Traditionally, investors tended to think of social responsibility as being incompatible with the tenets of capitalism. But over time, thinking has evolved to recognize the increased revenue and profits that companies can achieve while still remaining conscious of the values that their customers share. As a result, socially responsible investing has risen substantially in popularity, and companies that have socially responsible business models have thrived. One of those companies is Generac Holdings (NYSE:GNRC), which has capitalized on the need for reliable power sources to take control of what had previously been a largely untapped market.
Generac's business started in the standby-generator business, providing affordable residential power sources when main power grids failed. Since its founding in 1959, Generac has become the No. 1 manufacturer of home backup generators, but the company now has moved forward to provide generators for commercial and industrial use as well as for portable applications. With its transfer-switch capability, Generac has aimed to offer a full-service power alternative, and by diversifying into power-washer equipment, the company has carved out a lucrative niche. Let's take a closer look at Generac Holdings and why it has earned a reputation for being socially responsible.
What Generac does differently from its peers
At first glance, a company that specializes in backup generators might sound like the opposite of a socially responsible business. Generators have a reputation for being noisy and wasteful, burning fossil fuels and providing inefficient sources of emergency power designed to meet essential needs without consideration for longer-term impact.
However, Generac has a different approach to its core business. It has worked hard at promoting environmentally responsible products that actually result in a less dramatic carbon and ecological footprint even when backup energy is necessary. Moreover, by paying attention to the impact of its manufacturing process, Generac aims to reduce unnecessary waste of materials and to reap both the financial and environmental benefits of its labors.
For instance, Generac has developed one series of backup generators known as the PowerPact that can automatically generate power when necessary. With a permanent fuel supply from a home's natural-gas utility connection or using a multipurpose liquid-propane tank, the PowerPact is designed to accommodate cleaner-burning fuels than the diesel and gasoline generator choices that dominated past product lines.
Meanwhile, other generator types from Generac emphasize greater fuel efficiency and quiet operation. By making their products more environmentally friendly and socially conscious, Generac avoids some common complaints from neighbors. Moreover, with its EcoGen system, Generac has developed a backup generator specifically to handle off-grid applications in conjunction with solar, wind, or other alternative energy systems.
A commitment to philanthropy
In addition to Generac's services, founders Robert and Patricia Kern have made huge investments in philanthropy in the company's home state of Wisconsin. When the Kerns sold off a portion of their interest in Generac in 1998, they funneled some of the proceeds into a family foundation. In 2006, they sold off the remainder of their stake in the company and used most of the proceeds to add to the foundation's asset base.
Overall, the Kern Family Foundation has identified three different program areas. Its Entrepreneurship Education Network is aimed at helping to grow the stable of available engineering workers. At the same time, its faith, work, and economics focus aims at developing pastoral leadership at the local church level, showing church leaders how to handle the challenges of work and economic issues. Finally, the foundation's K-12 Education Reform Program aims at emphasizing science, technology, engineering, and mathematics in elementary and secondary school curricula, supporting school leaders with the skills necessary to bring their schools forward in those key areas.
The Kern Family Foundation has introduced initiatives like Project Lead the Way, which is designed to encourage students to consider careers in engineering and technology and has helped integrate the efforts of colleges and universities, middle and high schools, the business community, and government agencies promoting education and workforce development. With assistance from the state government as well as other major foundations, Project Lead the Way has been a successful public-private partnership and just one of the many ways that the Kern Family Foundation has used its roughly $625 million in assets for the public good.
Generac Holdings isn't the most obvious choice for a socially responsible company, but over the years it has evolved into a business with a dramatic impact on several important areas for its customers and its community. As power needs continue to change, investors can expect Generac to continue innovating and coming up with attractive ways to meet those needs.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Generac Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.