Wednesday, June 23, 2010

Integrity and the Problem with Binary Thinking

My latest post on Law For Change - Legal Resources ("")

by R. Todd Johnson

When I was younger, my father used the oft-cited Winston Churchill quote that I paraphrase here:

“If you’re not liberal when you are young, you have no heart.
If you’re not conservative when you are older, you have no brains.”
That line still begs a chuckle today. (And I learned a long time ago that it’s no laugh-line unless it includes some truth.)

But honestly, as I’ve gotten older, I’ve come to realize that this is really a great lie.


Because it allows us to draw the line between “smart” and “stupid,” and between “good” and “bad” between us, rather than through us. In fact, if I can put you on one side of the line or the other, then it helps me avoid my responsibility of realizing that I am sometimes “smart” and sometimes “stupid,” sometimes “good” and sometimes “bad.”

Basically, Churchill’s line lacks integrity. It’s cute, yes. But what is really does is make me think of youthful idealism as though it were stupidity, and older practicality, as if it were evil, and it allows me to ignore the older idealists, and the selfishness often present in youth.

The same is true today of the pervasive idea that you can either “do good” or you can “do well.” The idea simply lacks integrity.

Put another way, when doing well and doing good are separated, in a person, an organization or a corporation, the completeness or “whole” does not exist -- there is a lack of integrity.

Let’s take a deeper dive into what I mean.

Take our U.S. tax policy, for example, that rewards entities for “doing good” with deductions and tax exemptions. Corporate philanthropy (up to 10% of profits), expenditures on research and development, and employee health care, among others, all receive tax deductions as a result of public policy decisions designed to encourage that behavior.

Even further, so-called “non-profits” represent another corporate form, this time for maximizing “doing good,” rather than creating wealth. Thus, for-profit corporations “do well” (i.e., create private wealth) and non-profits “do good” (i.e., create social benefit). This binary thinking (doing good vs. doing well) produces two systems that can be represented on an x-axis/y-axis as follows:

where the $ sign represents the highest point on the axis for creating private wealth (i.e., doing well), and the ♥ represents the highest point on axis for creating a social good (i.e., doing good).

This figure shows that a classic “for-profit” entity (typically a subchapter C corporation or an limited liability company) scores high on the “doing well” axis, but near the bottom of “doing good,” whereas a non-profit or tax exempt corporation scores the opposite (i.e., high on “doing good”, but near the bottom for “doing well”).

Of course, that last statement is overly broad. Corporations have long undertaken corporate philanthropy, supporting the arts, education and contributing to programs to alleviate the conditions of poverty. But corporate philanthropy does not represent the universe of ways in which corporations have a positive social impact. Companies employ people, produce efficiencies, improve lives, help avoid poverty and starvation, not to mention creating wealth (not only for executives on the top of a corporation, but also workers holding equity in IRA’s, mutual funds and pension funds). Yet even further than all this, corporate social responsibility programs are entering their third decade of wide-spread adoption, with more and more measurable impact on communities, extreme poverty, and reducing negative stress on the planet and the environment.

On the other side, daily press stories profile social entrepreneurs seeking to employ business models on behalf of non-profit corporations. Earned income strategies, corporate efficiency, market analyses have permeated nearly every major non-profit, moving them up the scale of earning more. Non-profit donors are asking tougher and tougher questions about ways to achieve scale, ways to measure impact, and ways to ensure that investments result in leverage.

Interestingly, this movement of for-profits toward doing good (in addition to doing well for their shareholders) and the movement of non-profits toward doing well (in addition to doing good) is not being orchestrated. Rather, in some very real sense, the behavior of each organizational type has been, and continues to be, to move towards the fully integrated spot – the spot of integrity, or wholeness and completeness -- in the upper right-hand corner of the earlier diagram.

And yet, both forms have their limitations.

For example, corporate philanthropy is limited – because tax policy only rewards a deduction for up to 10% of corporate profits donated to philanthropy. But would directors find protection under the rubric of the business judgment rule if they decided to give away 50% of corporate profits? Certainly, at some point, directors find themselves exposed to arguments of wasting corporate assets. Thus, the law has a barrier on how much good a typical for-profit corporation can undertake, at least in terms of giving away profit. So too, most states limit special purposes that corporations may undertake, if it creates a trade-off to the primacy of maximizing returns for shareholders.

Likewise, capitalistic strategies of earned income strategies have their limits for non-profits. The typical organization qualified under Section 501 of the Internal Revenue Code, may earn profit to support charitable activities (even income unrelated to their charitable mission), so long as they pay taxes on the income. But at some point, the earned-income strategies of a non-profit threaten a test of “substantial relatedness” to their charitable mission, so that too much earned income could jeopardize its charitable status.

And yet, one look at the diagrams above, begs the question: “Why not create an entity unfettered by the “for profit” and “non-profit” rules, thereby establishing corporations for broader benefits (or what I like to refer to as “for-benefit corporations”)?1 Permitting a form that allows the entrepreneur to build an organization that aims directly for the “for-benefit” sector represents the shortest distance between two points, right? I mean, can you think of anyone with more than a fifth grade education who would look at the diagram above and, seeking to build an entity in the “for-benefit” sector, would chose to first build a typical for-profit or non-profit corporation, and then move towards the “for-benefit sector?” Of course not!

Yet, the tax code, state statutes for incorporating, case law surrounding the dictates of fiduciary duty, and other forces dictate binary thinking when evaluating the proper type of entity for accomplishing objectives – if you want to do well (i.e., create wealth), then you form a for-profit corporation, and if you want to do good (i.e., create a social benefit), then you form a non-profit. In each case, the result is something less than perfect, particularly for the social entrepreneur who is determined to create a different type of corporation – one that can both do well and do good at the same time.

The Problem with Binary Thinking

Until recently, available corporate forms left entrepreneurs with a simple “either – or” equation. You either adopt a corporate form that maximizes the possibility of doing well, or adopt a corporate form that maximizes doing good. This has been the great legacy of our public policy decisions.

Personally, I find such a binary choice unhealthy, both at the local and at a global level.

At the local level, binary thinking leaves entrepreneurs with one of two possible buckets of capital to choose from – the multi-trillions of dollars moving through our public capital markets daily (and the many trillions more in private capital behind that), or the $900 billion in public and private foundations. As John Sage, the founder of Pura Vida Coffee (an organic, shade-grown, fair trade coffee company that gives back a significant portion of its profits to help at-risk children in the coffee growing regions of the world), once put it,

When I meet with private investors about investing in Pura Vida they focus on one of two things – the ROI of their investment dollars OR the social impact and leverage of their charitable donation. They seek either to invest $1 million, or donate $10,000. When I offer that their money will do both and begin explaining Pura Vida’s model, they respond by saying simply ‘you’re making my head hurt,’ and move on to the next item on their desk.

When investors think in this manner, entrepreneurs are left with only two types of cars to build – one that has a very small tank for gas where they are the driver and have control over the destination, and one with a very large tank for gas that could even become self-filling, where they may drive for a time, but where ultimately, the “professionals” will take over and drive for scale.

Let’s say the first car –the philanthropic model – has a one gallon tank of gas. That car will absolutely make it across the country, but progress will be slow and will involve excess time and energy as the driver regularly leaves the freeway in search of gas stations for refueling. The second car – the classic corporate model – will certainly make better time in speeding across the country with its million gallon tank of gas. (In fact, the gasoline engine is powering a monster battery that allows the car to begin generating its own electric power, to the point where it might ultimately become self-sustaining.) But along the way, this speedster may run over a few things, including the spirit of the entrepreneur and her social mission, in favor of a professional (someone more accustomed to high-speed travel) seeking “scale” and “leverage.”

This typifies the social entrepreneur’s dilemma – accept an investment of $1 million or a donation of $10,000. Scale quickly, with the ability to cover long distances, but risk that others – the professionals – may take over and redirect the mission in favor of profit solely or primarily. Or, make the scale and the speed secondary goals to consistency of the mission.

Other issues immediately follow. Compensation, for example, tends to vary widely between the two types of corporations as a result of the available financial resources. “For profits” have the advantage of the million gallon tank for gas, meaning that paying for the best and brightest is not only feasible, but expected. By contrast, with the significantly smaller tank of gas, the executive director of the philanthropy is practically expected to accept lower pay. After all, their corporation is doing good. Why should they make good money too? Too often, this satirical idea turns into the tyranny of doing good. Many times I’ve heard the head of a philanthropy or social venture explain that their labor costs are simply lower because they don’t have to pay as much for people to come and work for them, because they are doing good.

But there are implications far beyond the individual corporation and its employees.

Globally, the U.S. people are known around the world for two primary and remarkable assets – assets that the rest of the world seeks to replicate. First, the entrepreneurial spirit of Americans is widely respected and held in awe, both here and abroad. Second, the heart of Americans for helping the poor, the disadvantaged, the hungry, and those in distress (whether through natural disaster or conflict) is unparalleled.

So what’s the problem, you may ask?

Well, the two assets don’t work together on an integrated basis, or to borrow Jed Emerson’s concept, they don’t work to achieve an optimized blended value. We export our entrepreneurial spirit through our corporate form, emphasizing the idea that making money is the greatest good of a company, all the time creating devastating results in the harvesting of natural resources, minerals, cheap labor, and regularly selling goods that people in the developing world don’t need, or worse yet, that cause physical harm. All this is done in the name of capitalism. Then, when disaster strikes, the biggest and best non-governmental organizations (many of which are U.S.-based, founded or funded) with great corporate donations (from some small percentage of profits) go to work spreading the goodwill of the American people.

We don’t see the need for integration of our “doing well” with our “doing good,” but can we blame the world outside for their cynicism? With one had we take and with the other hand we give. What the rest of the world sees is hypocrisy.

What I see is a lack of integrity – the state of being whole, entire, or undiminished; a sound, unimpaired or perfect condition.

I’m not talking about morality. I’m talking about working to create a “complete” form of doing business. Doing good and doing well through the same organization should be the aspirational goal of every entrepreneur, every investor, every philanthropist and even the government. In many respects, our national security and our future may depend upon it.

But even if that’s too idealistic to hope for, why wouldn’t that form exist for those who want to pursue the “for-benefit” model?

1 The term “for-benefit corporation” is used throughout to describe the type of entity distinct from the typical “for-profit” and “non-profit” models of a corporation. These are entities are built to optimize private wealth innurement (doing well) and social benefit (doing good). “For-Benefit Corporation” is a trademarked term of the Fourth Sector Network, which ascribes a different meaning.

*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 may not be otherwise used or reprinted without express permission from Todd.

Sunday, June 20, 2010

Loosely Related (or more so?)

by R. Todd Johnson

Sometimes, I get a funny, out-of-body experience, feeling when I read the newspaper. 

(Yes, my daughters will attest that I'm one of those who still considers a Sunday afternoon on the couch with newsprint covering my fingers to be close to Dan Nava's recent experience of getting his first at-bat in the Majors in the starting line-up for the Boston Red Sox, at 27 years old, and knocking a grand slam home run on his first pitch -- perfection.) 

So there I was, today, doing the thing I wanted to do most on Father's Day, having slept in and had a sweet breakfast with the family, when suddenly, I started yelling at the newspaper. (Look, we don't have a broadcast signal TV, so the newspaper is as close to real-time media as we get in our house, absent the internet.)

Skimming past the articles on the new reality TV show "The Real Housewives of D.C." and the political points scored by politicians for piling on Tony Hayward for yet another PR gaffe for his spending some father-son time on Father's Day at a yacht race, I moved straight to my favorite The Week In Review.  

And there, I sat baffled.

I thought page 2's LaughLines had it right, with David Horsey's cartoon (above), and then I read about how the "great mineral find of 2010" in Afghanistan is likely to become a curse for that country, just a short page flip away from how our continued appetite and demand for the latest and greatest remains a problem, as exhibited by cellphone half lives

And that's when I lost it!

Don't we get it? Sure, Tony Hayward is an easy target, but collectively, where's the self-examination of our search for the enemy -- we've found the enemy and it's us!

Why don't I daily see how the choices I make keep adding to the total mess, not just in the Gulf of Mexico, but all over the world.

Today, as of this writing, the counter above notes 77,913,039 barrels of oil have leaked into the Gulf of Mexico.  As of right now, that's approximately three day's worth of America's oil addiction.


*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 may not be otherwise used or reprinted without express permission from Todd.

Sunday, June 13, 2010

Who's to Blame? Dare we say it . . . Us!

by R. Todd Johnson

Today's op-ed by Thomas Friedman sounded a similar note to my post yesterday.

Let's start by looking in the mirror.  I know it's not fun, but it is where we will find sustainable change.

*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 may not be otherwise used or reprinted without express permission from Todd.

Saturday, June 12, 2010

The Benefit Corporation: A step in the right direction, but . . .

Yesterday's CSR Blog at Forbe', featured a guest blog from my friend and social entrepreneur-extraordinaire, Jay Coen Gilbert.  Jay is a co-founder of B Lab, a nonprofit organization dedicated to using the power of business to solve social and environmental problems.

I've been proud to be affiliated with some of the great work B Lab has done surrounding the B Corporation, the Benefit Corporation Statutes that he mentions in his piece, and the Flexible Purpose Corporation statute that is wending its way through the California legislature this year and next.  

As an advisor to B Labs, I have always offered my candid, honest assessment of what I think works and doesn't.  And I have been incredibly grateful for the attitude Jay and his colleagues, Andrew Kassoy and Bart Houlihan, have taken towards my opinions, even when they did not square exactly with their views.  They've always been open and considerate to hear my views, desiring to learn from them and sometimes disagreeing, understanding that I am passionate about social entrepreneurship, fixated on healing the world's wounds and caring for ALL 6.8 billion of its people, but at the same time trained in the corporate realm, as an advisor to Global 1,000 companies and with a perspective gained from that training that is sometimes very different than theirs.

It is with humility that I offer these comments to Jay's blog piece.  He is doing great work.  I hope you will take some time to learn more about it.

Great to see you blogging on this topic and great to see Forbes hosting.
A couple of thoughts:

1. Of course, the tendency is always to blame the corporation for the "short-termism," as its results are most often manifested there, when there are failures or successes. This, in turn, drives the "stick" approach focusing on "creating significant exposure for [directors and officers] to a shareholder lawsuit against them personally for breaching their fiduciary duties."

But there is a demand side to this equation that you don't address and that the Benefit Corporation Laws won't address -- namely the constant chase by most Americans for the "dream" of higher and higher returns, with no regard for the global, societal or environmental costs. It seems the height of hypocrisy for the IRA owner who has benefitted enormously from the run-up in oil stocks over the past several years, to now wish to punish some corporate executives for the results of the investor demands to drive higher margins. It seems to me the responsibility needs to go much, much further.

Using your BP example, for one, we tend to ignore the real reason for this disaster -- America's addiction to oil and our love affair to our cars. Take into account the fact that the entire well that has spilled only about 1% of its contents into the Gulf would supply America's oil addiction with five days of oil, and you begin to see the magnitude of the demand problem. The real question is whether Americans are prepared to adjust their standard of living to come more in line with ideas of sustainability.

2. In our work together, we both agree on the basic premise that the law needs to change to encourage better forms of governance that permit living out aspirational goals of business life, rather than the dive to the bottom that you mention. The Benefit Corporation statutes in Vermont and Maryland are a good start. California Senate Bill 1463 and the creation of a Flexible Purpose Corporation is another approach. Both forms would permit company's to set forth in their charters, a stated purpose beyond making money. Both forms would require greater transparency through public reporting of measured impact on meeting that purpose. But the two forms differ in a couple of fundamental ways.
First, the "benefit corporation" form seeks to create accountability (beyond reporting) through a system of greater liability, whereas the "flexible purpose corporation" form seeks to unleash directors from the risk of liability, permitting them to experiment more broadly with the right mix of doing well and doing good, without concerns of personal or corporate suits. Some would say that the "stick" approach is something that has been tried for the past 60 years and has failed miserably. Just look at our system of regulations, where we spend billions of dollars seeking to regulate and enforce. For example, we spend hundreds of millions of dollars on regulating and enforcing oil drilling and we still ended up with an environmental catastrophe. Why?

Well, some would argue that the entire system of regulating and punishing doesn't work because the regulators become the captives of the regulated. The regulated influence (more than anyone or any group influences) the selection of the regulators, the drafting of the legislation, the drafting of the rules and even the budget allocation for enforcement. Thus, the "stick" approach seems to further the "dive to the bottom," setting up a lowest common acceptable denominator, rather than creating something aspirational. Take a look at the results of shareholder litigation and you will see the same thing -- short term compromises of reformed activity, coupled with big payouts to plaintiff lawyers, and no real change in the system. In this respect, it seems useful to understand whether there might be another fashion of pushing for the holistic corporate model you seek, by setting up something much more aspirational than "avoiding being sued." What if directors were not so risk averse and were not so regularly advised by that most risk adverse creature known to man -- that staple at board meetings -- the lawyer? What if directors felt they would be rewarded for encouraging innovation in a company, even if that innovation failed to produce monetary returns, because it lived up to the stated purpose of the company?

What if the goal were authentic transparency, without the risk of litigation, on what a company was doing to advance its blended value (or multiple bottom lines), so that greenwashing was no longer possible and best practices could emerge? Can any of that happen, realistically, if we add to the directors' concern, suit for yet another set of obligations?

Of course, regulations are necessary (and presumably will be for the foreseeable future). And expecting that corporations will suddenly become agents of good, overnight, is naive. But I learned a long time ago in raising my two daughters, that the best way to encourage them to become the best people they can be, I got far better results from spending more of my energy affirming who they were becoming, rather than criticizing what they were doing wrong.

Now I don't want someone to read into this that I'm defending BP. But whenever we have a crisis, we seem so keen on blaming someone. All the better if we can blame someone who is rich or who has made a lot of money. And we think that once we've made an example out of them, the job is done.

Unfortunately, that is never true. It may make us feel better, especially in the short-term. But it almost never solves the problem.

*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 may not be otherwise used or reprinted without express permission from Todd.

Wednesday, June 2, 2010

The Sustainability Conundruom

by R. Todd Johnson

I find that sometimes, when I'm looking for something to write about, I struggle endlessly to find the topic or the voice that gets me going. Other times, I get bludgeoned over the head with the idea.

This morning was a bludgeoning morning.

I started with a 7 a.m. breakfast with Jessica Jackley, Kiva Founder, to discuss her new start-up, the crowdfunding site and business for entrepreneurs, Profunder. During our conversation, I mentioned the two things that we never discuss (but that I always raise) at social entrepreneurship gatherings:

1. When we talk about businesses that "do good," what is "good" and how do we know? and

2. We allot tons of airspace to discussing and measuring sustainability as it relates to the environment or even to people in a macro sense, but what about sustainability for the social entrepreneur and the start-up team as individuals?

Then, in my daily perusal of blogs, I stumbled upon today's article titled "The Nonprofit Paradox" (subscription required) by David La Piana in the Stanford Social Innovation Review.  (Mind you, I don't normally read about nonprofits. Read this, if you are wondering why.)

In his piece, La Piana offers a couple of examples of what he considers the paradox:
Take, for instance, a human rights organization whose mission was to prevent torture. Despite this laudable goal, one of the group’s leaders left subordinates feeling terrorized. Staff members consequently—and without awareness of the irony—described working in the organization as “torture.”
A national nonprofit dedicated to eradicating child abuse faced a similar issue. The staff perceived (with reason, in my opinion) their CEO to be abusive, neglectful, and power mad. As a result, they adopted classic abuse avoidance behaviors, such as avoiding contact with him, delaying the delivery of bad news, and generally making themselves invisible. In a family therapy context, these behaviors would be diagnosed as pathological.
La Piana concludes, in part:
The nonprofit paradox seems to have a paradoxical cause—namely, the mission drive of nonprofit sector workers. Social sector organizations attract highly motivated people with deeply held personal values. These values-driven workers pursue their chosen profession despite its inherent difficulty and significant financial sacrifice. It is commonly observed that nonprofit workers are the most mission-driven in the country.

And so goes the social entrepreneur.

Driven by a social mission to "change the world," but understanding, inherently, the need for patient capital and longer horizons for exit, the social entrepreneur is inculcated into the entrepreneur culture -- do whatever it takes, no matter what it costs, to meet the objectives -- but undertakes to do it over a much longer time horizon.

How can that be sustainable? How can we make that more individually sustainable? Who is helping the entrepreneur at keeping their passion in check to ensure that their life remains sustainable?

Somewhere, I think the Jessica Jackley's of the world would like someone to devote time and resources to the question and to develop some best practices.

Perhaps you already have. 

Then please, offer up a comment and point us in the right direction.

*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 may not be otherwise used or reprinted without express permission from Todd.

Tuesday, June 1, 2010

An Open Letter to Joel Makower, Gil Friend, et. al

by R. Todd Johnson

I noticed this announcement Friday (tweeted upon by me even before this article appeared in that Underwriter's Laboratories is extending its consumer-trusted brand into the area of certifying businesses based upon their global sustainability.


I think it is fair to say that most people invovled in the social entrepreneurship movement would see this as a very, very good thing. And so do I. 

But that doesn't mean I don't have some concerns.

Sure, it's a natural evolution for UL, and their UL Environment brand, which already certifies environmental claims, sustainable products, and energy efficiency. For those who don't know, UL Environment is one of the for-profit subsidiaries of the non-profit Underwriters Laboratories. UL was founded in 1894 as a non-profit, but established for-profit subsidiaries to extend the brand in 2007. For me, it is easy to see how a fee-for-certification mark for "globally sustainable businesses" would be good for UL's business.

But what's in it for the social entrepreneurship movement?

That's the question that spawned my open letter to Joel Makower, Gil Friend and the others involved with UL in designing the metrics for evaluating a "globally sustainable business."

Now, I do not want to criticize. In fact, I have often said that I like to employ the technique that served me best while raising two daughters for eliciting good behavior: spend more of my energy affirming that good done than criticizing the mistakes.

But there is a time and a place for exhortation, and that's what I'm seeking to do here. I want to exhort the team working on this effort in the ways noted, so that the UL certification can eventually become unnecessary.

So, fasten your seatbelts:

Dear Joel, Gil and friends,

First, congrats to you on Friday's annoucement. I know this has been a long time in the making and has taken dedicated persistence to see it through to this point.

Second, let me affirm your instincts that this is something that is desparately needed. Many others have been working on developing similar standards, but as of today, I would call this an emerging sector, still in its infancy. To have the UL brand invovled in this type of certification process provides immediate bona fides and creates a strong impetus for companies that aspire for something beyond "good marketing" and instead desire to be recognized as "good companies," and to enter into the discussion of having their business (as well as their products) certified.

Finally, I have some suggestions as you move down the road toward stakeholder feedback as noted in Joel's piece. These suggestions are derived from my work as co-chair of the working group that developed the California Flexible Purpose Corporation legislation and the questions we encountered there surrounding measuring and reporting of mission impact.

I offer them as a friend as as a fellow traveler in this arena. (If you find any of my suggestions insulting or worthless, just remember, you get what you pay for.)

Be ruthless in rooting out bias! The B Lab certification has recently moved into v.3.0. Along the way, I have provided feedback and been pleased with the way the measurement criteria continue to improve. I'm looking forward to the full roll-out of GIIRS and how that might expand upon measurement standards that are used. I've long been a fan of SVT's work, Ceres' Global Reporting Initiative, and all the other work being done in this arena.

But along the way, I've noted some biases that are built into the rating systems. For example, let's take a partnership. It seems to me that it could be difficult for a partnership to qualify under these rating systems (and I've tried several times) if their governance system were, let's say, one partner, one vote and the one partner was the Managing Partner.

In numerous rating systems in this arena, centralized management and operational decision-making, are viewed as a major negative, or even worse, a gating item that prohibits an organization from attaining the mark or certification. On the other hand, let's use the legal industry as an example. (It's an industry I know.) As noted repeatedly in the press, during this past two-year period, one firm stood out as the only only firm that refused to lay off associates and staff to make it through the economically hard time. And this firm was the ONLY one.

"Why," you ask?

Because the decision in that firm of 2,500 lawyers and 800 partners was made by one managing partner who could say, "our values require that we share the upside when times are good, but also the risk when times are bad, rather than pushing that burden onto those less able to deal with it."

Every single other law firm, laid off staff AND associates. Some even told associates who had offers, "don't show up on your first day of work because there is no job for you." Most of those other law firms have a familiar governance structure. Guess what it is? Democratic: where voting blocks of partners can ensure that partners' profits stay high, on the backs of young associates and staff layoffs. So much for democracy as a proxy for doing the right thing.

Now I don't need people to jump to conclusions that I'm against democratic forms. Stakeholder involvement can be very, very positive. Rather, my point is far more subtle -- both forms of governance have their shortcomings and evaluation criteria should take that into account, rather than build in biases.

Acknowledge other models, mimic the good and be transparent! I know you are aware of the other resources out there. But I sometimes find that even smart, well-intentioned people can fall prey to NIH syndrome -- "not invented here" -- and reject other ideas that may be imperfect in the whole, even though parts may be beautifully well done. For example, GRI by Ceres would never work for most small and medium-sized companies which is why the only companies adopting the GRI are large, multi-national corporations. But the Global Reporting Initiative has some great elements. GIIR's remains in its infancy, but its evolution from B Lab's original v.1.0 and v.2.0 and the iterativeness of the standards, provides great learning for those willing to take the time to map the evolution of standards.

And don't forget to look at other private efforts (such as your own). Wal-Mart's Sustainability 360 standards come to mind, but so do SVT Group's SROI efforts and HIP Investor's standards just to mention a few of the many others. It would be nice to have some transperency on what UL is adopting and from where, as well as where UL is innovating, so that eventually the industry could begin developing "best practices."

I assume, given the manner in which UL Environment is structured (owned wholly by a non-profit) that UL will give broad access to the criteria they use, just as they do for determining safety ratings, but I hate to take anything for granted.

For me, the worst thing that could happen in this arena would be for multiple, competing "black-box" standards to each begin canabalizing one another out of a sense of market competition. In essence, I fear we would move from an era of marketing "greenwashing" (as the FTC calls it) where each company is saying "trust me" with respect to its claims, to a new era of "independent certifications," where each certifier is saying "trust me" as to its claims.

The item most missing today is trust. Yes, UL has a brand that connotes trust, but without some transparency regarding criteria, that brand could become quickly diluted, particularly if, on a fee for service model, the ratings come up very different from other ratings.

When you find yourself defending your standards, stop and ask the question why. Don't let your APE get in the way (Arrogance, Pride and Ego). Be on guard and be prepared to be humbled.

Everyone I know who has been working in this area says the same thing: You won't get it right the first time. And the truth is, you probably won't even get it right the second or third time.

But your persistence over the years in pushing forward on this idea means you have the character and wherewithal to keep improving. Of course, things are a little different now that you have a brand-sensitive corporate partner involved in the roll-out. UL (as they have in the past on several occasions) can easily become defensive about their choices made. Your job (as social entrepreneurs yourselves) is to stay open to the idea that every social entreprenuer, and those who have devoted themselves to working with social entrepreneurs, can be a teacher here. I'm sure that's what you mean by stakeholder feedback anyway.

I'd just add, don't be shy in soliciting that feedback. Post something public and with details and marvel at the genuis of the collective in providing feedback.

Take care in structural deployment. I'm incredibly curious, not only about the metrics being developed here, but perhaps more so on how they will be deployed (or as you say, commercialized). B Lab modeled their certification revenue stream after TransFair's royalty system -- you pay a royalty on product sold bearing the mark. UL has traditionally done things in the UL Environment business on a fee-for-service basis, and that's worked well for them in their certification lines where technical objectivity exists and can be layered under the trusted brand of UL, as an industry-recognized and required mark. But is the commercialization here through a similar "fee-based" system? What about existing marks out there today? Will they be rolled in, or viewed as competitors? And given that questions of business sustainability are a little more subjective than energy efficiency of a product or sustainability of a product, why should UL's subjective judgment be better than, say, a non-profit that undertakes to do the same thing?

In addition to broad publication of UL's criteria, it would be good to know a little more about how they are planning to commercialize it.

Learn from mistakes and iterate, iterate, iterate! UL stands to make a huge difference in promoting the idea of business sustainability. That makes this announcment more exciting than anything that has yet happend in this arena.

But UL is also a relative newcomer and, notwithstanding the bona fides that you each bring to them as sustainability junkies, the opportunity for doubt and lack of trust seems to loom large as part of the execution risk for this endeavor. In that respect, consider an attitude of embracing the mistakes that will be made in v.1.0 as the opportunity to create a better v.2.0.

I would be most excited if UL and your team were to announce that as part of the "stakeholder feedback" effort, you were teaming up with B Labs, Acumen Fund, Root Capital, Good Capital, SVT Group and HIP Investor to probe and test the criteria you've developed against the criteria they've eached developed or used. If you did so, I think you would find a ready audience of companies willing to embrace UL's roll-out, and hey, you might even learn something (and so might they) that would benefit existing social entrepreneurs.

I know this may sound counter-intuitive for UL who seems to be taking on this certification effort as a means of expanding their brand and creating sustainable revenue streams of income, but any minor dilution of the knowledge in the "black box" that would occur from including some of the leaders in this arena, would certainly be paid for by adoption among the companies that are leading the charge.

Good luck in this endeavor.  I wish you all the best for success!

R. Todd Johnson

*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 may not be otherwise used or reprinted without express permission from Todd.