Lesson 2: Starting a Responsible Business

What You’ll Learn: Corporate social responsibility is an evolving business practice that incorporates sustainable development into a company’s business model. It is not enough for companies to generate a profit anymore. Today’s customers want to do business with companies that also demonstrate good corporate citizenship. This module will walk you through the process of creating a business that has a social purpose and mission.

Starting a Responsible Business

“It takes 20 years to build a reputation and five minutes to ruin it.”

Benjamin Franklin

Introduction

In the days of timber barons and steel magnates, making money was the primary and often only purpose of any enterprise. Times have certainly changed. More and more, employees and customers want to forge a relationship with a company that has a higher purpose, something tied to an important social cause such as the environment, hunger, homelessness, equity or social justice.

Millennials seem to be leading the charge in this realignment of consumer practices with personal values and work ethics. A Pew Research Center study showed that 75% of the workforce will be composed of millennials by 2025. A second study showed that 64% of this generation wouldn’t accept a job at a company that didn’t have strong corporate social responsibility values. One can safely assume they have a similar view when it comes to their spending habits.

How can a new business make a difference and money at the same time? Patagonia is an excellent example. Since 1985 the company has pledged 1% of sales to the preservation and restoration of the natural environment. That’s more than $89 million in cash and in-kind donations to domestic and international grassroots groups against nearly $1 billion in annual sales.

Indeed, some of the most incredible ideas in business have been incremental improvements rather than a sudden epiphany in the dead of night.

A Social Purpose Corporation Defined

The idea of a Social Purpose Corporation (SPC) is relatively new in Washington State, becoming law in 2012. It is sometimes referred to as a “triple bottom line.” When the legislature created SPCs, they made the list of purposes that roughly translate into these four buckets:

  • Environmental
  • Philanthropy
  • Ethical Labor Practices
  • Volunteering

Your Instructor

Sean Moore is the Program Director of the Washington Center for Women in Business. He has spent 18 years working in the retail sector with specialized experience in the action sports and outdoor industries. During that period, Sean has gained proficiency in social media marketing, visual merchandising and inventory control. 

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As a Social Purpose Corporation, the directors of the organization can weigh and consider the designated social purpose before making decisions, even if it results in a lower financial return to shareholders. Directors are legally protected in instances where they decide to choose environmental or social impact over economic gain.

On the plus side, this form of corporation makes it clear to your customers what you stand for. It is relatively easy to form, even if you’re currently an S or C Corp that wants to convert to a Social Purpose Corporation structure. As an SPC, it’s easier to attract investors who are liked minded, and the formed business is built with the long term in mind. It’s difficult for shareholders to mount a lawsuit since the purpose takes precedence over profits. Still, shareholders do have a say in determining the corporation’s mission, so there is a substantial amount of buy-in to the direction of the company from the get-go.

On the downside, you’re still on the hook for all sales and use taxes, just as a corporation is. If there are dissenting shareholders who want out, you’ll need to cash them out, so you’ll need to make sure your financial projections factor this in.

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