Arizona CEO: Benefit Corp “A Big Competitive Advantage”

7 (1)Adam (l) and Murray Goodman. Image provided.

“I don’t think our customers really care that we’re a benefit corporation,” says Adam Goodman, the third-generation owner of Goodmans Interior Structures, a furniture and design firm for large commercial clients in the Southwest with annual sales of more than $60 million. “They’re mostly looking at the price and our service, not our legal status. Customer service drives our business, because commercial design deals are hugely complex transactions.”

The company re-wrote its charter in January 2015, the month Arizona’s benefit corporation law took effect. Its mission statement begins with “we will change our community” and goes on for several paragraphs that are full of lofty sentiment. The statement is painted on the wall of the firm’s home office in Phoenix, and employees are encouraged to volunteer at not-for-profit organizations on company time. But you won’t find the mission statement on the company’s website.

“Becoming a benefit corporation was a way of validating that we were doing the right things for the right reasons,” says Goodman. “Our values come mostly from my family.”

Goodman’s grandparents opened their store in Phoenix in 1954. Murray Goodman, Adam’s father, ran the business before Adam took over around 2003. Adam says that his dad built the business by cultivating trust and long-term relationships with customers.

Adam cites three events that helped him chart his own course as CEO. “I was talking to a potential customer who said that he was always going to go with the cheapest price. That really riled me up,” he says. “I saw that the only way for me to compete was to attract and retain the very best people.

“Around that time, one of our competitors was exposed in the sleaziest kind of scandal you can imagine. It made me wonder how that might reflect on us. And then, at a dealer’s meeting, I got into a casual conversation with the CEO of Herman Miller. He said that the most important thing a CEO can do is provide a sense of purpose for employees, so they feel that they are part of something bigger than themselves. That struck a chord.”

Herman Miller, a global company with sales of more than $2 billion, manufactures about three-quarters of the furniture Goodmans sells. The company has received dozens of awards for being a good environmental steward and treating its employees well, but Adam says that its policies often don’t work for a company his size. He had to find his own way.

Adam announced the company’s new mission statement at the end of 2005 and told his employees that their future prosperity would come from making a deep commitment to the welfare of their communities. He made significant contributions to local not-for-profits and emphasized team-building activities, like occasional happy hours, inside the office.

Not everyone was thrilled with the change.  “A lot of people were like, ‘Can’t we just sell furniture?’ One guy said that he wished he’d worn his boots to the office because the bullshit was so deep,” he says. “I faced a lot of cynicism.” But the company’s leadership team supported the move, so he pushed ahead.

Then the Great Recession forced Goodmans to make significant layoffs. “All the people who made it through the layoffs — our best people — were also on board with the mission,” Adam says. “I think it’s because purpose-driven employees give our customers a better experience.”

Carrying the banner for community-oriented capitalism in Arizona isn’t as lonely as it used to be, he continues. His cousin, Stuart Goodman, led the lobbying effort that convinced the conservative Arizona legislature to pass a strong benefit corporation law in 2014.   “Now I talk to people all the time who are interested in going this route,” he says. “They see the business case for it.

“We regularly get calls from highly qualified job applicants who have heard about us and want to work for us. They don’t even know if we’re hiring. They just want to be part of what we’re doing. That gives us a big competitive advantage.”

 

For-Profit Colleges as Benefit Corporations: Where’s the School Spirit?

rasmussen-collegeFor-profit colleges are a $25 billion industry that gets no respect. They claim just 5 percent of the $500 billion Americans spend every year on higher education. Their critics call them “dropout factories” that burden students with debt and get billions in federal and state support while returning little value.

In the last few years, six for-profit colleges have re-chartered themselves to become benefit corporations, with a dual mission to pursue a public benefit while also making a profit. Are they greenwashingB Labs, the independent social auditing firm that awards B Corp Certification and also promotes the movement for chartered benefit corporations, doesn’t think so. But changing that image might take a while.

Critics of for-profit education cite a 2012 report by former Iowa Sen. Tom Harkin, which analyzed 30 for-profit colleges and found that their associate’s degrees cost four times as much as did similar degrees from public schools. Harkin also found that 63 percent of students enrolled in associate programs at for-profits in 2008-09 had dropped out a year later. The expenses and yields for other degrees were also poor in comparison to public and not-for-profit schools.

Two years ago, B Labs convened a diverse group of educators to develop specific social auditing standards for higher education. The group released the standards last September. A few weeks later, Laureate Education and Alliant University passed the audit to become the first for-profit colleges that are both benefit corporations and Certified B Corps.

“People say that for-profit colleges cannot keep students at the center of their operations, but the benefit corporation structure requires that they do,” says Dan Osusky, a standards manager at B Labs. “The key to making this succeed is getting colleges to publish measures of accountability and performance.”

Other for-profit colleges are talking the talk. “We’re a 115-year-old company, and being a public benefit corporation is in our DNA,” says Trenda Boyum-Breen, president of Rasmussen College, a regionally accredited institution serving 14,000 students online and at 24 campuses. It grants degrees in business, nursing and other job-oriented disciplines.

About 75 percent of Rasmussen students are women and over the age of 25. More than a fifth are African American. “For-profit colleges have a powerful opportunity to encourage upward social mobility,” Osusky of B Labs says.

Rasmussen registered as a public-benefit corporation (PBC) in Delaware two years ago. “We saw it as a way to distinguish ourselves,” says Dr. Boyum-Breen, president of Rasmussen, who is also a first-generation college graduate. “A PBC is the sweet-spot that allows us to deliver education for the public good while also having the efficiency and flexibility of a for-profit business.”

That all sounds good. But Rasmussen is privately owned, so it doesn’t release information on its revenues, its expenses or the names of major shareholders. Boyum-Breen says the college is consulting with B Lab, but it hasn’t yet been certified. And Delaware law only requires that PBCs give their shareholders a statement regarding the progress of their social goals once every two years. The statement does not have to be done by an independent third party, and it doesn’t have to be public.

“This is a controversial industry, and some for-profit colleges have questionable reputations,” says Osusky, who adds that the best way forward is for the industry to adopt specific performance standards, greater legal accountability and public transparency. “Controversial industries are where the need is greatest to distinguish between good and bad actors,” he continues.

Boyum-Breen, who became Rasmussen’s president 10 months ago, says the college’s directors will see its first internally-produced social statement at their meeting in March. She says that parts of the statement will also be released to the public and that the college will continue to work with B Labs.

She is also pushing changes that promise to lower the cost of a degree. More than three quarters of her students have already attended college somewhere else without graduating. Rasmussen’s Flex Choice, which combines classwork with online study to allow students to pass course units based on their prior experiences, was expanded to all degree programs in January.

“There’s a great opportunity here for a business to generate public good,” she says. “An organization’s tax status doesn’t determine whether it is good or not.”

Maybe so. But you can’t assess a company’s performance until you measure it, and you can’t trust those measurements unless someone or something holds the company accountable.

The First Benefit Corporation IPO Is Coming, And That’s A Big Deal

Laureate-04Get ready for the first-ever public stock offering by a chartered benefit corporation. This ain’t no friendly neighborhood organic coffee roaster, either. Laureate Education promises to operate as a triple-bottom-line business, but this is a much bigger, more complicated deal.

Laureate is the world’s largest for-profit operator of online and campus-based higher education. It owns, controls, or manages 88 institutions that enroll more than one million students, 90 percent of whom live outside the United States. It has been growing rapidly and in 2014, its revenues exceeded $4.4 billion. It’s a 16-year-old company but it announced its new charter as a Delaware Benefit Corporation just four months ago, on the same day it registered for its IPO.

Laureate’s current owners aren’t the kind of folks you’ll find at a typical B Corp meet-up. Kohlberg Kravis Roberts (KKR) one of the world’s biggest private equity firms, owns most of its stock.   Point72, another venture capital behemoth, owns a big chunk. So does the International Finance Corporation, which is the private-sector arm of the World Bank.

Last year, the first Certified B Corp held an IPO when Etsy went public. But Etsy doesn’t have a dual purpose written into its corporate charter. At least, not yet.

KKR’s leaders are Henry Kravis and his cousin George R. Roberts, who gained fame for their scorched-earth takeover of Nabisco in the late 1980s. They’re old-school corporate raiders. Now they own a benefit corporation, and that could be a big deal.

Laureate registered as a benefit corporation so IPO investors will know that it takes its social mission seriously, according to founder and CEO Doug Becker. “We recognize that some investors in public companies are highly focused on short-term results,” he writes in the company’s prospectus, “and we hope that it is very clear to them that this is not our approach. With the benefit of a long-term view, we will balance the needs of stockholders with the needs of students, employees, and communities in which we operate, and we believe that this approach will deliver the best results for our investors.”

SEC laws prohibit Becker and KKR from talking about the IPO. But others are taking notice. “KKR could be just the tip of the iceberg,” says Luke Stephan, a partner at Keene Advisors in Newton, MA, a small firm that specializes in advising business owners who are selling their companies. Many Keene clients bring their social consciences to their businesses, and Keene itself is pursuing B Corp certification.

“If the Laureate IPO is successful, it will provide a roadmap for institutional investors, family offices and individual investors who want to invest capital in businesses that generate a good return and make valuable contributions to society at large,” Stephan writes. “And it will provide a strong counterpoint to skeptics that believe that businesses cannot access institutional capital unless they focus exclusively on maximizing value for shareholders.”

“Laureate is a real validation of the value side of the equation,” says Rick Alexander, legal advisor to B Lab. “About $6 trillion in investment funds are earmarked for social impact in some way. That’s a huge target. But benefit corporations are a new idea, and a lot of investment professionals are not convinced that they will give a good return. Many of them just don’t know about us.

“KKR is a high-profile company, so the Laureate IPO could convince a lot of people that they’re safe to invest in. The essence of the idea is that by serving the interests of stakeholders as well as shareholders, you create value that companies focused only on their shareholders do not create.”

Switching its status might also help Laureate answer the many critics of for-profit higher education. According to a 2012 US Senate committee report that examined 30 companies, including Laureate, the sector spent an average of 41 percent of its revenue on marketing, advertising, recruiting and admissions, and profit distribution. They spent just 18 percent on instruction. The report argues that making federal grants and loans to students at for-profit colleges is a bad deal, both for the students and the government.

Alumni of Walden University, which is owned by Laureate and has many campuses in the United States, have accumulated the second-highest amount of federal loans of any school in the country, according to a 2014 study by the Brookings Institution. And only 44 percent of its undergraduates had started to repay their loans three years after leaving the school, a level far below the national average.

Laureate is not the first for-profit school to become a benefit corporation. But it is the first to sign up for B Lab’s rigorous social audit program, which it passed in 2015. It also participates in B Lab’s Higher Education Standards Working Group. So, is Laureate using B Lab to clean up its image while it prepares to go public? Sure. And is that a bad thing? Only if it doesn’t walk the talk.

Is B Corp Star New Belgium For Sale? Does It Matter?

New-Belgium-Bottle-Caps-deege@fermentariumDOTcom-Flickr-630x4721New Belgium Brewing might be in play.

On Friday, a report citing unnamed sources said the craft brewer, best known for its Fat Tire Ale, was working with the advisory firm Lazard Middle Market on a possible sale.

It’s a significant moment for the Certified B Corp movement, since New Belgium is one of the largest B Corps on a rapidly growing list of more then 1,500 firms. Reuters reported that New Belgium, which is owned by its employees, is looking for a buyer who would pay more than $1 billion for the company.

The report comes during a wave of acquisitions in the craft beer industry. Several small brewers that are well known for socially responsible practices were sold in 2015—but so far, the new owners aren’t backing off from policies the original owners made.

In March, Full Sail Brewing, which also was owned by its employees, sold to a private equity firm. Many employees got five or six-figure buyout checks and also got to keep their jobs. In 2014, Triple Pundit named Full Sail one of the top ten sustainable US breweries. Nine months after the sale, Full Sail’s website still prominently features a video that describes its efforts at water conservation.

In October, Lagunitas Brewing Company announced that it had sold a 50 percent stake to Heinekin, one of the largest brewers in the world. Lagunitas has generous donation, sponsorship, and environmental programs that are integral to the brand. But its new owner, which is based in the Netherlands, also places a high value on sustainability. Heinekin is making aggressive efforts to limit water use and also supports human rights in the countries where it does business.

Neither Full Sail nor Lagunitas was a B Corp, however. And New Belgium has been an enthusiastic supporter of B Lab, the non-profit group that performs voluntary audits of environmental, personnel, and community practices to certify that subscribing businesses are “a force for good in the world.”

In response to the Reuters report, New Belgium co-founder and board chairwoman Kim Jordan said that “New Belgium Brewing’s board of directors has an obligation to have ongoing dialogue with the capital markets with the goal of making sure that we remain strong as leaders in the craft brewing industry. There is no deal pending at this time.”

The prospect of a sale raises difficult issues for Jordan and other New Belgium board members. The company’s identity is tied to employee ownership and progressive stances on climate change, the living wage movement, bicycle advocacy, and other issues. Its B Corp certification, which it gained in 2013, burnishes that reputation.

To an old-fashioned investor, B Corp certification might look like an unnecessary drag on the bottom line. An unethical buyer might make promises to get New Belgium’s employee shareholders to approve a sale, without intending to keep them.

The Full Sail and Lagunitas stories, although unfinished, fuel hope that a new kind of investor might recognize that walking the talk on sustainability is what makes the brand worth buying in the first place. We’ll keep watching.

reSET to Benefit Corporations: If You’re Serious, Come To Connecticut

kateKate Emery believes that social entrepreneurs must control their desire for profits. “The folks we work with have different values than mainstream business people do,” she says. “People often suggest that we push to give social enterprises some kind of tax advantage. But saving money on taxes is the wrong reason for doing this.”

Emery is the CEO of the Social Enterprise Trust (reSET), a Connecticut not-for-profit that works with entrepreneurs, and also the sole owner of The Walker Group, a technology consulting firm based in Farmington, Connecticut. She went to great lengths to protect her own social enterprise.

The Walker Group was growing rapidly in 2007, and Emery wanted to ensure that its profits would be divided equally between its owner, employees, and social mission. But Connecticut laws did not allow benefit corporations in 2007, so there was nothing to prevent a new owner from switching the firm to business as usual. Building a company with a social mission was her life’s work, and she wanted it to be her legacy.

Emery started The Social Enterprise Trust and gave it a “golden share” that has voting rights to prevent The Walker Group from changing its structure. Then she used one-third of Walker’s profits to grow the Trust into a statewide organization for social entrepreneurs. Lobbying the state legislature for a benefit corporation as one of its main goals.

A year ago, Connecticut became the 25th state to adopt a law allowing benefit corporations. Now 31 states have such laws, and five more are working on them. But Emery is proud to say that Connecticut’s law is the most comprehensive.

Benefit corporations write their social missions into their charters, so investors, employees, and customers know what they’re getting into. State laws differ, but they all require the company to pursue a dual mission and release annual reports on both financial and social performance.

Connecticut’s benefit corporation law is the only one with a “legacy preservation provision.” This clause allows Connecticut benefit corporations to protect their status in perpetuity after they have been chartered for two years. If a benefit corporation dissolves after adopting the legacy provision, its assets must be distributed to a not-for-profit organization or to another benefit corporation that also has a legacy clause.

Not everybody thinks the legacy provision is a good idea. “Ninety-nine out of 100 lawyers would advise against taking this step,” says Emery, “because it ties the hands of future boards.” But social entrepreneurs have what Emery calls “intentionality.” They are like donors to a land trust who voluntarily give up the development rights to their land in order to preserve its natural integrity forever.

Emery was surprised at another opponent of the legacy clause: B Labs, the national not-for-profit that runs a rigorous social auditing program and promotes the idea of benefit corporations internationally. “They wanted all the state laws to be the same,” she says. “But we wanted to be the leader.”

Emery doesn’t know many Connecticut benefit corporations will make their status permanent when the law allows it in October 2016. “It might not be too many,” she says. “But I want Connecticut to be the social enterprise state. This gives us an opportunity to tell social entrepreneurs that if this is your intention, this is what you need to do. Come to Connecticut and flip the switch.”

Certified B Corps Are Only Halfway Done

steve-piersanti-started-berrett-koehlerSteven Piersanti founded Berrett Koehler Publishers 24 years ago, shortly after he was fired. Piersanti, an executive at Jossey Bass, refused an order from the company’s new owner, billionaire investor Robert Maxwell, to lay off eight valued employees. He was fired for insubordination.

After the news got around, Piersanti was deluged with offers of support from authors, suppliers, and investors who were also dismayed by Maxwell’s emphasis on maximizing short-term profits at the expense of everything else. Piersanti started Berrett Koehler (BK) to represent the interests of all stakeholders in the publishing process. Today the company has a large catalog of books (including one of mine) on progressive business practices and work/life issues.

Four years ago, BK hired B Labs to audit over 280 of its social, environmental, and employment practices. BK wanted to demonstrate that it met a high standard for corporate citizenship and was creating social benefits as well as profits. When it passed the audit, BK became one of over 1,450 “certified B Corps” which are audited every two years. But that wasn’t enough for Piersanti.

On October 21, BK also changed its California corporate charter to become a benefit corporation. BK’s articles of incorporation now require directors to balance the interests of employees, customers, and other stakeholders with those of shareholders in all company decisions. BK and other benefit corporations must produce a public benefit as well as profits, and they must also report to the public on exactly how those benefits are being produced.

“The audit and the chartering need to work hand in hand,” says Piersanti. “Neither one is sufficient if you’re really committed to running a business that also pursues social goals.

“The B Labs audit is rigorous, but it is also voluntary. You could pass the audit in October, elect new leadership in November, and abandon all the policies that made you a certified B Corp in December. On the other hand, becoming a chartered benefit corporation creates legal obligations that are far more likely to survive hard times or changes in leadership. But those obligations are vague, and there’s no penalty if you don’t meet them.

“If you’re a chartered benefit corporation but you don’t undergo the audit, you could say in your papers that handing out free guns to everyone is your public benefit. If you take the audit, you can’t get away with that. The audit is the state of the art, and the charter means you’re not going back, but you have to do them both or it won’t really work.”

Piersanti, who is 62, says he had an eye on his own legacy when he took BK through the two-part process. “Succession planning is important to any business,” he says. “But if your business has a mission, you need to be concerned with more than finding the right people for the right positions. You also need to pay attention to the institution and how it’s structured, or else the mission won’t survive you.”