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.

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