Survey: The Regenerative Enterprise in Practice

One of the most exciting developments in the growth of conscious business is the advent of the Benefit Corporation, a legal designation which enables triple and quadruple bottom line companies.  Triple bottom line refers to people, planet, & profit, while quadruple adds the standard of purpose.  The ability to include objectives beyond profit in company charters fundamentally changes the nature of business, its relationship to profit, and the motivations of the people that work within the company.  Importantly, it breaks the feedback loop of linking CEO pay to profit, and thereby insulates conscious CEOs promoting purpose-driven initiatives from shareholders & boards who could discipline or dismiss them in a traditional maximize-shareholder-value model.  

Benefit corporation statutes have been proliferating in the US since Maryland passed the first benefit corporation statute 2010.  As of this writing (August, 2019), 35 states have followed suit, a clear indication of the desire for such opportunities. For activist business owners in non-benefit corp territories, or just those that want to run a tighter business, the B-Corp certification (as distinct from legal designations) created by the nonprofit B-Lab is an alternative possibility.  This certification strengthens conscious businesses by defining standards and metrics around accountability, transparency, and performance.  The B-Lab organization – which also works for policy change – provides technical assistance and a supportive community. By late 2018 there were over 2,600 certified B-Corporations worldwide, which is impressive given how onerous certification processes can be for businesses.  In addition, B-Lab reports that over 50,000 businesses not seeking certification use their B Impact Assessment to benchmark their performance and set goals for continuous improvement. We find a high degree of alignment between the five focus areas of the B Impact Assessment and the regenerative economics models we explored in the Main Page of this OP.

To the argument that profitability and purpose are at odds, B-Lab references independent research indicating that companies that adhere to B-Corp standards outperform those that don’t on several measures: “PricewaterhouseCoopers found a positive, statistically significant, linear association between sustainability and corporate financial performance” (Honeyman, P.9).  Indeed, the list of Certified B Corps includes some of the best performing, most highly valued companies in the world, including some luminaries such as Patagonia, Ben & Jerry’s, and New Belgium Brewery.  Evidence also suggests that consumers value companies that do good.  In 2014 the Nielsen Global Survey of Corporate Social Responsibility found that over half of “global online consumers across 60 countries say they are willing to pay more for products and services provided by companies that are committed to positive social and environmental impact.”  A follow up 2018 report found that “a whopping 81% of global respondents feel strongly that companies should help improve the environment.” 

It is clear that there is both a need and a desire for businesses to improve their social and environmental citizenship.  The benefit corporation, including the B Corp Certification, is one example of how to do so. While still new and statistically small, this movement provides a clear pathway and metrics towards fulfilling this need.  As evidence of their success becomes more well known, we can expect to see a proliferation of socially conscious companies. The benefit corporation movement may signal the beginnings of a significant change in the culture of how business operates.

The B Impact Assessment tracks five areas of social and environmental stewardship.  Their “Good for Workers” area includes questions about compensation, work environment, and ownership.  Of these, the question of ownership can be the most challenging to traditional business structures and the governance practices that go with them.  In a typical business, workers are excluded from participating in ownership and governance. Instead, those are reserved for owners, investors, and “above the line” executives whose compensation is linked to maximizing profits, conventionally through practices that minimize the cost of business, including limiting benefits to employees.  This creates what Theory U calls the Ownership Disconnect and the Governance Disconnect, in which owners and decision makers are insulated from the negative outcomes of their decisions.  This tends to create unbalanced flows in which disproportionate financial benefits accrue from the workers to the owners while decision making flows from the top down, with the needs of workers among the lowest priorities.  Principles of Regenerative Economics such as Empowered Participation, Seeks Balance, and Design to Distribute tell us that this is not what’s best for the overall health of an ecosystem. 

One way to address these challenges is by distributing ownership.  There are several models for doing so, including the popular Employee Stock Ownership Plan (ESOP) in which employees acquire progressive ownership as they rise in seniority.  These benefit employees, increase moral, and also insulate the company from income taxes as that percentage of the company owned by employees is not taxable. Everybody benefits. ESOPs rarely address governance, however.  The worker cooperative changes that.

Worker cooperatives are enterprises that are owned and governed by their employees.  Not surprisingly, these businesses tend to confer greater benefits to their workers than conventional companies, including better wages, improved training, better wealth accrual, and better opportunities overall.  They also tend to be better community members since their owners usually live near where they work. And as democratically run organizations they help develop better leadership skills among their workers. Click here for more information on worker coops.   

Despite "conventional wisdom" that sharing governance and profits with workers will undermine efficiency, productivity, and profits,  there is ample evidence that the opposite is true.  In fact, there are many examples of financially successful coops, with more emerging daily: Spain’s Mondragón Cooperative, founded in the 1950’s and today a multi-billion dollar, multinational company, is the reference point for the potential of coops.  More recent examples include companies in my region of the US like New Belgium Brewery and Namasté Solar, which have demonstrated the potential of employee ownership by thriving while rewarding their worker/owners with better benefits, better conditions, and more wealth over time than their competitors.  

Worker cooperatives are a great example of how alternative ownership structures can provide greater benefits to society and communities, and a perfect example of Doughnut Economics Design to Distribute and of Regenerative Capitalism's Empowered Participation.  There are many other examples as well:  Member coops, credit unions, community banks, and public banks are just a few examples of organizations that break with private ownership for the benefit of society. These  institutions are living examples of regenerative economics in practice, and they work! We can only hope that as these ideas become more widely known and accepted, and the methods behind them more widely systematized and taught, we will see a growth in cooperatively owned and managed companies. 

One of the common characteristics of both Benefit Corporations and alternative ownership structures such as Cooperatives is that they balance the profit motive against other priorities.  It could be said that they each have their own aggregate measures of the health or performance of the company. In the terminology of Regenerative Capitalism, they Seek Balance.  But every alternative to the mainstream presents its own set of operational challenges, and common to all of them is the challenge of attracting financing.  When profit is not your priority, how can you attract investors looking for a profit?

Indeed, no analysis of regenerative economics would be complete without considering the oversized influence of the financial sector on the nature of the economy.  From In Right Relationship and Views Wealth Holistically, to Change the Goal and See the Big Picture, thinkers on regenerative economics make clear that how we direct financial resources determines what kind of economy we create.   If we want a thriving world, we must direct capital away from degenerative ventures and towards regenerative ones. In Theory U’s Eight Structural Disconnects, Otto Scharmer names this dysfunction the Financial Disconnect.  He describes it as “a disconnect between the financial and the real economy” and he informs us that 

“The total value of foreign exchange transactions worldwide amounted to US$1.5 quadrillion (1 quadrillion is 1,000 trillion) in 2010, whereas the total value of international trade was only US$20 trillion, or less than 1.4 percent of all foreign exchange transactions.” (Leading, p6)”

In other words, we prize the imagined value of our currency and our companies more than the actual value of our goods and services.  Significantly more. And this disconnect is a major destabilizing factor as speculative trading periodically butts up against the true value of assets, causing disruptions such as the 2008 global crisis.  This behavior is also extractive: investing money in money rather than in goods and services that benefit society, deprives the real economy of financial capital. And such financial gains are often reinvested or sequestered rather than flowed back as a resource to society.  This represents the antithesis of a robust circulatory flow. The outcomes are beautifully illustrated in the videos Wealth Inequality in America, and Global Wealth Inequality which I presented on the Main Page of this report.  

In the practice of Presencing, Scharmer reminds us that Energy Follows Attention.  So how do we direct our financial attention in order to stimulate a regenerative economy?  Noted thinker on social change,  Joanna Macy, offers what she calls the Three Dimensions of The Great Turning. These include, first take actions to slow the damage; second, analyze the structural causes and create alternatives; and third, shift our collective consciousness.   These all work in synergy, of course, but they each need their due attention.  In the context of finance, I suggest the following interpretations:

• A first step is divestment from destructive practices:  by denying resources to the largest threats we starve their ability to continue operating.  Because many of these practices are highly profitable, they attract investment and generate their own income, making them resilient to the loss of investment capital.  Reaching the tipping point where divestment hampers their operational abilities and therefore reduces their attractiveness as investments requires perseverance and broad participation, but we have seen this strategy succeed in the past.  For instance, divestment was a key strategy in forcing the end of South Africa's Apartheid. 
• The second action is transitioning to structures that are regenerative rather than degenerative.  It is not enough to divest our financial resources; we must also invest them in regenerative alternatives.  As alternative structures begin to thrive they naturally draw resources away from the degenerative ones they are displacing:  more electric transportation, less demand for gasoline; more PV solar installed, less demand for coal power plants.
• Lastly, we require a shift in consciousness.  In other words, we must come to the collective understanding that this is what we want and need.  Here is where a positive vision can play a powerful role. Predisposed by evolution and acculturated as we are to a scarcity mindset, it is an uphill struggle to convince most people to invest in their long-term interests over their short-term security.  But as we’ll see, in the case of financial investment these often turn out to be the same.       

Again and again we come to the question of culture change regardless of the context, and when we look at the financial sector we find evidence that such change is happening in at least two places:  Socially Responsible Investments and Impact Investing.

Socially Responsible Investing or SRI, sometimes expressed as environment, society and governance or ESG, refers to investment strategies that prioritize social and environmental benefits and concerns alongside financial returns.  This practice of using finance as a tool for change is centuries old and associated primarily with religious groups seeking to divest from morally objectionable practices such as slave trade, alcohol, weapons, etc.  In recent years, demand from both individual and institutional investors responding to environmental and social concerns has stimulated dramatic growth in SRI investment vehicles like mutual funds and ETFs. Between 1995 and 2018 this asset class grew 18-fold, 38% of that growth occurring just between 2016 and 2018.  Today, SRIs represents over 26% of all assets under management (US/SIF).  All three of Macy’s Dimensions are in evidence as SRI investing drains resources from destructive practices and invests them in regenerative ones, and the very growth of this sector indicates a shift in investor consciousness.  

For the typical investor, be they institutional or individual, ready investment vehicles like mutual funds and ETFs are adequate.  But those only reach established, publicly traded companies. In order to stimulate the innovation necessary for comprehensive economic change, it is also necessary to direct financing into new initiatives.  This is the realm of Venture Capital, which refers to capital invested in new projects in which there is a substantial element of risk and a commensurate possibility of reward, typically a new or expanding business.  As such, the VC sector is a leading source of capital for emerging technologies. Traditionally, the VC world has tended toward the same values that dominate the financial markets in general; seeking maximum ROI. But within this world is a subset called Impact Investing, which is Venture Capital invested with the goal of achieving meaningful social or environmental benefits, and it is growing rapidly: the five years between 2013 and 2018 saw a compound annual growth rate of 13% in this sector.  Perhaps most importantly, impact investors reportedly “demonstrate a strong commitment to measuring and managing impact,” suggesting the sector has integrity. (GIIN. P. 4-5)  

We see that while Fullerton, Raworth, and others identify the important role that finance has played in creating and supporting the degenerative economy, there is also cause for hope.  The culture and markets finance are gradually shifting towards regenerative practices, and the change is accelerating.

Implicit throughout this report is that networks are the defining essence of an ecosystem. In the case of transitioning to a regenerative economy, creating intentional networks may be what makes it possible.  There are at present an unknown number of ventures of all types practicing business and trade in ways that could be defined as regenerative, yet their impact is diluted as long as they continue to depend on the mainstream economy for their principal trading partners.  They are also vulnerable, for these ventures operate with many disadvantages against competitors who are not bound by the same ethical or ecological design constraints, particularly if their trading partners are not specifically looking for purpose-driven collaborators. Being able to identify and connect with like-minded businesses is the first step toward creating a regenerative economy versus just a regenerative business.   

One expression of this can be found in vertically-integrated supply chains.  This occurs when distributors, manufacturers, and materials providers of a given product are aligned in purpose.  I’ve witnessed promising examples of this in the Natural Foods sector where we might find a regenerative farmer or rancher supplying a B-Corp manufacturer who is then selling to a distributor with strong ESG values to vendors who cater to customers who appreciate a quality product with traceability from source to shelf.  This is a good start because it creates a chain of accountability and influence and guarantees that each partner along the chain can stay true to their values.  The next step is to extend that vertical alignment horizontally. This is the role of networks.

Networks come in many styles, from industry-specific trade associations to local chambers of commerce to loose affiliations based on any of a number of criteria.  I wish to focus specifically on networks of individuals and organizations intentionally seeking alignment around regenerative economics.

Three examples of such networks stand out from my research:  BALLE, the Business Alliance for Local Living Economies; WEALL, the Wellbeing Economy Alliance; and RCN, the Regenerative Communities Network.  Each has a distinct focus, but all promote and support some for of living economy. I’ll address them one by one.  

BALLE, the Business Alliance for Local Living Economies, seeks to “create local economies that work for all.  The premise is effectively that of Fullerton’s Honors Community and Place – the idea that a locally rooted economy with strong circulation improves the health of the community at all levels.  Localism strengthens relationships and strong relationships cultivate accountability and responsiveness to local needs.   The data bears this out.  From their website: 90% of new jobs are created by locally-owned businesses; 67% of money spent at a local business stays within the community versus only 32% of that spent at big box stores; and 14 jobs are created for every $10 million in consumer spending at Amazon whereas 57 jobs are created for the same amount spent locally.  The case is clear that localism is an important avenue to community economic regeneration.

In keeping with their mission, BALLE operates primarily by helping local leaders build community.  This graphic details the principles and practices they’ve identified as  fundamental to this process and BALLE offers specific capacity building and a valuable network of networks to stimulate the emergence of new local living economies.  Their agenda covers key regenerative economy elements such as localism, equity, soil and nature regeneration, collaboration, shared ownership, shifting capital, policy creation, and the cultivation of connection that is necessary to make it all happen.

WEALL:  In their own words, “WEAll is a new global collaboration of organisations, alliances, movements and individuals working together to change the economic system to create a wellbeing economy: one that delivers human and ecological wellbeing.”  With such a broad mandate, it appears as if WEALL takes a larger view of regenerative economics than BALLE, but with much the same intention. In practice, however, there are many similarities. To begin with, the goal of human and ecological wellbeing are effectively the same for both organizations.  Also, as a “collaboration of organisations, alliances, movements and individuals working together,” WEALL, as BALLE, relies on connecting local initiatives and networks in a web of mutual support; there is little in the way of top-down direction. Rather, WEALL offers the same type of information and capacity building as BALLE, albeit with a global lens.  

As of this writing, WEALL is in many ways still nascent, but growing.  Their agenda is based around a four-part strategy of: 1. Creation of a power base: a wellbeing economy movement operating at all levels, across sectors and across geographies; 2. Positive and empowering new narratives; 3. A strong and coherent knowledge and evidence base; 4. All three approaches reinforcing each other.  Their community-sourced matrix of elements that constitute a wellbeing economy can be found here.

RCN:  The Regenerative Communities Network is an initiative that emerged from the work of the Capital Institute, founded by John Fullerton.  Just like BALLE and WEALL, it is predicated on creating a network of networks, each with strong local roots. The RCN provides information, technical assistance, and an online communications hub to support the emergence of local regenerative communities.  Adhering to the Eight Principles of Regenerative Capitalism, each hub nevertheless takes on the unique character of its local community and needs – a regenerative economy in The Bronx, NY is unlikely to resemble one in Mexico’s Sierra Gorda mountains.  Storytelling is a core strategy for RCN, and one of the most valuable contributions of this initiative so far is the Field Guide to a Regenerative Economy, a collection of case studies assembled by the Capital Institute.  

I had the privilege of collaborating in the launch of the RCN's Denver-Boulder Regenerative Community and continue to contribute to its evolution.  With a strong economy and many socially and environmentally-minded entrepreneurs, educators, and governments, this region is ripe for the emergence of a Regenerative Community.  Yet this initiative highlights some of the challenges of projects of this type.  Absent strong leadership, it can be challenging for a movement to get off the ground and build the mutually reinforcing community such grassroots action demands.  Absent a strong community, it is vulnerable to non-inclusive manipulation by narrow interest groups. Growing past these initial stages is challenging, and it can be difficult to communicate the benefits of membership to a representative cross-section of business owners already burning the candle at both ends.  Nearly a year after launch, the progress of the Front Range Regenerative Hub has been slow, consisting mainly a few of meetings and an informational workshop populated mainly by folks like me with time to take a day-long meeting to theorize on such things. Nearly absent so far have been the pioneering regenerative entrepreneurs from the inner city or the rural farms who most stand to benefit from this.  Yet the initiative is slowly growing roots and core leadership is arising.  It will be instructive to continue participating and see how this community evolves.

Clearly, there is wide recognition that networks are an essential part of the emerging economic shift.  They can break down silos, reducing wasteful redundancies, and improve the distribution of information and other resources.  Perhaps most importantly, they provide support to those on the cutting edges of change.