Over the past couple of decades we’ve heard a lot about “social enterprises,” a term usually applied to companies that are visibly making the world a better place. Those are the good guys, the heroes of our time. We would all like to be one of them, to do something positive for at least our corner of the world. Yet, not every company is curing cancer, feeding the hungry, or solving some environmental problem. What about the rest of us?
The good news is that regardless of your industry or the product or service you offer, your company can have a positive impact in the world – not just because of what your company is doing, but because of how you do it. But it requires that you challenge some of the conventional wisdom that you may have taken for granted. Here’s how:
- Re-think your ownership. In the conventional wisdom, a corporation is owned by its shareholders and is solely responsible to its shareholders, with all other considerations being secondary. In fact, whether shareholders can truly be said to “own” a corporation is subject to some legal debate. Individual shareholders do not have the “bundle of rights” that is generally understood to comprise what we call “ownership.”
Some legal scholars argue that a corporation, as a person under the law, cannot be owned by anyone but simply has contractual relationships with shareholders, just as it has contractual relationships with employees, customers, suppliers, lenders, and other constituencies – all of whom in some sense invest in the corporation. In other words, what a stockholder owns is simply stock that confers certain rights, not the corporation itself.
- Re-think your responsibilities. With an expanded view of a corporation’s owners and investors as including multiple constituencies, it follows that a corporation bears a responsibility to all of those constituencies. A corporation that prioritizes the interests of stockholders at the expense of all others is essentially a predatory corporation: It preys upon its community in order to extract wealth from the community and concentrate that wealth in the hands of its stockholders.
That is not what the law requires. A corporation’s board and management should recognize that the corporation owes a responsibility to all of its constituencies. Since the interests of its various constituencies are not always aligned, it is one of the core duties of a corporation’s board and management to balance all those interests in a way that is fair to all of them and does not unduly burden any of them.
- Re-think your capital-raising strategy. In the conventional wisdom, a company that isn’t big enough for an IPO must raise capital from banks, angel investors, or venture capital firms. In each case, that involves putting your fate in the hands of a small number of people who already hold wealth and power. And if you succeed, your profits will further bolster their wealth and power.
Instead, you can raise capital from your own community, including the non-wealthy, using “community capital” strategies like crowdfunding, direct public offerings, and community investment funds. Members of your community invest because they want you to succeed, not merely because you offer the highest financial return on their investment. And when you succeed, the profits will continue circulating in your community and will build wealth right where you want it. As a bonus, when the investors of capital are part of the same community as the company’s employees, customers and suppliers, it is easier to balance their interests because at some level they all want the same thing: a peaceful, healthy and thriving local community.
- Re-think the growth imperative. Our culture’s obsession with growth – at both the micro- and macro-economic levels – is unhealthy and destructive. At the level of the broader economy, it is increasingly clear that an economy cannot continue to grow indefinitely; it will eventually hit limits at which collapse is inevitable. At the level of individual companies, the problem with big companies is that they concentrate wealth, which leads to a concentration of political power that is fundamentally anti-democratic.
We are told that every company should aspire to go big and go global, untethered from community, and opportunistically locating wherever the most profits can be extracted. But if we think of a company as existing to serve its community – including all of the constituencies that make up its community – then it becomes clear that each company should aspire to grow only to the size that will allow it to most effectively serve those constituencies. Growth, then, becomes a means to an end, not the end in itself.
- Re-think where your money goes. In the conventional wisdom, spending decisions are based on a simple calculus that balances cost against the quality of goods or services. Similarly, investment decisions are based on a balancing of risk and reward. It is often assumed, if rarely articulated, that these decisions are values-neutral.
And yet, none of those decisions are actually values-neutral. Every spending decision, every investment decision, and every choice of a supplier or professional provider is effectively a vote for someone’s set of values. Any company can greatly magnify its positive impact in the world by choosing to do business with others who share a similar commitment to a better world.
It requires that there be an inquiry into the values and social impact of any potential supplier, provider or investment target. That inquiry can become part of a company’s routine decision-making process. For example, before purchasing supplies from a big-box retailer, consider the impact of that retailer on the local economies in which it operates. Before sending legal work to a big law firm, find out whether that firm supports extractive industries at odds with your company’s values such as fossil fuels and weapons manufacturing.
You’ll notice that the changes described here start with changes in our underlying assumptions; and when those changes take root and become widespread, we will have a change in culture. It’s the broader culture that needs to change. But, of course, changes in assumptions and culture are not the end game. Rather, those changes will compel changes in behavior that will lead to a healthier and more equitable world.
When companies across the country recognize their responsibilities to all of their constituencies, when everyone has an opportunity to invest in their own communities, and when the economy is dominated by locally-rooted companies that deploy their resources in a values-conscious way, we will have an economy that is very different from the one we have today, one that is truly sustainable, and with opportunities for everyone to thrive. That is our vision at Cutting Edge Capital.