Bay Area companies take lead on new socially responsible corporate model

Mike Hannigan and Sean Marx have come a long way from selling office supplies from Hannigan’s living room office.

In 1991, the two started a business-to-business office supply company with an out-of-pocket $40,000 investment that had a different mission in mind. They were inspired by the business practices of Paul Newman, whose company Newman’s Own marketed a line of food products that used its profits to improve the social and environmental conditions of its community.

Since then, Oakland-based Give Something Back Inc. has grown to $29 million in sales in 2010 and employs about 100 employees. The 20-year-old company has given 75 percent of its profits to community causes, a total of $5 million since the company first started, Hannigan said.

They’ve donated money to food banks, including Alameda County’s Food Bank. The company has donated bags of school supplies to local K-12 schools for children whose families generally cannot afford such items.

Now, with the company’s recent incorporation into a benefit corporation, the company is ready to grow without fear that future managers or investors could derail its philanthropic mission.

Entrepreneurs and established businesses alike that prioritize social and environmental responsibility have been seeking ways to legally reform how corporate entities conduct business in order to place more emphasis on giving back to the community or the planet.

On January 3, California became the sixth state in the country to codify a legal framework for companies to incorporate with a legal framework that allows a social and environmental purpose to coexist with profits, a purpose that is insulated from shareholders or investors who may want to put maximizing profits ahead of social goals. Nationwide, there are now seven states in which a business can incorporate as a benefit corporation.

Map shows companies that have incorporated as benefit corporations in the Bay Area under California’s new law

According to the non-profit B-Lab, there are 505 certified B-Corps in the U.S. across 60 diverse industries that include manufacturing, financial services, restaurants, and distribution. Of those, 142 companies are certified in California — the highest number out of all the states — 65 percent of which are headquartered here in the Bay Area. Since the benefit corporation law came into effect in January, nine companies have made the legal transition in California, all but two of which are located in the Bay Area.

B-Lab, which started in 2007 and is headquartered in Berwyn, PA, provides certification for businesses that have a social or environmentally conscious mission. The organization also provides opportunities for businesses within the network to acquire deals from other businesses, and to attract investors.

Under traditional corporate models, executive officers have a fiduciary duty to their investors and shareholders, meaning that it’s their job to make decisions that do not financially harm the company, as well as decisions that generate the greatest amount of profits. Should they fail in their duty, investors and shareholders could instigate legal procedures to block the action or oust the leader.

Under a benefit corporation, this is no longer the case. Instead of being compelled to drive decision-making solely toward profit, executive officers have an obligation to make decisions based on the environmental or social goals established by the company upon incorporation. Should they not make decisions that reflect those goals, they can be ousted. Coupled with transparency requirements to show that the company is not “B-washing,” advocates expect the model to become increasingly attractive as a way for companies to hardwire a double or triple bottom line.

Entrepreneurs are entering the business world with more of a socially conscious mindset, rather than pursuing other traditional avenues of social change, such as journalism or politics, Hannigan said. Entrepreneurs are realizing the merits of using business as a tool for social change, and new organizations are providing institutional support for transforming such enterprises, including B-Lab and the Social Ventures Network, a San-Francisco-based non-profit that links socially conscious businesses with one another.

“Business is now seen as a career for people who approach society with a social justice point of view,” he said.

Another early adopter that made the switch to a benefit corporation, Berkeley-based Sun Light & Power, started off as a photovoltaic installation company, but has since expanded to other areas that include green building consultation and solar water heaters.

The company, founded about 35 years ago by Gary Gerber and other partners, obtained B-Corp certification in 2009. According to the records on the B-Lab website, the company scored extremely high in the area of positive impact on its customers, since all of its products have a definitive environmental impact by reducing the customer’s reliance on fossil fuels.

As with Give Something Back, Gerber said his company got off the ground by investing out of pocket. He didn’t take a paycheck for years, he said, something he was able to do with the help of his wife, who financially backed the two using her salary while the company became financially stable, he said.

“We’ve been on a shoestring budget the entire time we’ve been in business,” he said in an interview at his office, adding it took 25 years to become stable. “We were scraping by for years.”

Give Something Back, which has expanded to San Diego and Sacramento in recent years, plans to grow its sales to $100 million over the next five years with new investor capital, and ultimately to $1 billion in sales. By contrast, Staples, one of its biggest competitors in office supply sales, has about $25 billion, according to the company’s latest SEC filing.

For Gerber, the young solar energy industry is ripe for growth, but as with all industries, the field will narrow as competitors fight and lose over grabbing pieces of the market. “Not that we couldn’t survive if we didn’t grow more,” he said, “but we won’t be as competitive.”

One of the programs Give Something Back has going is a partnership with Boise Inc., a paper supply company. Under the deal, for every case of recycled paper a business purchases, Hannigan said the company gives $1 to the county food bank where the business exists.

Michael Altfeast, a spokesperson for the Alameda County Food Bank, said that the assistance that Give Something Back has provided to them has been indispensable. For every $1 that is donated, the food bank can translate that into $5 worth of food. This year, the food bank received $61,000 from the company, translating into about $300,000 worth of food, he said. Give Something Back has donated a total of $145,000 to the food bank.

“They’re involvement is a big deal for us,” Altfeast said. “Considering they’re a business that has been helping us for 20-plus years, with volunteering and donations, it puts them at the top” of businesses who help the food bank.

Correction: Oakland North inaccurately reported that Give Something Back gives two percent of its profits to community causes; it gives away 75 percent of its profits.