Business is the sole source of wealth creation in the world. According to Jeff Van Duzer, J.D., all other institutions are funded either through taxes or philanthropy from wealth that was first created in business.
In the book, Just Capitalism, Brent Waters, a theologian and ethicist, argues that while capitalism has a number of troubling issues that need to be addressed, it also has some amazing benefits to society that need to be acknowledged and strengthened. Modern economics is not a zero-sum game and as Christians who participate in the marketplace we have both a unique responsibility and extraordinary privilege to encourage and support business models with governance structures and business practices that enable individuals, communities, and environments to flourish.
Many businesses claim to do good, but their actions are incongruent with such claims.
Scholars predict that 50 percent of the firms currently in the S&P 500 will not exist in 50 years because they are unwilling or unable to implement the innovative business models necessary to sustain themselves in the midst of increasing societal transformations, technological advancements, and global competition. Paul Polman, CEO of Unilever, recently agreed, saying that “stronger alignment of business with societal interest and planning for the long-term is the only way to guarantee sustained success and longevity, for our business, and for our planet.” Even Elon Musk, founder of PayPal, SpaceX, and Tesla, shocked the markets recently when he admonished short-term, day trading investors to not buy Tesla stock. He told them, “I’m not here to convince you to buy our stock. Do not buy it if volatility is scary.” While his tone has been described as offensive and unwarranted, his argument for advancing the long-term organizational strategies of his firm instead of playing the short-term stock price manipulation game is continuing to gain ground in the business community.
Long-Term vs Short-Term Strategies
During the last decade, CEOs and investors have begun to realize that employing short-term stock price manipulation practices to manage their company’s resources ultimately stifles the long-term value of their organization. These short-term tactics include strategies such as waiting to make large equipment purchases until after a quarterly earnings report or forgoing a profitable investment in order to meet a quarterly earnings target. Recent research supports this claim by noting that short-termism negatively correlates with innovativeness and restrains corporate performance and economic growth. In a recent McKinsey Global Institute survey, of over 600 U.S. publicly listed companies, they found that between 2001 and 2014 long-term focused firms earned 47 percent higher revenues and 36 percent higher earnings than short-term focused firms did. And, even with the financial downturn in 2008, by 2014 the market capitalization of these long-term focused firms was seven billion dollars higher than the other companies surveyed. Additionally, long-term focused firms added nearly 12,000 more jobs and spent almost 50 percent more on research and development than short-term focused firms during that same period of time.
Likewise, paradigms such as the Conscious Capitalism and Completing Capitalism movements are making significant headway in our society. These movements have their roots in companies like Whole Foods and Mars, Inc. They stress the importance of business leaders becoming conscious of the interconnectedness they are cultivating in their organizations by creating social, cultural, emotional, spiritual, and ecological wealth while also advancing their financial viability. These groups are quick to caution that they are not saying that financial capitalism is wrong and should be completely rejected, but rather, as Van Duzer, Provost at Seattle Pacific University (SPU) and former dean of their business school, says, “Profit is not important as an end in and of itself. Rather, it becomes the means of attracting sufficient capital to allow the business to do what, from God’s perspective, it is in the business to do — that is, to serve its customers and employees.”
Likewise, paradigms such as the Conscious Capitalism and Completing Capitalism movements are making significant headway in our society.
More Than The Bottom Line
While profit, or the bottom line, is still integral to their strategy, organizations that are conscientiously accountable to multiple stakeholders such as their employees, customers, suppliers, shareholders, and the global community in which they operate understand that their business’ purpose goes beyond profit. These firms are creating mutually beneficial relationships and synergies that care for their human, social, and natural capital all while preserving their financial capital. These stakeholder-focused firms understand that it is not sustainable to have a successfully functioning business in a world where there is systemic inequality, corruption, environmental degradation, and injustice, and they are using their brand and their people to transform the communities their businesses are connected to.
The Deloitte Millennial Survey 2018 found that while millennials realize profits are both necessary and a priority, 83 percent of young workers want their organizations to be proactive about making a positive impact in society and being responsive to their employees’ needs. For example, flexible work options, including when and where to work, positively correlates with firm loyalty. Respondents with more flexibility in their work indicated that they were more likely to remain with their current employer for more than five years versus less than two years for those who do not enjoy such flexibility. The survey’s respondents also believed that business could bring significant leadership to the varied social problems currently found in education, healthcare, and even government.
These firms are creating mutually beneficial relationships and synergies that care for their human, social, and natural capital all while preserving their financial capital.
One historical business model that has recently been revived and is generating success is practiced by businesses like Hobby Lobby and Chick-fil-a. Both of these national retail organizations are closed on Sundays, allowing their employees to experience a day of rest. The model of a business serving both customers and their employees is proving to be quite effective. Even with being open one less day per week, Chick-fil-a generates more revenue per location than any other fast food chain in the United States and full-time workers at Hobby Lobby start at more than twice the federal minimum wage and have generous benefits. As Truett Cathy, founder of Chick-fil-a, has famously said, “We aren’t in the chicken business, we are in the people business.” And David Green, CEO of Hobby Lobby, said, “We’re not just trying to make money, we want to do it in a way that puts a high value on caring for our employees and their families. And the opportunity to work reasonable hours helps us attract good managers.” Essentially, these organizations have created sustainable, successful businesses by supporting a higher purpose while continuing to earn a profit.
New and Innovative Business Models
Still, consumer cynicism about the authenticity of a business’ impact is not without warrant. Many businesses claim to do good, but their actions are incongruent with such claims. Two rather new and transformative business models have emerged to help both well-intentioned companies and concerned consumers: the “benefit corporation” and the “certified B corporation.” While these two models have similar names and share a higher standard of corporate accountability and transparency than traditional corporations offer, they are distinctly different in several aspects. Both models require that their directors consider the impact of their businesses’ actions on all of their stakeholders and, in most states, both approaches require companies to publish at least bi-annual public benefit reports. These reports assess the business’ overall social and environmental performance against a third-party standard. However, becoming a benefit corporation is a legal designation, whereas becoming a certified B corporation is a voluntary process.
Simply put, a “benefit corporation” is a for-profit company that incorporates a description of the social and/or environmental public benefit they are pursuing into their founding documents. By including the public benefit into the organization’s legal documents an organization can protect its mission through capital raises and leadership changes and ensure its mission alignment and value creation are sustained over the long term. Some argue that a special corporate structure is unnecessary and clouds the corporate social responsibility landscape. However, hundreds of years of case law and the overarching tendency for institutional investors and activist shareholders to insist on maximizing shareholder wealth, have proven detrimental to other stakeholders. Benefit corporation advocates believe that the best way to bind morality or mission into the corporate form, without risking lawsuits or a hostile takeover bid, is to have a separate legal structure. Benefit corporations provide that corporate structure while allowing business owners, entrepreneurs, and investors the freedom and legal protection to consider additional stakeholders in the ethos of their organization.
Benefit corporations first became available in the U.S. in Maryland in 2010 and are now available in 34 states, with pending legislation in six more. Numerous other countries have similar legislation as well. Benefit corporations can be found in all types of industries and all sizes of organizations. Out of the over 4,000 benefit corporations currently in existence in the U.S., a few of the more well-known companies are Patagonia, Method, Laureate Education, and King Arthur Flour.
King Arthur Flour used what is considered a well-known strategy for employee engagement to ensure its firm’s legacy of transparency and sustainability would endure over time. In 1996, the owners wanted to retire so they established an employee stock ownership plan, or ESOP. By 2004, the company was 100 percent employee-owned and in 2012, the employee-owners voted to become a public benefit corporation by legally changing their corporate charter. The company pays fair and competitive wages, provides eligible employees a share of the profits when the company achieves its financial targets, and offers every employee (both part-time and full-time) 40 hours of paid volunteering time each year. Last year, their Bake For Good program donated more than one million meals to people facing hunger across the U.S. and their support of National Young Farmers has encouraged many young people to make farming their career.
“Certified B corporations,” on the other hand, are organizations that voluntarily subject themselves to a rigorous test of their social and environmental performance, enhanced accountability, and greater transparency through a certification process by the non-profit B Lab, which is located in Philadelphia. To date, over 2,000 companies from more than 50 countries have been certified by B Lab. The certification from B Lab has been compared to a LEED certification for a green building or a Fair Trade certification for coffee. The assessment tool allows organizations to review their business practices against independent standards for worker treatment, community engagement, and environmental stewardship. The certification assists businesses in not only measuring their impact but also making positive changes to their business practices based on quantifiable standards. It turns ambiguous concepts such as “going green” and “corporate citizenship” into something tangible and measurable. Certification also includes a free Global Impact Investment Rating System (GIIRS) rating and a free listing on the B Analytics platform, both of which are used by impact investors and fund managers to invest in companies that have verified social and environmental performance metrics. As the B Lab motto states, certified B corporations are dedicated to “using business as a force for good.”
Businesses that want to be active in the marketplace for the long-term are innovating and adapting their business models by repositioning themselves to be restorative engines for positive change.
Greyston Bakery has been a certified B corporation since 2008. Greyston is most famous for supplying the brownies for Ben and Jerry’s chocolate fudge brownie ice cream, but they also bake high-end cakes and tarts for some of New York’s best restaurants. Greyston is dedicated to providing employment opportunities for men and women who have significant barriers to employment, including those who have been incarcerated or are homeless or those suffering from domestic violence or illiteracy. More than 40 percent of their management team and board of directors are from one of those previously excluded populations. All the profits from the 10-million-dollar for-profit bakery are given to the Greyston Foundation, which supports children and youth services programs, intensive self-sufficiency programs for the formerly homeless, and social services for low-income working families.
Clearly, the marketplace is changing, society is transforming, and businesses are responding. Businesses that want to be active in the marketplace for the long-term are innovating and adapting their business models by repositioning themselves to be restorative engines for positive change. There are enormous opportunities for businesses and individuals working in business to be part of the solution. It is important for Christ-followers to be ready to seek, serve, and redeem the brokenness of the world by providing opportunities for communities to flourish and individuals to express their God-given selves through significant and creative work. God’s desire is for Christians to participate in furthering God’s kingdom here on earth and these breakthrough business models and practices are one way of participating in that innovative and redemptive work.
Related Article: A Christian response to why business matters.
Susan Brownlee, M.B.A. (83), is an adjunct professor at PLNU’s Fermanian School of Business.