Economic Hope May Start With a B

It's hard not to feel depressed by the current economy. Watching too many wrong-headed corporate managers behave badly for years on end, to the detriment of millions of people, would put anyone in a funk. But investors shouldn't despair: A new wave of entrepreneurial innovation could help revive some of the best elements of American capitalism.

The bad, the ugly, and the good
We're still digging out of the mess left by too many reckless companies' myopic pursuit of short-term profit. The financial crisis gave us little reason to trust or admire big financial firms like Goldman Sachs (NYSE: GS  ) , Bank of America (NYSE: BAC  ) , or Citigroup (NYSE: C  ) . Meanwhile, BP's (NYSE: BP  ) nightmarish oil spill has tarred the oil producer and its entire industry.

Our greatest hope for a better economy rests with self-starting entrepreneurs who build great businesses; provide jobs and livelihoods for Americans; give consumers wonderful, life-altering products; and perhaps ultimately go public, becoming companies we can invest in for the long haul. Now, a new breed of social entrepreneurial start-ups could fulfill this promise.

B is for "benefit"
Berwyn, Pa.-based B Labs has certified more than 300 companies as Benefit, or B, corporations. According to B Labs, these companies use the power of business to solve social and environmental problems. They stand apart from other "responsible businesses" because they must meet "comprehensive and transparent social and environmental performance standards."

These companies also "institutionalize stakeholder interests," echoing the philosophy described as conscious capitalism or stakeholder capitalism. B Corporations must change their articles of incorporation to reflect their focus on all stakeholders.

There's currently a push to get B Corporations allowed under state law, protecting them from possible shareholder lawsuits regarding such a change to articles of incorporation, since many shareholders are accustomed to being put first. Maryland and Vermont have been among the vanguard in legally recognizing B Corporations, and seven other states are considering such legislation for 2011.

B Labs' website says these companies have generated $1.1 billion in revenue across 54 industries, with $750,000 in annual cost savings. That may be small potatoes so far, but it's still a fascinating and admirable start.

A familiar ethos
Two of the best-known B Corporations are Seventh Generation and Method, both of which make eco-friendly home and cleaning products.

According to Method, the company "already runs its business in a values-driven manner, building social and environmental benefit into its products and everything it does. Being a B Corporation allows Method to build that ethos into the legal backbone of the company, so that those values will never be compromised."

Needless to say, many companies don't need B-Corporation status to embrace this philosophy. Look no further than Google (Nasdaq: GOOG  ) , with its "Don't be evil" mantra and its philanthropic arm aimed at "global challenges." And eBay (Nasdaq: EBAY  ) founder Pierre Omidyar, after empowering regular people to conduct commerce with one another over the Internet, later formed the Omidyar Network, which creates "opportunity for people to improve their lives by investing in market-based efforts that catalyze economic, social, and political change."

A green shoot you can believe in
Most of these socially entrepreneurial start-ups are quite small, but the ills they're tackling are big and real. And more entrepreneurship in general can only help us tackle the nation's high levels of unemployment.

Some of these promising companies will fall by the wayside, but I hope many will grow into positive, well-run businesses that investors can be proud to (partially) own. True hope starts with small but real "green shoots," like positive market-based solutions to our problems.

Last year, when I complained about fake, plastic green shoots, I argued that individuals' creative energy and entrepreneurial spirit could trump all the well-intentioned but ill-conceived ideas devised by governments and academics. These budding businesses sound like they might fit the bill.

Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Google is a Motley Fool Rule Breakers recommendation. eBay is a Motley Fool Stock Advisor choice. Motley Fool Options has recommended a bull call spread position on eBay. The Fool owns shares of Google. Try any of our Foolish newsletters free for 30 days.

Alyce Lomax does not own shares of any of the companies mentioned. The Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (13)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 10, 2010, at 1:55 AM, susan400 wrote:

    huh?

  • Report this Comment On July 11, 2010, at 8:51 PM, wolfman225 wrote:

    And why, exactly, shouldn't shareholders "be put first"? After all, it's largely these same shareholders who front the money for the various companies that enables them to grow and put resources into R&D for the next revolutionary product(s). Without shareholders, there would be much less advancement/improvement of goods and services that raise the standard of living for us all.

  • Report this Comment On July 14, 2010, at 10:43 AM, dlomax77 wrote:

    The pursuit of short term profits has done the opposite of what you're suggesting, wolfman. Putting shareholders first has led to America's imperial foreign policy over the past half century. We've exported our manufacturing base and spawned numerous terrorist groups.

  • Report this Comment On September 05, 2010, at 4:01 PM, tariksansal wrote:

    I think to most, social entrepreneurship implies the sacrificing of profit and return because of insisting on the business having a social benefit. This is flawed and superior returns could be obtained precisely because a business is socially conscious (provided that the business itself is compelling). Introducing ingredients that benefit people and societies can be the very driver of profit, if constructed carefully. It’s easier to apply to ground up investing than to top down institutional fund management etc as the infrastructure to hand pick truly transforming businesses which apply these methodologies just doesn’t exist in sufficient supply to make for a strong, scaleable and liquid strategy. It is easier for start ups. Internet businesses are particularly well positioned to leverage these models. Social networks for example have armies of original content publishers. If they enable business models built around people getting together to solve problems, improve life, it could be extremely profitable and sustainable.

    Tarik Sansal

    Founder

    Romio

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