope for next.

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Sustainability as a Standard Business Term

June 10th, 2008

My clients are doing more and more transactions with European customers these days. A few years ago I worked on a lot of agreements to have products developed for my clients in China and elsewhere. I still do those, but now European companies are finding great deals in the U.S. so I’ve been working through a lot of those as well. It’s fascinating to see the economic pendulum swing across the globe like that.

In any case, one European customer sent over a form document containing a set of standard purchase terms. I’m not fully up on the details, but it looks as though they are required to file these with an EU government office.

I find it extremely heartening to see that the standard terms include this language on sustainable practices.

This makes me wonder about two things:

1) If this is merely required language and is just window-dressing or if the company actually stands behind it; and

2) What it would take to get companies in the U.S. to think about and add terms like this to their contracts.

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Social Entrepreneurship and Alphabet Soup Corporations

May 18th, 2008

There’s the C corporation that most people are familiar with (what you get if you don’t specify anything else) and the S corporation that is tax free but doesn’t allow preferred stock. Both of these names come from the sections of the IRS tax code that describes them.

Add now the B corporation. The “B” stands for “beneficial”. It doesn’t have special tax rules- instead the intent is to tell people clearly that the company considers benefit to its employees, the general public, the environment etc. along with shareholder profits.  The organizers have developed a community of B-corp adopters, and it includes a bunch of “green businesses” but also a couple of big law firms, a skateboard manufacturer and a handful of software companies.

The challenge of socially entrepreneurial companies is that they can do very well, get acquired or obtain outside capital and/or management, and the core principles can get diluted. The B corporation process doesn’t prevent this from happening, but it does make loud and clear that social good is a core element of the business.

So how does one become a B corporation? First, one must fill out a survey. A passing score means that one can take the next step of amending the corporation’s Bylaws and Articles of Incorporation to state the social purpose(s) clearly. I haven’t done it yet, but I am going to take the survey as it applies to my own business.  I hope I score well!

There is nothing magical about any of this.  It can all be changed or abandoned completely.  It is, though, a way to tell the world what your company cares about strongly.  That can be good for the company, good for business and- one hopes- good for the world.

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The Elusive Triple Bottom Line Again

February 4th, 2008

Harvard Business School’s Working Knowledge newsletter has an insightful post this morning asking whether sustainability and triple-bottom-line principles are growth opportunities or zero-sum propositions for most companies. There is great discussion in the comments as well.

I’ve mused on the same ideas previously. The idea of “service”- of adding value to society and the world that goes beyond shareholder returns- is captivating. Is it feasible?

The article speculates that there is some “low hanging fruit” that companies have already grabbed and that further integration of economic, social and environmental bottom lines is likely to be more difficult. Several commenters also point out that stock markets tend to reward the economic gains and gloss over less visible results.

True enough. Just getting any one line consistently “in the black” is hard- keeping them all there is probably more than most companies can do all the time. It helps when banks and regulators push issues like climate change onto the economic balance sheet, but the effort is still largely its own reward, which explains why even the companies really excited about the ideas consider 1% of profits to be an acceptable amount to expend on social/environmental goals.

Back to the original question- I believe there is a “balance point” for most businesses- where triple bottom line results may swing back and forth a bit over time, but stay basically stable. If each line is a pendulum, a few companies may be able to get them all swinging together most of the time, but most have to live with a certain amount of lurching when the pendulums get out of sync and then work to smooth the disharmonies. That’s what i strive for in my own business, at least.

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On Getting Paid to Recycle

January 24th, 2008

I wrote a piece for VentureBeat some time ago on the idea of “productizing good”, a great phrase I picked up from Terrapass‘s Tom Arnold. The idea is to use capitalist/consumerist impulses to drive socially and environmentally beneficial goals. I cited Terrapass, Ethos water and Kiva.org as good examples of the trend.

Lately I have seen a number of businesses with a slightly different spin- they pay *us* to do good. I mentioned EnerNOC the other day as one company that pays its customers to reduce their electrical consumption, and a commenter was kind enough to point out several other companies in the space as well.

On the consumer-facing end of things, I attended a VLAB panel the other night that featured RecycleBank, whose business model is to pay consumers to fill their recycling bins. RecycleBank signs contracts with municipalities, taking a cut of the amount the city saves on landfill costs as recycling increases, and passes on a portion of that to consumers as credits to be used at designated merchants. The goal is to divert recyclables out of landfill, potentially generate income for the cities by making material available to the recyclables market, and reward consumers every month for sorting their trash. I would have been really skeptical of the whole idea but for (i) learning that most people in the US don’t recycle much, and (ii) the company has a bunch of cities under contract already.

Even closer to my heart is Terracycle‘s Brigade project. Terracycle’s main business is selling organic fertilizer and pesticides. They package their products in straight-from-the-recycling-center plastic bottles. More recently, they have started projects to collect used yogurt containers, drink pouches and energy bar wrappers. I go through a lot of energy bars, so I’m pleased to have a place to send the wrappers. For each container, $0.02- $0.05 is donated to the charity of the collectors choice. I’m still working through the details, especially what will be done with all the material collected, but I love the idea.

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