How to Build Sustainable Capitalism

Originally published on www.Inc.com on September 14, 2020.

Some 50 years after Milton Friedman declared that "the social responsibility of business is to increase its profits," his doctrine of shareholder primacy is having its day of reckoning. Many entrepreneurs have been skeptical for some time of a system that incentivizes squeezing profits out of the business and handing them off to shareholders not involved in operations. Indeed, companies like Airbnb and Patagonia have stated they want to create value for all stakeholders, not just shareholders, and there's a strong argument that the stakeholder approach is better for the bottom line over the long term.

Friedman's narrative, published in September 1970, set the stage for decades of corporate behavior prioritizing the interests of shareholders above all else. But half a century later, market forces have exacerbated inequality, while deregulation has let companies off the hook for things like air and water pollution and climate change. 

Opposition to the Friedman doctrine has been building for some time (last year, the Business Roundtable announced that the purpose of a corporation is to create value for all stakeholders, not just shareholders), and is accelerating with the pandemic. With inequality and natural disasters in the spotlight, leaders in business and finance are rallying for a new narrative. 

Enter Imperative 21, a network of business associations created in the early weeks of Covid-19 and representing more than 70,000 businesses, with the ambitious goal of ushering in a more inclusive, stakeholder-focused economic system. The founders include the leaders of B-Lab, an organization that runs a rigorous certification process for companies interested in identifying as having a societal mission. Investors are also represented in Imperative 21 through the Global Impact Investing Network (GIIN), and large corporate CEOs through Chief Executives for Corporate Purpose (CECP), an association originally founded by Paul Newman.

Starting in April, the leaders of these and other organizations partnered with the Ford and Skoll Foundations and began a broad conversation over Zoom with whomever was interested. The conversation led to a couple of drafts of "Imperatives for Economic System Change," and the creation of international coalitions to work on cultural change and shifting the financial system towards better management of systemic risks like inequality and climate change.

The allies chose the 50^th anniversary of Milton Friedman's doctrine to announce themselves to the world, launching a campaign they call "Reset." The campaign opens with a display on the Nasdaq Tower in New York's Times Square and on a building in São Paulo, Brazil, along with a full-page, paid announcement in the New York Times. The Nasdaq will also begin projecting key indicators of economic success on its tower, including biodiversity, living wages, anti-racism, and shared prosperity. 

Imperative 21 is campaigning for an economic reset based on three pillars: 

• design for interdependence,
• invest for justice, and
• account for stakeholders.

The group says it wants an economic system that:

• "recognizes the interdependence of healthy people, planet, and economies; reimagines the relationships between the private sector, government, and civil society; and ensures that everyone has access to free and fair markets;
• "removes structural inequality; ensures leadership and ownership are more representative and investment more accessible; uses technology to advance democratic ideals and human rights; and promotes greater voice, power, and opportunity for those currently marginalized; and
• "measures success based on credible common metrics of value creation for all stakeholders; creates incentives that reward business and investments creating social and environmental value; and enhances standards of fiduciary duty."

While entrepreneurs have long favored such changes, the effort behind Imperative 21 offers a framework for envisioning a different system. The group plans to find ways to highlight actions that help bring about change, and catalyze growing enthusiasm about conscientious business activity. They are designing their strategy around three audiences: the general public, business leaders, and policymakers.

Still, the leaders acknowledge that proper delivery of their message will take a decade or so. Despite such widespread desire for change, the shareholder system ushered in by Friedman is strongly entrenched and tough to deviate from. Just this summer, the Department of Labor issued a proposed rule that would limit the use of investments that consider environmental, social, and corporate governance factors in 401(k) plans. Regulation of the financial sector is designed around shareholder primacy, and shareholders are in a powerful position to continue propagating the notion that greed is good, or perhaps inevitable. 

This is why the Imperative 21 allies are focusing on getting the word out: They understand that policies governing the financial system won't change until public opinion builds enough momentum to change them. So as important as it is to advance concrete proposals for a new system, perhaps even more important, according to the network, is sparking conversations. A reset can only begin with awareness.

To Protect Its Supply, Kind Speaks for the Bees

Originally published on www.Inc.com on August 25, 2020.

Kind today announced the company will commit to source by 2025 its almonds exclusively from bee-friendly farms that set aside land for wildflowers and do away with two bee-killing pesticides. The snack company will also fund a program at the University of California, Davis to monitor progress.

By encouraging growth of healthy bee habitats, Kind hopes to combat a decline in the pollinator population. Since Kind uses one to two percent of the world's almonds, the project will have significant impact and, according to an Environmental Defense Fund spokesman, can bring "long-term environmental benefits for soil health, water retention and regional biodiversity." Founder Daniel Lubetzky says his company is placing a real emphasis on environmental sustainability: "It's the logical next step." 

It is hard to underestimate the importance of bees. One study published last month noted that: "Most of the world's crops depend on pollinators, so declines in both managed and wild bees raise concerns about food security." The study looked into seven crops in 131 locations across the US, estimating "the nationwide annual production value of wild pollinators to the seven crops we studied at over $1.5 billion." The study said a decline in pollinators "could translate directly into decreased yields or production for most of the crops studied."

Last year Kind competitor Clif Bar attracted media attention by publishing an ad in the New York Times where it challenged Kind to source organic ingredients. Lubetzky says he respects Clif's societal commitments and that the competitor is doing good things, but he continues to counter that Clif's use of sugar as a leading ingredient is a dissonance for a nutrition bar brand. 

Today's announcement is the result of more than two years of stakeholder engagement with scientists and Kind's own supply chain to refine an environmental sustainability plan where the company can have real impact. "If bees end up collapsing we have a very very serious problem," says Lubetzky. "The hope is that three to five years from now these steps become standard practice."

After growing his snack company from the ground up, Lubetzky last year stepped down as CEO to become Executive Chairman. He gives his team the credit for developing the new sustainability plan, which also includes aspiring to reach 100% recyclability, compostability, or reusability across all its plastic packaging by 2025, and an investment in renewable energy.

During a Zoom interview Lubetzky continuously makes reference to his four children (who want his attention during our call), saying it's his responsibility to leave them a better world. That means a world with biodiversity, pollinators, good water management, and a steady food supply. Promoting a healthy ecosystem for almonds also means ensuring that Kind will be able to continue sourcing its key ingredient well into the future. "This is about enlightened self-interest," says Lubetzky.

He notes that in today's world the private sector "permeates our lives more than government... and with that power comes responsibility." While not every problem can be solved through market solutions, "when you're able to come up with business models to tackle challenges that exist, they can scale faster - I don't have to go around with a hat asking people for donations. So market forces are really powerful and you want to try to deploy them and channel those strengths to try to do the maximum that you can do in society," he adds. 

Above all though, his advice to other business leaders is to be authentic. "I think that in the future it will become more of an expectation that corporate actors behave responsibly and holistically in a more long-term oriented way," he says. "But I'd rather a company that is transparent and authentic and just says 'I'm providing good jobs, I'm providing this type of products,' than a company that tries to jump on the bandwagon and is not authentic. If it's not authentic, if it's not real, it's not going to help."

5 Ways for Your Company to be More Sustainable

Originally published on www.Inc.com on April 22, 2020.

The 50th anniversary of Earth Day comes at a strange time: when all the world is on hold, frozen in place by a pandemic. With human economic activity nearly at a standstill, for a brief moment the air and water are cleaner and animals have come out to play on deserted beaches and streets. It's worth asking if we can take this opportunity, this pause, to build something greener. Could a system based on more caring communities emerge? Can human activity be more in balance with the natural world? Do we really need everything we were used to before?

On a practical level, here are some design tips for entrepreneurs thinking about the building blocks to a better future.

1. Design with children in mind.

This means avoiding anything toxic. Bill McDonough, one of the great figures in sustainable design thinking, said in a recent presentation that toxins are not "bad" things, but rather elements in the wrong place or the wrong quantity.

For example, he says, if someone is drowning, the water all around her is toxic. Think of putting things in their right place, he says. A hammer belongs in a construction site, but not in a child's playpen. Carbon belongs in soil, but not in excess emissions released into the atmosphere.

As an entrepreneur, you might want to apply your creativity to clean tech solutions. An example that McDonough uses is thinking of plastic bottles as a form of carbon, which can be designed to be biodegradable and to return to the soil.

2. Simplify.  

A system that is unnecessarily complex can be reduced to what is essential. As an example, CEO of Social Impact Capital Sarah Cone doesn't think today's food supply chain makes any sense. Agricultural products make their way across oceans to be put in warehouses and sold through multiple intermediaries before getting to a family's refrigerator. That is a lot of margin reduction.

Cone says her company invests in the essentials of human need, noting that they "look at deals in food, water, affordable housing, education, energy, and particularly drugs. And having these things at lower cost, and better-performing via technology, becomes more important." There's plenty of opportunity in simplifying your systems from a sustainbility standpoint

3. Think locally and build resilience.

Michael Shuman, a proponent of local community building, suggests designing businesses for resilient, interconnected local communities. Does your business respond to a local need? Will it help the community thrive? Does it measure performance through tools like the B-Corp assessment (a certification program for societal benefit)? 

We can't all predict a pandemic the way Bill Gates did, but entrepreneurs can understand risk and weave environmental and social risk management into the way they do business.

So ask yourself, how could climate risk affect your business? Shuman says that those who are best able to withstand future crises--be they pandemics, climate disruptions, or financial meltdowns--will be the ones who thrive economically.

4. Be part of the clean tech climate challenge.

We've become used to hearing about climate change as a problem too big to solve, a conundrum for policy-makers and not entrepreneurs. But the climate challenge presents immense opportunities for innovation. We should treat this as an engineering challenge, according to Solomon Goldstein-Rose, author of The 100% Solution: A Plan for Solving Climate Change. "We can do that through moonshot-style innovation projects," he wrote in a recent article. The goal is to outcompete fossil fuel infrastructure and technology, building new systems that are affordable enough to spread rapidly.

5.  Design for seven generations into the future.

This was a concept coined by Native Americans that first appeared in the Great Law of Peace of the Iroquois Confederacy, an oral framework thought to have influenced the U.S. Constitution. Designing products and business models that stand the test of time, a long time, can help entrepreneurs make a positive impact on the environment and society as a whole.

As we meditate how to rebuild after Covid-19, let's celebrate Earth Day by recommitting to the earth with these tips.

Why Seventh Generation Chose the State of the Union to Discuss the State of the Planet

 Originally published on www.inc.com on February 5, 2020

With climate anxiety on the rise, particularly among younger generations, it shouldn't be surprising that one brand picked President Trump's State of the Union address to deliver its message on the issue. Seventh Generation's 60-second SOTU ad featured a clip from Franklin Delano Roosevelt's State of the Union address of January 7, 1943 with current footage of children marching for the climate. "The people have now gathered their strength," FDR proclaims, as images of young people displaying bold messages like "There is no planet B" flash across the screen. "They are moving forward in their might and power," the voice continues, and then "They see before them the hope of the world." 

Unlike its past commercials, which have featured its household cleaning and paper products, in the "Believe in a Seventh Generation" ad the company is using its advertising budget strictly to call for action against global warming. 

Why right after the State of the Union?

"We feel there cannot be a strong State of the Union without a discussion of the State of the Planet as well," says Hanneke Willenborg, Chief Marketing Officer at Seventh Generation. "It's the most important issue of our time."

Seventh Generation, a Unilever brand, wants to get the word out about its name: a reference to an Iroquois principle that decisions should be made taking into account sustaining people's livelihoods all the way to seven generations in the future. 

Willenborg says by taking a stand on climate the company hopes to raise awareness and change consumer behavior, which dovetails nicely with the brand's ability to sell more of its biodegradable and recycled products. The company's target audience is millennials with small children, and 40% of its sales already come from this demographic. That group, which in Seventh Generation speak is known as "mindful progressives," is expected to become more and more passionate about sustainable consumer choices with the wellbeing of future generations in mind.

Indeed, many brands are noticing that sustainability is key to conquering the hearts and minds of younger consumer groups and millennial employees. The trend is accelerating and companies want to get on board. 

Is taking a stand on the environment political? Willenborg says no. "It's not a partisan issue," she says. "When the Titanic is going down, it doesn't matter if you're wearing a blue shirt, or a red shirt." Or any shirt at all.