R. Todd Johnson, Jones Day
C. K. Prahalad’s death a few weeks ago caused some reflection on my “for-benefit” business education. Some may not have known the author of “The Fortune At The Bottom of the Pyramid: Eradicating Poverty Through Profits,” and the man that Business Week called "a brilliant teacher at the University of Michigan, [someone who] may well be the most influential thinker on business strategy today."
But my “for-benefit” business teachers knew of C. K.
As is often the case, my education in “for-benefit” businesses started on a college campus. And like so many education stories, it started with a group of young and passionate individuals, just crazy enough to give up on all the conventional ideas of success in pursuit of a new ideal.
But like every good story, this one has a twist.
For in this story, I was in my mid-forties, and yet I wasn’t the teacher – the students were. Instead, I was simply a lawyer in a large law firm, willing to spend a little time talking to some young business students and would-be entrepreneurs. (If you asked them today, I think Matt, Sally, Darren and Ginger would deny they were teaching me anything.) I’m sure they weren’t seeking to teach me anything. Rather, when I first met these young entrepreneurs, they asked a simple question concerning their “base of the pyramid” (or “BoP”) business model: should it be a for-profit or a non-profit company.
Of course, this quartet knew much more than I did around the question they posed. For example, they knew (thanks to C. K.’s writings), that there are fortunes to be made in BoP companies. In India alone (the location of their proposed solar-powered, LED flashlight company), they estimated the market for a $25 flashlight solution included up to 300 million of India’s rural poor who lacked electricity. They also knew that selling a BoP product in India would require the creation of new distribution channels to the rural poor, hard work, and funding beyond what they could personally contribute as new business school graduates.
As they looked at the possible funding opportunities for their proposed venture, they came to a startling realization – they could either take donations OR they could raise investment dollars. To them, neither solution served their ideal. Instead, they both seemed to have drawbacks and shortcomings.
In particular, they seemed quite keen to pursue a “for-profit” model, if possible. Yes, they knew that their company would have a huge social impact in India, where lung disease was a large problem, especially among children, from the burning of kerosene in the house, or worse, they knew the statistics of the number of young children burned severely each year as a result of a kerosene lamp dousing a child with lit kerosene. They had also reviewed the research by the World Health Organization that concluded that the lack of access to clean water and light were the two issues most responsible for holding half the world’s population in extreme poverty (i.e., earning less than $2 per day).
For some reason, this quartet’s purity of passion caused me to shed the typical Silicon Valley attitude – often wrong, but never in doubt – and instead, confess that I had no earthly idea how to answer their question.
And at that moment my “for-benefit” business education began!
During the ensuing decade, I’ve had many teachers, most of whom I’ve been privileged to spend time with, working through the tough questions facing entrepreneurs who are dedicated to doing business in a new and refreshing way. These teachers include Jed Emerson, who helped me steer clear of terms like “triple bottom line” in favor of “blended value.” They also include entrepreneurs such as John Sage of Pura Vida Coffee, and Mari Kuraishi and Dennis Whittle of GlobalGiving, who showed me through sheer perseverance, that a dual-structure, for-profit/non-profit hybrid was possible, if not easy; and Jim Fructerman of Benetech who proved, without a doubt, that a for-benefit, for-profit business can be run through in a non-profit corporation, albeit only with some genius for dealing with the IRS; and Dara O’Rourke of GoodGuide, who had the courage of his conviction to complete the first-ever, Sand Hill Road, venture-funded, “for-benefit” corporation, and allowed me to help structure the model to protect the mission. My teachers also include co-conspirators such as Sara Olsen of SVT Group and a guru on measuring impact; Jay Coen Gilbert, Andrew Kassoy and Bart Houlihan of B Labs, the inventors of the B Corporation mark, who helped me understand that without some strict criteria for measuring impact and marketing what is a good company so as to distinguish it from what is simply a company doing good marketing, the for-benefit space would never grow; and Tim Freundlich and Kevin Jones of Good Capital and Social Capital Markets, who were among the first to see the need for investment funds of patient capital, focused on “for-benefit” corporate investing.
And the list goes on, and on, and on . . . .
Along this learning adventure, I’ve concluded that the sustainability and scale achievable through corporate good is stronger than the cautionary pitfalls the traditional corporate models and their history suggest. I’ve also become a strong advocate for encouraging change the same way I learned to encourage change while raising children – through the power of spending more energy affirming what is good, than criticizing bad behavior.
And now, thanks to the good folks at LawforChange.org, I have this space to pass along a little of what I’ve learned, and (more importantly for me) learn from you. Over the coming weeks, I propose to explore the following areas relevant to the “for-benefit” corporate arena in the United States:
- The Problem With Binary Thinking
- Is Philanthropy Killing the African Entrepreneur?
- Why Traditional Corporations Struggle to Do Good?
- Comparing Traditional Alternatives (Co-Ops, Corps, and LLC’s)
- Understanding L3Cs: What They Are and What They Aren’t
- B-ing the Change We Seek
- The New “For-Benefit” Legislation
- California’s Proposed “Flexible Purpose Corporation”
- The New Movement (That Doesn’t Know It’s A Movement)
- Funding A For-Benefit Company
I hope to introduce ideas, problems and solutions based upon my real-life experiences with entrepreneurs and their passionate search for pursuing business for good. Will my writing inspire? Probably not. Will my ruminations educate? Don’t hold your breath.
Will I have fun telling stories? You bet!
I can only hope you’ll enjoy hearing a few.
*Todd is a partner at the law firm of Jones Day, where he founded their Silicon Valley Office and runs their Renewable Energy and Sustainability Practice. The views expressed in this column are solely Todd’s personal views, not the views of Jones Day or its clients, and the information provided as to his affiliation with Jones Day is solely for purposes of identification and may not and should not be construed to imply endorsement or even support by Jones Day of the views expressed herein.
© R. Todd Johnson, 2010. The thoughts, ideas and words expressed in this column are the property of R. Todd Johnson and are used here by LawforChange.org with express permission, but may not be otherwise used or reprinted without express permission from Todd.