On the morning of September 11, 2001, Dennis Shaughnessy flew from Boston to Baltimore, where he was scheduled to give a presentation at a conference hosted by the Food and Drug Administration. Not long after his flight touched down at Baltimore-Washington International Airport, two other planes that took off from Boston’s Logan airport flew into the towers at the World Trade Center in New York. A third plane hit the Pentagon, and a fourth crashed into a field in Pennsylvania.
Shaughnessy, who could see smoke rising from the Pentagon from the roof of his hotel, was pushed to an epiphany: “I asked myself, if I were one of the people on those planes, would I look back and say that I used my career to do the most good possible? If this had been my last day, would I be happy with what I’d done?”
He was forty-three years old, a corporate lawyer by training, and now a senior vice president at Charles River Laboratories in Boston. That company’s recent IPO had made him wealthy, with “more money than I ever dreamed of. It would be nothing to Bill Gates, but to me it was a fortune,” he says.
It’s not hard to imagine a man like this driving up the East Coast on the morning after 9/11, passing New York City, and thinking that maybe he does not want to spend the rest of his life schlepping down to Baltimore to give presentations for a company that breeds mice and monkeys for clinical trials.
“I started trying to think about starting another phase of my life where I could do more good than I was doing at the time,” he says. “I definitely decided that I was not going to work as a traditional business executive. And I thought there must be some way to bridge the gap between raging capitalism and sloppy, inefficient nonprofits.”
In 2003 Shaughnessy convinced Northeastern University to let him start a program inside its business school. He would develop a curriculum, organize field trips to South Africa and India, and teach students about social entrepreneurship. By “social entrepreneurship” he meant the notion that companies could both turn a profit and be a force for social good. The notion of a social enterprise has been around since the 1970s, but for decades remained mostly the purview of theorists and academics. But in the past decade, as people like Shaughnessy and thousands of others have signed on, the movement has become more mainstream. What’s more, the notion of what a social enterprise could or should be has broadened, so that it’s no longer just about providing vaccines in far-off corners of the developing world, but also focuses on creating good jobs that pay well and providing employees with benefits and job security. As more and more students are exposed to these ideas about what a business should do, the hope is that better treatment of workers will get spliced into the DNA of American companies.
Shaughnessy launched the Social Enterprise Institute in 2007 with a shoestring budget the he provided out of his own pocket. The demand was tremendous. In SEI’s biggest years, more than six hundred students enrolled in at least one course. Thanks to the high enrollment, the SEI was at one time ranked as the largest undergraduate social enterprise program in the United States.
Every summer Northeastern sends forty students to Cape Town, South Africa, and various cities in India for four-week courses in which they work alongside local entrepreneurs. In some years the program has made trips to Kenya, Ghana, Haiti, the Dominican Republic, Venezuela, and Cuba.
In South Africa, Northeastern students take classes at the Tertiary School in Business Administration (TSiBA), a free university in Cape Town. Teams made up of students from Northeastern and TSiBA are assigned to work with local entrepreneurs and come up with ideas that could improve or expand their businesses. At the end of the two weeks each team pitches a group of judges, who determine which entrepreneurs will get funded.
Judges hear twenty-five pitches and choose five entrepreneurs who get seed funding from grants made by SEI. The investments are small, usually $5,000 or less. Over the years, SEI students have consulted with about two hundred entrepreneurs in South Africa, and fifty of those entrepreneurs received some funding. About a decade ago, SEI students worked with Luvuyo Rani, an entrepreneur who had opened an Internet café in one of the townships near Cape Town. Today his company, Silulo Ulutho Technologies, employs 170 people, and operates thirty-nine Internet cafes and training centers.
The SEI program also influences students who return to the States and start their own companies. Ali Kothari, who traveled to South Africa in 2015, now runs a Boston-based start-up, Eat Your Coffee, which makes caffeinated snack bars and has a half dozen employees. Kothari buys his coffee from Grounds for Change, a roaster that passes part of its revenues to nonprofits. That means Kothari’s company has paid for kids in Nicaragua to go to school for a year and funded microloans for women entrepreneurs in Guatemala. Kothari says his experience at SEI “opened me up to the idea that there are multiple ways to run a business, and profit is not the only way to maximize shareholder value.”
When Austen Moye came to Northeastern in the fall of 2015 he was enrolled as a chemistry major and planned to go to medical school. That plan ended after he took Shaughnessy’s introductory course, Global Social Enterprise, during his first semester, and then signed up for another Shaughnessy class in the spring. By the time he returned for his sophomore year, Moye was majoring in business. He says it’s because Shaughnessy changed his perception of what business was all about—and it was completely contradictory to what other business professors were teaching him.
“I took a course in finance, and literally the first thing the professor said in the first class session was that the purpose of business is to maximize profit,” Moye said. “Then I went to Shaughnessy’s class and he’s saying that business can be used for social good, it can be used to improve people’s lives.”
Shaughnessy says all he hopes to do is get students excited about social entrepreneurship. “They come in and they have no idea what any of this is about, and then they say, ‘Oh my God, this is amazing, what else can I read about this, where can I go with this?’”
He believes social enterprise has grown so large and gathered so much momentum that it is no longer just a movement. “This is the future of capitalism,” he says. Shareholder capitalism has held sway for a half century but has run its course. “This cycle will burn itself out soon. I’m not sure when. Ten years, twenty years. But it can’t last.”
“A New Kind of Organization”
Hundreds of social enterprise programs have sprung up at universities around the world. They’re sending thousands of young people into the world believing that capitalism can do something other than just help rich people get richer. The movement represents a counterweight to the shareholder-centric ideas that Milton Friedman proposed in his essay in the New York Times Magazine back in 1970 and aims to undo a half century of corporate capitalism that has produced so many toxic, dysfunctional outcomes. Oddly enough, the social enterprise movement originated in business schools—the same places that were preaching the bible of Milton Friedman and producing miniature Gordon Gekkos for investment banks and management consulting firms.
Terms like social enterprise and social entrepreneurship started kicking around in the 1970s, which was just as the Friedman doctrine began to be taught in business schools. That is probably not a coincidence. Nor is the fact that interest in social enterprise has suddenly soared in the past ten years, a period when the problems created by shareholder capitalism have become acute. Now these concepts, which once were confined mostly to some hopelessly naïve do-gooders at the fringes of academia and the business world, have become mainstream.
To be sure, there has always been a middle ground between hardcore capitalism and pure nonprofit organizations. Worker cooperatives have existed for centuries, for example. And philanthropies and nonprofits have been around for as long as there have been rich people. But the modern concept of a social enterprise and social entrepreneurship involves creating a new kind of organization, a sort of hybrid. It’s an organization that bridges the gap between for-profit and nonprofit organizations, and might blur the boundaries between those two worlds.
One idea has been for nonprofits to become more like for-profit corporations. Maybe they could do some for-profit work on the side, generating revenue to sustain their philanthropic mission. Another approach is to create for-profit companies that tackle social missions, like mitigating poverty, that once were within the purview of nonprofits and philanthropies. An example of the latter is Samasource, a San Francisco company that outsources tasks for companies like Google to workers in impoverished countries. Workers need only a laptop and a bit of training, and can do things like content moderation, scanning websites for objectionable photos. Samasource was founded in 2008 and claims to have lifted sixty thousand people out of poverty.
An early pioneer in social enterprise was Gregory Dees, a professor whose academic career involved stints at Yale School of Management, Harvard Business School, Stanford Graduate School of Business, and Duke University’s Fuqua School of Business. In 1998, while at Harvard, Dees published an article in the Harvard Business Review titled “Enterprising Nonprofits,” in which he suggested nonprofits could behave more like for-profit companies, perhaps by creating for-profit side ventures that supported the organization. In 2001, while at Stanford, Dees published an essay titled “The Meaning of Social Entrepreneurship,” which would become one of the most widely read articles in the field and remains a kind of bible for people interested in social enterprise.
At Duke, Dees co-founded the Center for the Advancement of Social Entrepreneurship, whose current director, Cathy Clark, ranks among the most influential academics in the field. Other influential figures include Gordon Bloom, who has founded social entrepreneurship laboratories at Princeton, Harvard, and Stanford; and Alex Nicholls and Dr. Peter Drobac at the Skoll Centre for Social Entrepreneurship at the University of Oxford.
In recent years the movement has been booming, according to Jessica Lax, a director at Ashoka, a nonprofit that supports social entrepreneurs and people it calls “change makers.” According to Ashoka, in 2012 there were more than 1,200 colleges and universities offering programs in social enterprise, up from only eighteen in 1994. Ashoka was founded in 1980 by Bill Drayton, a onetime McKinsey consultant and federal government bureaucrat, who, like Dees, also has been called “the godfather of social entrepreneurship.” The organization now has more than four hundred employees in ninety-eight countries.
Universities are adding programs not because employers request this but because “students are knocking down their doors,” Lax says. “They’re not happy with the state of corporate social responsibility, and they’re also not happy with how a traditional nonprofit works. They’re pushing for another way.”
WIRPs: Well-Intentioned Rich People
Academics have developed the intellectual underpinnings of the movement, but equally important are people I call WIRPs—well-intentioned rich people. Bill Gates is probably the best-known WIRP, but WIRPs are everywhere and most are not household names.
That social enterprise center at Oxford, the one that employs Alex Nicholls and other top scholars, was built by Jeff Skoll, who made a fortune at eBay. In 2004 Skoll created the Skoll Foundation, which organizes an annual world forum around social entrepreneurship and launched an annual set of Skoll Awards for Social Entrepreneurship. Another WIRP—John Wood, who got rich at Microsoft—operates one of the biggest and best-known social enterprises in the world, a nonprofit called Room to Read, which has built a thousand schools and ten thousand libraries in the developing world.
Jay Coen Gilbert seems like an unlikely figure to lead a revolution. He graduated from Stanford in 1989, spent two years working at McKinsey, then in 1993 founded a sneaker company, AND1, which he sold in 2005 for a cool $250 million. Most guys in this situation—still young, suddenly wealthy—either go off and do crazy rich-guy things, or they start another company and try to turn their millions into billions.
Instead, Gilbert launched a nonprofit whose goal is to smash up the form of capitalism that has existed for the past half century—and which rewarded him so handsomely—and replace it with something new. Instead of shareholder capitalism, we would have stakeholder capitalism. Instead of only caring about investors, companies would care about the environment, the community, and—perhaps most important—their employees.
With two co-founders, Gilbert created an organization called B Lab, which developed a kind of do-gooder certification program. Just as Good Housekeeping puts its seal of approval on certain products and Underwriters Laboratories stamps its UL mark on products that meet its safety standards, B Lab offers to certify that a company is a B Corporation. To get the certification, companies go through an assessment that includes a deep dive into how much they contribute to employee well-being as well as compensation and benefits, training, health and safety, and flexibility. If you want to be a B Corporation, you have to prove that you treat your workers well.
What CEO would bother with such nonsense? Well, twelve years after B Lab’s founding, nearly 2,500 companies have gained B Corporation certification—that’s compared to 205 companies in 2009. These aren’t all a bunch of rinky-dink food co-ops and shops that make clothes out of hemp. We’re talking about some big names, like Patagonia, Warby Parker, Ben & Jerry’s, and Athleta.
There are good reasons to get the do-gooder seal of approval. For one thing, it helps with recruiting. A lot of customers care about this stuff, too, and prefer to do business with companies that treat workers well. Finally, and cynically, some companies probably go along for the halo effect, and because it might generate a little bit of buzz around their brand.
Gilbert says the B Corporation movement is catching on because we’re going through a historical inflection point. Capitalism isn’t collapsing—but it is evolving. Little by little, the world is figuring out that shareholder capitalism leads to a dead end, and so they’re dumping it. Taking care of the community and your own employees is not a form of philanthropy but rather a form of enlightened self-interest. Just as a century ago Henry Ford started paying his factory workers $5 an hour in part so that they could afford to buy his cars, people who run B Corporations believe that treating workers well ultimately benefits them—and that a form of capitalism that impoverishes the vast majority of people does not make any sense for anyone. B Lab and others in the social enterprise movement are redefining what it means for a company to be successful.
This new form of capitalism sounds great for employees and the community, but maybe not so much for investors. Nevertheless, a lot of investors are getting on board, apparently agreeing with Mitch and Freada Kapor that investor money can be used to drive good behavior. A decade ago, when the Rockefeller Foundation coined the term impact investing to describe a business model that would generate both a financial return and a social or environmental impact, the idea seemed a little nuts. But today there are so many impact investors that there’s also an organization to track them, called the Global Impact Investing Network, and even more remarkable, GIIN claims to have twenty thousand members.
The spiritual ancestor of impact investing is Grameen Bank, a microfinance organization founded in 1983 in Bangladesh by Muhammad Yunus, who was awarded a Nobel Peace Prize in 2006. Many impact investors are small or midsize investment firms, like Acumen, Good Capital, Root Capital, and Kapor Capital, which I wrote about in a previous chapter. But now even big Wall Street banks like Goldman Sachs and J.P. Morgan operate impact investing groups.
So the pieces are falling into place. We have an academic infrastructure, a generation of idealistic young people, and piles of money looking for a home. And these things are coming together just as the problems caused by shareholder capitalism are becoming so painful and so obvious that they can no longer be ignored.
No wonder social enterprise has captured the imagination of a new generation of young people. “It’s a growing movement,” says Jessica Lax at Ashoka. “More and more people want to make the world a better place.”
Twenty or thirty years ago, that might have meant joining the Peace Corps or working for a nonprofit or NGO. Today it’s just as likely to involve starting a business. And the people you’re trying to help don’t need to be halfway around the world; they might be your neighbors.
Appalachia has become a focus of social enterprise work, as organizations are trying to build companies to create jobs to replace those lost in the coal industry. An organization called Mountain Association for Community Economic Development has been funding new companies like a bakery, café, and training center in West Virginia that provides training and jobs for women who are returning to work after recovering from drug addiction or being incarcerated.
Greyston, a bakery and foundation in Yonkers, New York, created an “open hiring” policy, which means they hire without regard for background, providing work for former inmates and homeless people. The company cranks out thirty-five thousand pounds of brownies each day for customers like Whole Foods and Ben & Jerry’s. The company philosophy: “We don’t hire people to bake brownies. We bake brownies to hire people.”
Indeed, the people helped by a social enterprise might not even be poor. Even a company that makes pricey down parkas and fleece jackets beloved by rich people can be a social enterprise. In 2015 Forbes estimated Patagonia was generating $750 million a year in revenues. By now annual sales of its swanky sportswear (“Patagucci,” some call it) may be approaching $1 billion. Yet Patagonia is also a certified B Corporation, in large part because of the way the company treats its employees.
Patagonia is headquartered in Ventura, California, just a few blocks from the beach, and is famous for its flextime policy, which lets employees skip out for an afternoon to go surfing or hiking, or to pick up a kid after school. Bigger benefits include on-site child care, generous paid maternity and paternity leave, and fully paid health insurance premiums. The office is closed every other Friday, so people can spend more time at home.
Patagonia’s billionaire founder, seventy-nine-year-old outdoorsman Yvon Chouinard, likes to say that he never wanted to become a businessman. And it’s sometimes hard to tell whether Patagonia exists in order to make money or because Chouinard saw a way to provide an enviably comfortable life for two thousand lucky employees who share his love of the outdoors. The answer might be both.
In the first pages of his memoir, Let My People Go Surfing, Chouinard says Patagonia is an experiment. He, too, is a kind of mad scientist, testing out theories about organizational behavior on actual human subjects. Since founding Patagonia in 1973, he has been trying to invent a new kind of company—and a new kind of capitalism. The old kind, the one centered around shareholders, has become a dead end. “We believe the accepted model of capitalism that necessitates endless growth…must be displaced,” he writes.
But what would take its place? He imagines a more virtuous and more enlightened form of capitalism that distributes value to all stakeholders: customers, community, and employees. That system would not only be more kind and more fair. It would also be more sustainable. It would have the advantage of not ending with the pitchforks and revolution that Nick Hanauer, the Seattle billionaire and Amazon investor, keeps warning about.
One of Chouinard’s big goals has been to influence other companies. The best way to do that was to build Patagonia and to prove that his model works. Patagonia has now been in business for forty-five years, and sure enough, people are starting to pay attention—including some people in Silicon Valley.