In Good Company?

Let’s recap some bad news. Thanks to BP, there are over 140 million gallons of oil polluting the Gulf of Mexico, and that number increases every day. Because of the Masters of the Universe on Wall Street, with their credit-default swaps and collateralized debt obligations, the nation is reeling from a recession rivaled only by the Great Depression. And, if it weren’t for those two catastrophes, the deaths of 29 coal miners in April — thank you, Massey Energy Company — would have stayed in the public’s consciousness a bit longer.

What can we glean from this sorry triptych? If there was ever a time to push for more social responsibility in business, it’s now.

Vermont Businesses for Social Responsibility [1] is the largest group of its kind in the country. What began as a murmuring amalgam of morally righteous businesspeople almost two decades ago has matured into a strong voice for a different way of making money.

And this year, it appears that people are really listening, and VBSR is poised to increase its influence on both the state and national stages. Recently, the organization successfully lobbied the legislature to follow Maryland’s lead and pass the Vermont Benefit Corporation Act, which allows corporations to serve a public benefit even when it conflicts with the financial interests of their shareholders.

Next week, VBSR will publicize the results of its first legislative scorecard, rating lawmakers on their economic enlightenment.

And it doesn’t hurt the organization’s profile that almost every Democrat running for governor has teamed up with the CEO of a company that belongs to VBSR. Peter Shumlin is palling around with Jeffrey Hollender and Jeff Wolfe — of Seventh Generation [2] and groSolar [3], respectively. Deb Markowitz has Don Mayer of Small Dog Electronics [4] in her court. Racine relies on Kate Paine, who is on VBSR’s public policy committee, and Victor Morrison of American Flatbread [5]. Matt Dunne recently rolled out Gardener’s Supply Company [6] founder Will Raap, Frank and Brinna Sands of King Arthur Flour Company [7] and Bob Allen of the Vermont Country Store [8].

Whether or not Vermonters recognize the acronym, VBSR is setting new standards for business and shaping political discourse in Vermont, especially in the area of economic development.

For a long time, investors didn’t concern themselves with whether their money and their morality jived. It was normal to buy stock in a company that manufactured nuclear warheads, then go to church on Sunday and not feel a twinge of hypocrisy. Public sentiment shifted during the Vietnam War, and socially responsible investing was born. Today, more than $3 trillion is under management in companies chosen for their adherence to practices such as fostering good employee relations, treading lightly on the environment and serving the community.

On the business side of the equation, it’s impossible to pinpoint when companies decided to rally around their ethics. In Vermont, something approaching a socially responsible business movement began in 1990, when a handful of local companies — Ben & Jerry’s, Seventh Generation and Small Dog Electronics to name a few — got together to act as a united force for the “dual bottom line,” or the simultaneous pursuit of profits and ethics.

The new organization immediately distinguished itself from the regular business community: It defended Act 250 and supported the Family Leave Law, the Vermont Sustainable Jobs Fund and an increase in the minimum wage. VBSR now has about 1200 members — representing roughly 15 percent of the Vermont workforce. It has honed its mission into a sound bite: “To demonstrate a better way to do business,” says Patten.

How did a state as small as Vermont come to have the country’s largest socially responsible business group? “My claim is that we didn’t invent anything here,” Patten says. “We just stuck to our old values” — taking care of the land and the people; running the family business so it’s there for the grandkids — “when the rest of the world adopted new ones.”

The organization’s definition of “social responsibility” has changed since VBSR’s early years. Now there’s a triple bottom line: people, planet, profits. The idea is that, by treating employees fairly and reducing its environmental footprint, a business sets itself up for long-term growth and profitability rather than volatile short-term success with expensive externalities. And “I like to say that our argument has to be made in Excel, not in Word,” Patten says — that is, the numbers have to support it.

Joel Melnick is no stranger to equations. He’s the founder of the Nathaniel Group, a Vergennes company — and VBSR member — that manufactures electronics used in surgery. When he first started as an engineer at an aerospace firm in Vermont in the early 1980s, the company had the employees watch In Search of Excellence, a training film based on the best-selling book of the same name by Thomas J. Peters and Robert H. Waterman Jr. The authors chronicled their search for the 20 companies that outperformed all others on a host of business metrics, including revenue and profit growth. What they found was surprising: The most successful companies were also the best places to work, where management valued quality and employees were encouraged to speak their minds.

Melnick applied those principles to the company he founded in 1984, and went on to earn the Small Company Leader of the Year Award from VBSR in 2008. Patten cites the Nathaniel Group’s team management and open-book accounting, plus its financial success, as proof that socially responsible practices are better not only for employees but also for the balance sheet.

“There’s a lot of businesspeople you meet who care a lot about the bottom line and making money,” Melnick says. “VBSR seems like they’re concerned with that, but also with how people are being treated.”

Proctor-based Carris Reels was socially responsible before there was a term for it. Thirty years ago, Bill Carris purchased the company, which makes wood, metal and plastic reels in the U.S., Canada and Mexico, from his father. Founded in 1951, Carris Reels was one of the first companies in Vermont to offer its employees a bonus based on profit sharing. In 1998, after a five-year transition period, it became 100 percent employee owned. Carris Reels also happens to be a member of VBSR.

“We joined because … I like the direction they’re pushing companies to go in and because they bring together like-minded businesses,” says Carris. He’s less enthusiastic about the “socially responsible” term. “The definition’s all over the place,” he says. “People tack it on to whatever they like.” Asked for a better way of saying it, though, Carris struggles — he knows it when he sees it — and settles on “all the issues that make a company a good citizen in the community.”

Carris, who’s also a state senator, has been impressed by VBSR’s increasing presence in the Statehouse. “They have an influence in Montpelier that is refreshing from the business community,” he says. “It’s not just ‘me, me, me.’”

If that sounds like a veiled criticism of the traditional chamber-of-commerce approach, it may be. But Tom Torti, the president of the Lake Champlain Regional Chamber of Commerce [9] has a ready response. “Patten is a friend,” he says, “so I joke with him and say, ‘So, what, am I not socially responsible?’”

He raises an important point: What’s the difference between VBSR and a more traditional business group? Patten and Torti say that each group is trying to get to the same place; they’re just using a different road map. “It’s a different animal,” Torti says — “not better, not worse.”

In support of that assertion, Torti explains that the LCRCC has a much broader mission than VBSR, and it includes promoting the region as a place to live, visit and do business; leadership development; workforce investment; marketing and outreach. In comparison, Torti calls VBSR an “affinity organization” similar to the Vermont Retail Association or the Vermont Bankers Association. Because VBSR serves members with a common interest — concern for social responsibility — “it can afford to be much more focused and ideologically driven,” he says.

It’s a common perception that the generic chamber of commerce, because of its historical support for lower taxes and less regulation, is a right-wing organization. Similarly, it’s easy to assume VBSR, which supports a government-run, single-payer health care system, is generally left of center. Neither is more accurate than a stereotype based on some hazy truth.

Both groups claim to be nonpartisan. For the LCRCC’s part, Torti draws members from all over the political spectrum, many of whom give back to the community by serving on nonprofit boards.

Patten describes the VBSR membership this way: “We’re money-grubbing, profit-generation, job-creating capitalists. With a better way to do it.”

Better according to whom, though? Is there a test to determine whether a business is “socially responsible”? Shockingly, no. VBSR members are simply required to pay membership dues — $185 annually for a small firm — and sign a statement agreeing to its mission. “If the most mean-spirited company in the world signed on to our mission statement,” says Patten, “they could become a member.”

Doesn’t that cheapen VBSR’s name? According to Patten, it hasn’t yet. He explains the organization’s open-door policy by saying that social responsibility is “an aspiration, not a status.” But those aren’t empty words. Last year, VBSR unveiled the SR Journey, a survey that members can take to determine how closely they hew to VBSR’s goals. The questionnaire probes three areas: community engagement, environmental footprint and employer responsibility. VBSR doesn’t require its members to take the survey, but they are encouraged to do so. “You establish a baseline and then try to improve over time,” Patten explains.

VBSR leaders hope the Vermont Benefit Corporation Act, which passed last May, will further clarify the standards of social responsibility. Under the new law, a corporation can organize as a “benefit corporation,” which means that a central part of its corporate mission is to have a “material positive impact on society and the environment, as measured by a third-party standard, through activities that promote some combination of specific public benefits.” Such activities might include keeping people healthy or providing low-income people with beneficial products or services.

In April, Maryland became the first state to pass benefit corporation legislation. Vermont was the second, largely because of VBSR’s lobbying efforts. Patten explains that VBSR modeled the legal requirements of the bill on those of B Corporation, an organization founded by venture capitalists who wanted to develop a certification system for socially responsible businesses.

In Vermont, it’s not about certifying but about creating an option for corporations to make choices that may conflict with traditional shareholder demands. In a standard corporation, if part of a business’ practice is to, say, pay a premium for local agricultural products, the shareholders can sue the directors for poor management decisions. In benefit corporations, that’s a valid part of the business model. “This is an internal and external commitment to run your business differently,” Patten says.

The act shows its teeth in a few clauses. A benefit corporation must measure its social responsibility against a recognized “third-party standard” such as B Corporation’s. (VBSR chose not to designate a particular standard, because “it’s such a dynamic field,” Patten says.) Furthermore, a benefit corporation must appoint a “benefit director” whose responsibility is to oversee the corporation’s socially responsible mission and create an annual “benefit report” detailing its progress on public benefit goals. The law takes effect in July of 2011, and VBSR will spend the year recruiting members to take advantage of it.

How successful VBSR is in that effort will dictate, to a certain degree, the next step in the movement for social responsibility. Will the option of getting benefit-corporation status spur businesses to greater accountability and transparency, or will social responsibility remain a vague label behind which they can hide? After all, the status remains just an option.

The future of this and other VBSR initiatives could depend on who ends up replacing Patten. After three and a half years on the job, VBSR’s quotable executive director is stepping down to sail in the Caribbean. In advertisements for the position, the organization has used the image of a gear shift.

“The notion there is, yes, we want to go into the next gear,” says Don Mayer, co-owner of Small Dog Electronics and chair of the VBSR board’s executive director search committee. Under Patten, the organization grew from 600 to 1200 members, launched SR Journey, lobbied for farm-to-plate legislation and the Benefit Corporation Act, and created a legislative scorecard that will rate each Vermont legislator according to VBSR’s mission. The next “gear,” according to Mayer, is ushering in an era of accountability through corporate social responsibility reports, facilitated by the new law.

“Vermont is a very hot place to be right now,” Patten says. “Our size is our best aspect. We can consider our own solutions to problems. We’re way ahead of most states in a lot of ways.”