Profit & Responsibility
By Andrei Ghoukassian
Published on: May 12, 2015
“We wanted to build a business that could make profits. But we also wanted to build a business that did good in the world.”
– Neil Blumenthal, Warby Parker
Profit and responsibility: friends with benefits
Based on the assumption that each individual acting rationally will tend to pursue his own best interest, the profit motive is built into capitalism’s DNA. As influential free-market economist Milton Friedman once said, increasing profits is “the only responsibility of business.”
But thought leaders like Henry Ford gave legitimacy to the idea that capitalism could embrace both profits and responsibility by paying his workers a living wage. It became clear to Ford, and other companies, that higher wages meant happier workers and more demand for their products.
As the global labour movement fought for better conditions for workers, and private wealth increased during the post-war boom, it seemed that capitalism had found a balance between serving both people and the market. The notion that capitalism could serve the masses endured until the 1970s, when inflation combined with high unemployment in Western economies led to a belief that only unfettered markets could distribute wealth efficiently.
What we’ve seen since is a kind of hyper-capitalism, perhaps best epitomised by Gordon Gecko in Oliver Stone’s Wall Street. “Greed is good,” said Gecko, and for a long time we believed it.
But in an increasingly connected and globalised world, we see suicide nets around the factories in China where our smart-phones are manufactured; shoddy buildings crushing workers in Bangladesh; and millions of working poor people in the richest nation on Earth. We know where things come from, and we know the human and environmental cost of cheap consumer goods.
It’s easy to be cynical when business tries to present itself as ethical, because we often feel it’s a token gesture rather than a commitment to doing good. When Google’s motto is ‘Don’t be evil’, it sounds more like a glib platitude than a realistic promise.
In the wake of the Global Financial Crisis, our cynicism is justified. After all, those CEOs and leaders we trusted to act in our best interests managed to construct a system so dysfunctional and damaging the world is still in recovery mode seven years later. Millions lost homes, savings, and incomes––not to mention their dignity––so how are we to respond when capitalists promise to do better?
We’ll take a look at the rise of the Benefit Corporation (or B Corporation) a global movement in which companies make a legally binding pledge to pursue change, benefit everyone (not just shareholders), and set aside the profit motive in order to do good. Businesses undergo a strict external certification process, and must meet requirements related to governance, working conditions, community engagement, and environmental impact.
A clear vision
Four university friends founded the New York-based eyewear manufacturer in 2010, with initial seed funding of just $2,500. Over the next few years, the brand attracted more than $50 million from investors including American Express. Their products are hip and relatively affordable, but what makes Warby Parker different is its promise to donate a pair of glasses to charity for each pair sold to a customer. Their motto is simple: buy a pair, give a pair. In June last year, the company claimed to have distributed one million pairs of glasses to those in need.
However, it’s not quite as simple as it sounds. The money is donated to a charity program that hires locals in developing nations to make and produce glasses that are then sold at ‘affordable’ prices. The company says this is to ensure self-reliance, as donating can lead to a culture of dependency. Not everyone will agree about that, of course, but it raises interesting questions about ethical capitalism itself.
Patagonia has been committed to corporate responsibility since its inception in 1973, and has recently been certified as a B Corporation. They also make really nice Apple-style YouTube videos, with gravel-voiced American men making environmental responsibility sound easy as melted butter on toast.
The brand’s most recognised campaign ran in the New York Times on Black Friday––a shopping frenzy kind of like our Boxing Day sales––asking consumers to reconsider the need to buy more stuff. The Common Threads Initiative urged people to reduce, repair, reuse, and recycle to “create a world where we take only what nature can replace.” Unlike some newer B Corporations, Patagonia has runs on the board when it comes to corporate responsibility, redirecting profits to green initiatives since 1986.
Australian businesses embracing change
There are currently 57 Australian companies and organisations with B Corporation certification. The first was Small Giants, an investment firm dedicated to supporting businesses wanting create a more socially equitable and environmentally sustainable world. Co-founder Daniel Almagor thinks big change is coming. “We talk about conscious capitalism, like the Occupy movement. I think there are a lot of people with capital in positions of power who agree we can align profit with purpose. And I think that movement is growing.” Small Giants have backed TOM Organic, who produce organic female care products, various green building projects, publisher Dumbo Feather, and homeless youth social enterprise STREAT, among others.
In the United States, companies can register as B Corporations under legislation in dozens of states. While local companies do not currently have this ability, Dougal Edwards, CEO of B Labs Australia––the body charged with certifying compliance––is confident this will change. “In the last couple of years, the presence outside the U.S. has grown dramatically,” Edwards says. “The last twenty years has been about certifying products as fair trade or green but that tells you nothing about the company profiting from that product––only about their supply chain. The next twenty years is going to be about certifying businesses and holding them to account.”
There are currently more than a thousand B Corporations operating in 42 countries and more than 120 industries. Most are small-to-medium type businesses and start-ups, so the real challenge will be to convince large multinationals (who have the biggest environmental impact, employ the most workers, and are most committed to the interests of shareholders) there is value in becoming B certified. True to the workings of the market, this will probably only happen with the right incentives in place. Consumer demand is one, but for the moment this is unlikely to sway them.
While recent surveys suggest Australians are keen on buying from ethical companies, turning a feeling into an action is difficult, no matter the cause. The answer could lie in government, perhaps by offering tax incentives encouraging companies to become B certified, providing low-interest loans to B start-ups, or using other incentives. But that is some way off, and certainly won’t happen with the current government.
The story of the B Corporation is sure to be interesting, and while it may not be enough to save hyper-capitalism from itself, it might just bring about the change it desires––step by step, tree by tree, and deed by deed.