Assessment of Customer Orientation as Stakeholders

Assessment of Employee Orientation as Stakeholders

Benefit Corps and Conscious Capitalism

By Jay Coen Gilbert, cofounder of B Lab and the B Corp movement

One of the most powerful tools available to conscious capitalists … is to adopt a corporate structure like the benefit corporation.* The benefit corporation legal structure embeds a stakeholder orientation into the legal DNA of the company through an expansion of the fiduciary duty of the corporation’s board of directors and officers (i.e., C-suite management). This expansion of fiduciary duty creates a legal obligation for all directors and officers to consider the impact of their decisions on all stakeholders, not just shareholders. This legal change means that stakeholders can rely on the law, not just a higher state of consciousness in heroic leaders, to ensure that their interests are considered when the company makes decisions. Among other benefits, this legal commitment creates additional room for boards and directors when dealing with activist investors who are focused on short-term share price and not long-term stakeholder value creation. This might have been useful, for example, for Whole Foods. And it may be a big part of why Danone recently adopted the benefit corporation legal structure for its US subsidiary, DanoneWave (the entity with more than $6 billion in revenues that was created after Danone acquired WhiteWave for $10 billion last year and merged it with its existing US business—WhiteWave is the owner of brands Silk, Horizon Organics, Wallaby, and Earthbound Farms). Danone’s plans may not stop there as Danone became the first Fortune 500 company to publicly state its intention to adopt this legal standard as part of its long-term goal to become a Certified B Corporation. Lorna Davis, CEO of DanoneWave, said: “In 10 years’ time, people will say it’s inconceivable that business was done any other way. The notion that a company can only care about profit will be seen as old-fashioned and irresponsible.”

In addition to this increased legal accountability, benefit corporations are obligated to meet higher standards of public transparency by publishing an assessment of the company’s overall social and environmental performance. (In best practice, this assessment is verified against a credible, third-party standard.) By increasing accountability and transparency, benefit corporations align and reinforce conscious-capitalist corporate cultures, build trust among all stakeholders, and, as a result, create more long-term value for shareholders and society.

An increasing number of large, institutional investors believe this to be so. As one example, here is an excerpt from the most recent annual letter sent to S&P CEOs by Larry Fink, CEO of Blackrock, the world’s largest asset manager: “Environmental, social, and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth: sustainability of the business model and its operations, attention to external and environmental factors that could impact the company, and recognition of the company’s role as a member of the communities in which it operates.”

The benefit corporation legal structure is the strongest corporate governance tool yet available to meet these stated needs of long-term value creation, and to address the virus of short-termism that plagues the public capital markets. It is this short-term mindset that can be especially challenging for conscious capitalists like Whole Foods, Etsy, or Unilever. (For a more detailed legal analysis on how the benefit corporation structure can support long-term value creation and stakeholder orientation, read “Saving Shareholders from Themselves,” originally published in the Harvard Law School Forum on Corporate Governance and Financial Regulation.)

That being said, best-in-class ESG governance may be necessary, but it is not sufficient for conscious capitalists to thrive “under new ownership” or in the public capital markets.

Conscious capitalists (and their investors) need best-in-class management tools to assess their performance in managing their business with a stakeholder orientation. One such tool, currently used by more than 60,000 businesses; recommended by Conscious Capitalism, Inc. and The B Team; and used by scores of impact investors is the B Impact Assessment. It is a free, confidential tool that makes it easier for companies to assess, compare, and improve their performance in creating value for all their non-financial stakeholders—their workers, suppliers, customers, communities, and the environment. The B Impact Assessment is being used by small businesses and by multibillion-dollar multinationals, including Danone and BanColombia.

If the Conscious Capitalism movement is to survive, let alone thrive, over the long term in the public capital markets, then conscious capitalists will be best served not only to hope that new owners will “make good on their promise,” but also to employ best-in-class stakeholder governance and management tools to help them live fully into their values under any ownership.

Which brings us back to whether Whole Foods’ conscious capitalist practices will survive inside Amazon. John Mackey is hopeful: “One thing I absolutely love … about Amazon is they think long term. They have had the courage that almost no other public company has had … to … resist the drumbeat of short-term, quarterly earnings that have had us trapped here for a couple of years.”

That may be true. But, for Conscious Capitalism to thrive—not only inside Amazon but also more broadly inside the public capital markets—it might be helpful if John Mackey and Jeff Bezos combined their visionary leadership to inspire countless conscious capitalists to embed their principles into the legal DNA of their company by turning Whole Foods into the largest benefit corporation in the world. This would not only benefit Whole Foods and Amazon, but it would also benefit the Conscious Capitalism movement by demonstrating how a conscious company can be built to last and by offering all of their stakeholders a credible, comparable, third-party-verified assessment of their progress in maintaining, or even unleashing more of, their heroic spirit.

*Source: Jay Coen Gilbert, “Can Conscious Capitalism Survive Amazon? Or the Public Capital Markets?” Forbes, June 27, 2017, www.forbes.com/sites/groupthink/2017/06/27/can-conscious-capitalism-survive-amazon-or-the-public-capital-markets/#2cfa98dd4629.

Assessment of Investor Orientation as Stakeholders

Assessment of Supplier Orientation as Stakeholders

Assessment of Community Orientation as Stakeholders

Sustainability as a Good Investment for Business

By Chuck Fowler, chairman of Fairmount Santrol Mining

Fairmount Santrol is one of the largest producers of industrial sand and value-add sand products in North America, serving the oil and gas, foundry, glass, water filtration, building products, and sports and recreation markets. I cofounded this company in 1986 with a deep understanding of our responsibilities to the communities in which we operate and the importance of treating them with great respect. Since early in our company’s history, sustainable development (SD) has been important to how we do business. The leadership team believes SD is necessary and integral to who we are as an organization.

As Fairmount Santrol grew through acquisitions and organically, the leadership team established our legacy commitment to SD and appreciative inquiry, and this commitment endured as we united our merging organizations. Developed at Case Western Reserve University, appreciative inquiry is a strengthsbased approach to whole-systems change. The approach is used by organizations worldwide to advance growth and engagement. We at Fairmount Santrol implanted the practices of SD and appreciative inquiry in our culture. Ignoring any boundaries in terms of hierarchy, we encouraged a diverse group of employees, or “family members,” to get together in one room to work on a common goal.

The knowledge and perspectives of our family members have been vital in shaping our company and its future. Every three or four years, we host a companywide Appreciative Inquiry Summit and invite important external stakeholders to participate as well. We held our first large-scale summit in 2005, bringing together more than 80 percent of our workforce. Including such a high percentage of family members was a significant undertaking since it meant that we had to stop production in the plants. We headed into this summit with the goal of collectively formalizing our SD program—a task so important that we thought it was imperative for as many family members as possible to participate. At every summit, we employ the appreciative-inquiry methodology to encourage family members to discover our collective core strengths, to dream of a possible future, and to design a plan to achieve our vision. From these dreaming sessions, our formal SD program emerged, with thirteen SD teams today organizing our efforts. These teams focus on zero waste, clean water, best practices, sustainable mobility, supply chain, energy efficiency, tree planting, safety, community volunteering, health and wellness, training and development, new product development, and innovation.

Our most recent Appreciative Inquiry Summit, in 2014, was facilitated by our partners David Cooperrider and Ron Fry of Case Western Reserve University. At the summit, almost five hundred family members representing every functional area within our business—as well as external stakeholders such as neighbors, partners, community leaders, and customers—united near Chicago. We dedicated our time to boldly cocreating our vision for the future and defining the necessary steps to realize it. Discussions initiated at the summit powerfully accelerate our collaborative, driven culture and support our original endeavor to be leaders in SD. The summit led to further growth of our thirteen SD teams, with approximately ninety family members joining a new SD team.

Each year, our SD advisory committee and SD teams set big and bold goals that benefit both our business and the world around us. Over the year, we closely monitor and measure progress on our goals. To reward our family members for staying true to our commitment, we provide financial incentives for collectively achieving SD goals as an organization, with 20 percent of the annual bonus determined by our success.

SD goals have a positive impact on the three pillars of SD—people, planet, and prosperity. For example, in 2015, when one of our SD teams focused on training and development, the efforts ultimately resulted in over 80 percent of the company completing a financial wellness course.

Participating on an SD team, leading a subteam, and eventually becoming a team leader or coleader provides an excellent development opportunity and exposure to colleagues from across the organization. Through their participation on an SD team, family members can challenge themselves, deepen their skill set, and work with peers outside their department. The teams typically have at least one face-toface meeting per year to design their future and set new goals. At the end of the year, team leaders and SD advisory committee members have an annual meeting to celebrate successes and plan for the new year.

Some 2016 SD achievements include the following:

• The company outperformed the industry-average lost-time incident rate and surpassed the record for its best-year total-case incident rate for safety, thereby improving morale and lowering the cost of insurance.
• More than ninety-eight hundred volunteer-hours were donated to the communities where our employees live and work. These numbers were achieved through the participation of more than 75 percent of Fairmount Santrol’s family members. Volunteering strengthens valuable community partnerships that support our business activities.
• We achieved zero waste at twenty-seven of our thirty-one facilities in operation, including our largest facility, in Wedron, Illinois.
• To sequester 100 percent of our 2015 scope 1 and 2 greenhouse gas emissions, Fairmount Santrol funded the planting of over 102,000 trees, with 10 percent of the trees planted by our own family members.
• We donated $1.2 million to our communities through the Fairmount Santrol Foundation, with a significant portion funding children’s health and wellness, and education.

Striving to be an employer of choice, we provide one key benefit to our family members: the opportunity to donate forty hours of paid volunteer time per year. Since 2011, our members have donated more than seventy-six thousand paid volunteer-hours. And, because of our commitment to being good stewards of the environment, we have planted nearly half a million trees since 2011 to annually offset greenhouse gases to neutral.

In the interest of transparency and maintaining our commitment to SD, Fairmount Santrol has voluntarily produced a Corporate Social Responsibility Report since 2006. Until 2013, we reported on 161 of 171 possible Global Reporting Initiative indicators (topics). Since then, the global initiative’s move to materiality has added new focus and rigor to our SD efforts. Fairmount Santrol invested in a robust materiality assessment in the fourth quarter of 2014 to prioritize the SD topics of greatest interest to both our organization and our external stakeholders. We focused specifically on which of our significant economic, environmental, and social impacts, risks, and opportunities across our value chain could substantially influence the decisions of stakeholders. Our research identified seventeen priority areas, which we have been working to align with our annual SD team goals and bold Vision 2020 goals. Every three years, the Fairmount Santrol family plans to refresh the materiality assessment we use to make sure we manage our efforts with the greatest potential impact to people, planet, and prosperity.

Fairmount Santrol’s steadfast commitment to creating positive change in society, the environment, and our overall economic health is an integral part of our company’s approach to ensuring long-term growth and prosperity for all our stakeholders. SD investments not only benefit our family members, our communities, and the planet, but they also drive prosperity for our business through cost savings and improved profitability—a virtuous cycle we refer to as SD Pays. Annually, our SD Pays Standardization Committee manages our measurement methodology, clearly outlining which types of projects create SD Pays, the SD expenses to include, and how to calculate the project value. This practice helps our business and stakeholders clearly see how SD at Fairmount Santrol creates value. From 2011 to 2016, our yearly SD efforts produced approximately $5.0 million to $9.0 million of net tangible SD Pays value.

I’m proud of the Fairmount Santrol family’s SD accomplishments and wanted to share with students our experiences in imagining new possibilities. After all, they are tomorrow’s leaders who must take SD to the next level globally if we are to ensure a bright future for the next generations. That’s why my wife, Char, and I support the AIM2Flourish initiative. It is housed at the Fowler Center for Business as an Agent of World Benefit at the Weatherhead School of Management at Case Western Reserve University in Cleveland.

AIM2Flourish’s mission is to catalyze and celebrate inspiring examples of innovation that tackle humanity’s greatest challenges. The initiative combines a curriculum for business school professors, the AIM2Flourish.com story platform, and the Flourish Prizes. Using the UN Sustainable Development Goals as a lens, students around the world sit down for one-on-one appreciative-inquiry interviews with business leaders in their communities. Students then write stories based on their experiences, and the stories are posted on AIM2Flourish.com as inspiration for others.

A successful AIM2Flourish initiative can help students see firsthand what business innovators can do to improve our world. More importantly, students report that they see themselves becoming these kinds of leaders when they graduate. As of May 2017, the AIM2Flourish website has over 535 student-written stories underscoring Fairmont Santrol’s motto about leadership: “Do Good. Do Well.” The seventeen best-of-the-best stories from 2016—one for each sustainable development goal—were celebrated with the inaugural Flourish Prizes at the Fourth Global Forum in June 2017 at Case Western Reserve University. These annual awards honor the most flourishing innovations around the globe. Char and I believe that business leaders every-where, and young people in particular, need to hear this message. We’re glad to see it growing, and we wholeheartedly support it.

Since Fairmount Santrol became a publicly traded company in 2014, our family members have been asked if our commitment to SD will endure. The answer is simple: Yes. Sustainable development, one of our most important differentiators, is core to our values and vision. Family members are deeply engaged in the commitment to exceed all expectations while fulfilling economic, social, and environmental responsibilities. High engagement drives efficiency, innovation, hard work, commitment, and, ultimately, financial value and prosperity. Fairmount Santrol is committed to being bold, staying true, and leading by example, because we believe that business can be an agent of world benefit. It’s simply good business. As I like to say, “Take care of the land, and the land will take care of you.”