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Why Be a B? An Open Letter to Fellow Business Owners

Today, the Ian Martin Group is announcing its re-certification as a B Corp (‘B’ stands for Benefit). This letter is to share with you the practical business benefits of “Being a B” – and to encourage you to B one too.

B Corps are companies that measure/report their social and environmental performance against a transparent 3rd party standard called the B Impact Assessment.  You can try it yourself for free at: http://bimpactassessment.net.  Be warned: it’s intimidating – read about our first experience with the assessment here.  If you need help getting started, let me know!

Dear Fellow Business Owner,

I know what it’s like: you work hard. By “work”, I don’t mean sitting at your desk. Rather, your business so consumes your mind that it takes “work” to push it out and take a rest. Yes, there are rewards. But when things go wrong, the scope can be enormous. Carrying this responsibility takes its toll. You want to be fair and good – to balance all of the competing interests – but you never feel you’ve succeeded perfectly.

You have a fierce desire to play fair and win – but it’s hard to measure success. There is no racetrack, game board or playing field to keep the rules clean and simple.

I believe this intense desire to win is what makes us successful – it pushes us to go on, overcoming our challenges and fears.  Collectively, as leaders of the economy, our competitive instincts drive our countries’ GDP. But what are the rules of the game we’re playing? And how do we keep score?

The Rules of the Game

In his new book “Leaders Eat Last”, Simon Sinek (who also wrote “Start with Why”) describes an article by Milton Friedman published in the New York Times Magazine in 1970.  Friedman (who later won the Nobel Prize for economics in 1976) argued that the only social responsibility of a business is to, “engage in activities designed to increase its profits [for shareholders].”  Over the ensuing decades, says Sinek, this became the rallying of Wall Street. “The primacy of the customer was replaced with that of the shareholder.”

Simon Sinek: Why Leaders Eat Last from 99U on Vimeo.

With only one rule to the game, keeping score is simple. Of every one of theapproximately 125M businesses on the planet: east or west, big or small, product or service, public or private; each has a P&L statement. The number at the bottom tells you if you’re winning or losing. As business leaders, this system engages our full competitive force to drive that single score.

But who does this benefit?

The chart below (from Leaders Eat Last) shows the 30-year results of a company whose leaders prioritized their shareholders (GE) as opposed to their customers & employees (Costco). Perhaps, over the long run, playing business as a one-dimensional game actually benefits nobody – owners included.

GEvsCOSTCO

Even Jack Welsh is now a convert. In an excellent article on the subject, Steve Denning of Forbes Magazine quotes an interview Welsh gave on March 12, 2009 where he said,

“On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal… Short-term profits should be allied with an increase in the long-term value of a company.”

Since the 2008 Financial Crisis, it’s become clear to nearly everyone that the way we’re currently playing the game needs to change – But how?

Changing the Game

Let’s be honest, it’s no fun to play a game that has no rules and no way to keep score. Rules are necessary for basically everything that inspires us: a catchy tune, a compelling narrative, or a crushed homerun ball.

Creativity is the process of overcoming constraints – paradoxically, the more constraints an organization has the more creative its people become.  According to Clay Christiansen (who wrote the Innovator’s Dilemma), this is why most innovation comes from small start-ups instead of giant corporations.

At the Ian Martin Group, we found that adopting the B Impact Score as a key measure of success challenged us to become more creative in the way we run our business.

Now, I believe the B Impact Assessment is the world’s most comprehensive definition of the new rules of the game. Just as financial statements can be compared across industries, geographies and business sizes, the B Impact Score reduces hundreds of data points to a single number that measures a company’s positive contribution to society.

Imagine if every company competed on the B Impact Score as aggressively as they do in the market.  At Ian Martin, it’s already happening.  When Etsy blogged about organizing a hack-a-thon to increase their score and then leap-frogged us (jumping from 80 to 105), we made a decision: Game on.

6 Real Business Results of Competing on ‘Impact’

OK, I know you need a WIIFM (what’s in it for me) to seriously consider jumping in to this game. At Ian Martin, we increased our B Impact Score from 88 to 105 over the last 2 years (see table below for context). As a result of joining the competition, here are six questions from the B Impact Assessment that have helped make a huge contribution to our culture and our bottom line:

B Score Companies What it takes
83-89 Ben & Jerry’s
Cascade Engineering
Klean Kanteen
Ian Martin Group – 2012
- Solid stakeholder performance
- Typical products / services
105-108 Patagonia
Etsy
Warby Parker
Ian Martin Group – 2014
- Leading edge stakeholder performance
- Typical products / services
120+ Bullfrog Power
Method
Better World Books 
Ian Martin Group – 20??
- “Impact driven” business model
- Product / service achieves a specific social or environmental impact

 

Q1. Does your company have a corporate mission statement that includes a specific commitment to social or environmental impact?

Not surprisingly this is the very first question on the Impact Assessment. When I first looked at the assessment about 3 years ago, our company didn’t have a mission statement at all.

This was our very first step in the process. Guided by Patrick Lencioni’s book “The Advantage: Why Organizational Health Trumps Everything Else In Business”, we created a playbook that answers this “mission” question and 5 others that Lencioni says are critical to create clarity in an organization.

This book & exercise has been invaluable for us (we even gamified the process – if you want the tools, just let me know).  So “why do we exist”? Simple but not easy: We see a world with each and every person pursuing meaningful work.

 Q2. If your company has conducted an employee satisfaction / engagement survey within the past 2 fiscal years, what percent of your employees are ‘Satisfied’ or ‘Engaged’?

At the time we became a B Corp, our Employee Engagement was about 60% (actually not bad – Gallup says only 29% of employees in North America are engaged at work).  We started to find new ways to get people involved.  For example, this popular blog post highlights,“7 ways we’ve gotten people on board.”  We also started measuring engagement using the Great Place to Work survey and ended up being listed as the 25thBest Workplace in Canada in 2014.  Ninety-two percent of our employees said, “Taking everything into account, this is a great place to work.”

If you don’t think this matters to your bottom line, check out the results of this study of the most engaged workplaces by the Russell Investment Group:

stockmarketreturns

Q3. Do you have the following policies in place: business code of conduct, career development, flexible work, environment & purchasing, ethical reporting, travel & expense?

About a year into our new life as a B Corp, we realized we weren’t improving our stakeholder impact nearly as much as we wanted to.  We decided to form our “Stewardship Council” – a cross-functional team of employees who volunteered to become the voice of our stakeholders (clients, candidates, employees, shareholders, community, environment) to the Leadership Team.

We are fond of saying that our Stewardship Council is a do-tank not a think-tank.  One of the things we asked them to “do” was to use the B Impact Assessment to figure out how to make us a better company.  The council created a set of “unpolicies” (policies founded on the principle of trust and designed to increase both the freedom and responsibility of our employees).

These policies are awesome … you should totally steal them (but not until you have aplaybook (see Q1) so you can incorporate your own values and make them relevant to your business).  If you want them, here they are.

Q4. Is there something different or innovative about the company’s approach to charitable-giving that has changed the industry?

The B Impact Assessment got our Stewardship Council thinking about waste – not just energy and recycling but also the assets of the business “lying fallow” that could be used to create benefit for others.

The Ian Martin Group sends 100,000+ auto-response emails each year to people who apply to our jobs. These plain-text missives did nothing to build our relationship with candidates.  The Stewardship council came up with an idea called “Redeeming the Resume Black Hole” – they decided to send each of these 100,000+ applicants $25 to make a micro-finance loan on Kiva.org.

I know this program sounds insanely expensive but the Stewardship Council used “creativity amid constraints”: Because Kiva uses loans instead of donations, this program is nearly self-funding – it costs the company about $7500 per year.  So far, 1.9 IMG applicants per day are joining Kiva to help entrepreneurs around the world create Meaningful Work in their communities – all because of emails that previously went in the trash.

Q5. Do your products or services benefit consumers by providing one of the following: provision of basic services, health care or healthy products; education; support of general knowledge, arts, or cultural heritage; improved economic opportunity or social/economic empowerment; market access through previously unavailable infrastructure; or servicing non-profit organizations and other purpose driven enterprises with fundraising/capital/capacity-building needs?

I told you the questions on this assessment are intense…

Earlier I mentioned, “we see a world with each and every person pursuing Meaningful Work.”  After articulating this vision, we started hiring anyone who showed up and made it clear that it was also their personal mission in life – “their why”. One of these people has already started a new business for us called Hirefly and another founded a technology company we recently acquired called Fitzii.

Both companies are using technology to help kill the resume and match people with companies in a more human way – using a combination of personality, culture fit and skills assessment (see below).

The Ian Martin Group is likely a decade away from making a credible dent in our goal to connect 100,000 people with Meaningful Work; and we certainly can’t yet answer “yes” to the question above. But even though our efforts are nascent, two years ago it would have been impossible to imagine a path.  Again we see how adopting constraints into your business begins to produce creativity and innovation.

Fitziiprofile

Q6. Does the company have a formal process to share financial information (except salary info) with its full-time employees?

Short term, this question has produced the biggest bottom-line impact for our business.

When I first wrote about our experience with the B Impact Assessment 2.5 years ago, I joked: “If you ever want to see lawyers and accountants squirm, tell them you’re thinking about adopting an ‘open book financial management’ process when you’re a private company. It’s quite fun.”

However, about a year later, I read an article/interview with Brad Hams author of “Ownership Thinking: How to End Entitlement and Create a Culture of Accountability, Purpose, and Profit.” Brad advocates for private companies to educate all employees on financials – right down to the bottom line.  When employees know the score in the game, he claims, they actually try to improve it.

In the interview, Brad said the fear that prevents owners from sharing this information is, “If my employees know how much money the company is making, they’ll want more.” But from his experience coaching over 1000 private companies, he’s found, “Employees often think you’re making a 50% profit and are shocked when they see the real cost of doing business.”

I decided to find out if he was right… we posted an anonymous poll on our intranet and these were the results:

pollresults

Now, I was the one who was shocked.  The average gross margins in our industry are significantly less than 20% and typical net profits are 2-4%.  Over a quarter of our employees (most of whom make spending and resource allocation decisions) thought we had more in net profit than we do in GP!

So, we started an education process around financial transparency about one year ago.  One of the key points that employees picked up on is that in our industry, $1 saved is equal to about $20 in new revenue growth.

The result? We budgeted 7.1M for our corporate overheads this fiscal year. Two-thirds of the way through the year, it looks like we’ll only spend 6.4-6.5M.  Our employees found ways to save the company 600-700K (including 75K in paper & postage alone) within months of us trusting them to know the score. Turns out: It’s not just business owners who know how to get competitive about winning the game…

Conclusion

So fellow business owner, I invite you join us in the competition not just to be best inthe world but also best for the world.

Although it will take decades working together, I believe we can build a society that enjoys a shared and durable prosperity. A society in which there is:

  • Equality of opportunity,
  • A healthy environment,
  • Strong communities, and
  • Work with dignity and purpose.

Now, you know the rules and you know how to keep score.  Only one question remains:

Will you join the game?

Editor’s Note: This piece was originally posted on the Ian Martin Group blog. It has been posted here with the author’s permission.

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