Entering Another World
Gary Hirshberg's enthusiasm for charity work hit an all-time low during a vacation to Disney World.Mr. Hirshberg, then the head of an environmental group, came across a giant Kraft Foods exhibit with colorful displays of how Kraft envisioned the future of food manufacturing. He was appalled by how much it depended on nuclear or gasoline power and other processes that could harm the environment.More troubling, he learned that the Kraft exhibit was drawing 25,000 visitors every day, while his charity, the New Alchemy Institute, which promoted alternative energy sources like solar panels and windmills, was lucky to draw 25,000 people to take an educational tour of its site each year.He returned home depressed, but he was determined to find a way to harness the power of corporate America to advance his cause. He knew that it was not enough to squeeze donations from big business, find ways to embarrass companies into protecting the environment, or start a business venture on the side. He had already tried all those.Soon after, he quit non-profit work altogether to help found Stonyfield Farm, a yogurt company in Londonderry, N.H. The personal rewards have been great: He has grown wealthy as the company has succeeded, posting $43-million in sales last year.But Mr. Hirshberg also insists that he has been able to do more to help the environment through his company than he ever did at New Alchemy, which has since disbanded. Stonyfield uses only organically grown fruit, recycles most of its waste, incorporates ecology messages into its marketing, and contributes 10 per cent of its pretax profits to environmental groups.Accomplishing Social GoalsMr. Hirshberg is just one of a many Americans who have abandoned charity work to start businesses that they hope will allow them to be more effective in achieving the social goals they had hoped to accomplish in the non-profit world. They join others who considered starting a charity, or working for one, but decided that a business offered a better way to do good.They say that, for many causes, businesses can generate more money, be run more efficiently, wield more clout with corporate and government leaders, and offer better personal financial rewards than charity work can. And they say that as charity officials they often felt frustrated by how much fund raising they had to do and how little power they had to bring about social change."What we wanted from a non-profit was the credibility and the integrity, but we didn't want anything else about the non-profit mentality and culture," says Rink Dickinson, who helped found Equal Exchange, a coffee company in Canton, Mass.Equal Exchange not only sells coffee but is also trying to alleviate poverty among coffee growers in developing countries. It buys beans directly from Latin American farmers, rather than from intermediate distributors who are often accused of impoverishing farmers.Equal Exchange's leaders chose to start a business rather than a charity because they felt that that was the only way they could really prove to coffee companies that it was possible to make a profit and still pay decent wages to growers.Others who moved from the non-profit world to the business world say they were frustrated by the wear and tear of running a charity. Michael Martin, who ran a Minneapolis charity that produced free concerts designed to raise consciousness about environmental issues, decided to convert his organization into a company. Not only was fund raising a struggle, he says, but he had come to dread asking musicians to perform free. "The music community is a money-driven business," he says. "We became a pest to them. Whenever we called, it was for something -- to donate their services, something. We were constantly in a position of need."A Potential Brain DrainThe rapid rise in the number of bright and dedicated people who have left non-profit work behind has the potential to cause a serious brain drain in the charity world.Sara E. Melendez, president of Independent Sector, which represents many of the nation's big charities and foundations, says she understands why people like Mr. Martin are turned off by the demands of raising money. "Fund raising is wearying," she says. "It's exhausting. It's hard. And it's very unstable."Vanessa Kirsch, founder of the non-profit youth group Public Allies, believes that many people will continue to shun the charity world unless changes are made in way non-profit groups receive financial support.This year, Ms. Kirsch founded New Profit Inc., which is designed to fight some of the problems that have caused non-profit leaders to feel compelled to form for-profit businesses. The organization is working to create a multimillion-dollar fund that will treat charities in much the same way that venture capitalists treat businesses -- giving organizations big infusions of cash, working closely with their leaders to improve operations, and collaborating with them on other activities. (See story on Page 12.)Charity leaders like Ms. Melendez say they believe that such efforts will help keep people attracted to non-profit work. They also say that the rapid growth in charitably oriented businesses is not all bad. They say that they are encouraged by the number of socially conscious people who are founding their own businesses and hope that the growth is a sign that more and more companies will take social responsibility seriously.Businesses that devote a lot of their profits to charity and that adopt socially conscious business practices are hardly a new concept. Ben & Jerry's Homemade, Newman's Own, The Body Shop, and other such companies have been around for as long as two decades.But indications of the growth of socially driven businesses are abundant. The Social Venture Network, a national membership association of chief executives of businesses and charities, has seen its business membership grow to about 280 C.E.O.'s since its founding in 1987. Business members are selected through a strict peer nomination and review process by current members such as Ben Cohen of Ben & Jerry's and Anita Roddick of The Body Shop. New members must have a social mission that is a prominent part of their businesses. They must also have at least $3-million in annual revenue.Another organization, Students for Responsible Business, has seen its membership mushroom to 1,250 since its formation in 1993. Members are business-school students and alumni who seek information and peer support to start or work for socially responsible businesses. Many members are also pushing business-school administrators to offer more classes and case studies about socially responsible businesses.Peter Barnes, who founded the mutual-fund and long-distance telephone company Working Assets in the early 1980s, says he has noticed a growth in the number of companies like his. His long-distance telephone service donates 1 per cent of customers' charges to charity and allows customers to call periodically, at no charge, their U.S. Representatives or Senators. His mutual-fund company allows investors to buy shares in funds that contain only stock from companies with strong environmental or social track records."We were definitely the first wave," he says. "Now it's a much bigger wave."The 'Second Wave'Leaders of the "second wave" say they are enjoying much success. At Stonyfield Farm, Mr. Hirshberg expects to generate $50-million in sales this year, as the popularity of the company's yogurt continues to grow. While the American yogurt industry's sales have been mostly flat in the 1990s, Stonyfield Farm has seen annual growth of 30 to 40 per cent.Stonyfield officials attribute the company's success to the number of consumers who care about the business's environmental and charitable practices. The company makes its yogurt with milk bought only from family-run dairy farms, rather than from corporate farms, which often inject hormones into cows to improve milk production. It uses natural cultures rather than chemicals and recycles more than 70 per cent of its solid waste, which it says is far better than the average company, which recycles 20 to 25 per cent.The company also has a plan to reduce its factory's carbon-dioxide emissions to zero in an attempt to protect the earth's ozone layer, and it prints messages about current environmental problems on package lids. A recent lid pronounces, "Let's PUT A LID on Global Warming." Underneath the lid are a World-Wide Web address and toll-free telephone number that consumers can use to order free kits about what steps they can take, such as sending e-mail messages to President Clinton.In addition, Stonyfield Farm donates 10 per cent of its annual pre-tax profits to environmental groups through its "Profits for the Planet" program. Last year, it gave $164,008. Since starting the program in 1995, the company has donated $544,298.Influencing CompaniesBut more than giving money and being a good corporate citizen itself, Stonyfield Farm is making a difference for the environment through its influence with other companies, Mr. Hirshberg says."When I came to Stonyfield, my actual mission was to change the way Kraft Foods does its business," he says. "That Disney food pavilion -- that needed to change because they're going to have their 25,000 people a morning. So they better just get a different message."Stonyfield leaders believe that their steady gain in market share has influenced big yogurt companies, such as Dannon.Dannon started the "Danimals" campaign in 1994 that puts messages about wild animals on its yogurt lids and promises to give a percentage of its profits to the National Wildlife Federation."We are changing the way all the big guys do their thing because they're finding out that it's profitable," says Mr. Hirshberg, who says he has been told of his influence by Dannon officials who want to join his company."That is our mission," he adds. "I'm very clear that we're not going to make more than a dent by ourselves. That's not the purpose. The purpose is to enlighten the corporate community -- to use the examples of correlating corporate-responsibility practices with financial results to change the way capitalism is done."In addition, Mr. Hirshberg is personally enjoying life as a businessman. He and his family, who have reaped big financial rewards from Stonyfield's stock, whose value has increased 30 to 40 per cent annually much of this decade, live in a large, custom-built house with floor-to-ceiling windows that look out over sprawling acres of New Hampshire woods.He does not miss his charity work -- especially the fund raising. "My palms were forever faced upwards," he says. "I have never looked back."Formal StandardsThe growth in the number of companies like Stonyfield Farm has prompted several organizations to try to design formal standards and a universal name for such businesses. The standards, they say, would help consumers separate those businesses from other companies that might support charities but do not have a charitable mission at the core of their operations. The Social Venture Network is conducting research to develop standards for companies that call themselves socially responsible. It plans to publish and distribute the results of the research and suggest standards next year.The standards will probably include commitments to recycle waste, avoid pollution, eliminate discrimination in hiring, and allot some profits to charities, along with a host of other criteria.In Raleigh, N.C., Muralis Creative, a company that is developing consumer products that will be sold with the intention of funneling 100 per cent of profits to charity, has employed the Arthur Andersen management-consulting company to help it develop principles for what it calls "for benefit" companies.Muralis plans to announce its principles this summer and make available a "for benefit" label that companies can use on their products or in advertising for their services. Muralis hopes to find an independent agency to audit the companies and insure that they are abiding by the principles. Heerad Sabeti, president of Muralis Creative, says he is seeking definitions and principles because he fears that a company like his will not stand out to consumers without them and therefore not realize its full potential."This is the future of commerce and business without question," says Mr. Sabeti, who also does marketing for other companies and organizes fund-raising events for charities. "We need principles and a common label to make sure that we establish the level of legitimacy and awareness in consumers to realize the full potential."Mr. Sabeti says he is also talking to business leaders about creating a coalition that will lobby Congress to formally recognize "for benefit" companies and award them special tax breaks."I don't see 'for benefits' being completely tax exempt," says Mr. Sabeti. "We are engaging in commerce, so we should be contributing to the tax base, but not at the same level because of all the benefits to society."But some business leaders doubt that tax incentives are needed. "Hey, everybody loves tax breaks," says Mr. Barnes of Working Assets. "I don't think they're necessary. I don't think just for being socially responsible you need to get a tax break."