Millennials' bold new business plan: Corporations with a conscience

Disillusioned with the baby boomers' all-encompassing greed, young people are building a different kind of business

Published February 9, 2014 3:00PM (EST)

Andrew Garfield and Jesse Eisenberg in "The Social Network"
Andrew Garfield and Jesse Eisenberg in "The Social Network"

While some of the nation is buried under snow or parched with drought, I’m standing on a beach near Santa Barbara, Calif., in a summer shift, looking for Garrett Kababik, a millennial who is part businessman and part eco-evangelist. I find him in a commercial trailer that doubles as headquarters for his company, Channel Islands Outfitters. Kababik is bearded, tanned and fit, the sort of outdoorsman who cares so much about the environment that he and his partners have taken the risky step of registering their firm as a B Corporation.

What’s a B Corporation (or "B Corp"), you ask? It’s a new type of business that aims to benefit the community and turn a profit. These entities have a much broader mission than traditional companies and as such are rebooting the idea of business success. But they’re only one aspect of what I consider to be a trend among intrepid millennials — a new economic movement I'll call Indie Capitalism.

To understand the origins of this development, let’s quickly review the first 13, luckless years of this millennium. That’s when the average middle-class worker suffered three man-made crises. First, there was the dot-com bubble, a fever predicated on the twin ideas of silicon genius and an ever-rising stock market. Next there was the war on terror, which thus far has cost the country about $3 trillion. Then came the great housing bust, empowered by reckless lenders, irresponsible regulators and gullible homebuyers. In quick, head-spinning succession, we witnessed a $700 billion taxpayer-funded bank bailout and mounting home foreclosures.

But wait: How come the lower and middle classes saw their fortunes crash when corporate profits were soaring to record highs?

“The [financial] crash played a significant role in raising awareness about our broken system,” says Katie Kerr, a spokeswoman for B Lab, which spearheaded the B Corp wave. “You can’t have a successful life if your co-workers can’t subsist on their wages or if your community is dying.”

Many people believe that’s precisely what’s happening now in America. Since 2007, our economy has lost an estimated $12 trillion; and about 120 million of our friends and neighbors have fallen deeper into (or toward) poverty. It seemed that our institutions — both public and private — had either abandoned their traditional role of safeguarding us, or at the very least had atrophied into paralysis. Even now, bankruptcies, foreclosures and unemployment, while lower than three years ago, are still too high for our own good. “Something has got to change,” said Justin Kennedy, a 30-something electrician in Santa Barbara. “We can’t continue down this path.” But who will lead us to a better place?

Millennials like Kababik are embracing B Corps as a solution. Since around 2006, the number of certified B Corps has boomed from zero to nearly 1,000 firms, spread across 60 industries in 32 countries. Here in the United States, California is leading the B Corp charge. It has more certified entities than any other state in the union: 199 compared to 87 in Delaware and 62 in New York. “The growth has been exponential,” says B Lab spokesperson Kerr.

B Corps’ cousin, Benefit Corporations, have gained legal recognition in more than 20 states since 2010, with 18 more states about to pass similar laws. While B Corps are certified by an independent third party as being socially and/or environmentally responsible, Benefit Corporations are socially minded firms that are state chartered — but without much oversight.

Still, what the corporation was to baby boomers the B Corp is to millennials: the place to work. During the 1980s and 1990s, many boomers toiled for the corner suite, the second home or the Rolex watch. Today, millennial workers’ aims are more practical yet at the same time more altruistic; they list meaning and mission among their work objectives.

Driving this trend is this generation’s relationship with business. It’s hard to generalize about any group and this one consists of 90 million Americans who were born roughly between 1980 and 2000. They’ve been described by some sociologists as shallow, narcissistic and even lazy. A radically different portrait shows that they volunteer for causes, value civil service and, based on the last two national elections, turn out in record high numbers to vote. In general, this group doesn’t have a lot of money and what cash they do have they’re reluctant to spend. They aren’t buying many new cars and homes. Sure, their sky-high credit-card debt has dropped, but they can’t secure more credit and, even if they could, they don’t like the buy-now-pay-later plan of mindless consumerism. This might stem from the fact that 45 percent of all unemployed people are between 18 and 34 years old, and that 36 percent of people that age are still living in Mom and Dad’s spare bedroom.

“Things are getting more difficult,” 24-year-old college graduate Zack King told me. “The system hasn’t delivered on the promises it made, so we’re looking for other ways of doing things.”

Certainly they want decent-paying jobs. But they also want jobs that give their lives meaning. What I’ve found is that many millennials are not narcissists or slackers. Rather, they’re trying to turn their disillusionment into a new vision by exploring places where entrepreneurship intersects with social enterprise. They’re incorporating their need for financial stability with a yearning for a better, more meaningful life — and not just for them but for everyone.

* * *

Garrett Kababik of Channel Islands Outfitters is a 33-year-old New Englander, the sort of CEO who wears shorts and flip-flops to work. His corner office is a grassy triangle above the beach. It’s midwinter, and amid the sounds of murmuring waves, we talked as his two enormous dogs slobbered all over me and my notebook.

“I’ve always appreciated the outdoors,” Kababik began. He arrived in Santa Barbara a decade ago and landed a job at a paddle and kayak company. He took people on wild adventures to the spectacular Channel Islands, a rugged archipelago 25 miles off the coast here. Kayaking through sea caves and scampering across rocks, he gave customers once-in-a-lifetime experiences that often transformed their lives. Over the years, he got to know his company’s operations; he once asked for equity in the firm but was turned down. Even so, the business kept growing. “In 2008, we had a really good season,” he said -- so good that the firm went into debt buying a lot of pricey equipment.

That September, the financial crisis hit.

“When the banks failed, our cash dried up,” said Kababik. Businesses across the land began laying off employees in order to save money and/or to please shareholders. A similar thing was unspooling at Kababik’s shop, only worse. While the government was handing private banks an unprecedented bailout, the ocean tour-guide business hit its nadir, burdening Kababik’s company and other small businesses. It struck him as unfair and corrupt. “I saw what was happening and had to leave,” Kababik recalled.

For six months, he hiked the Appalachian Trail and thought about how multinationals wreak havoc on people. “There’s no humanity behind these corporations,” he thought. The typical corporation, he surmised, is a “money-grubbing beast” owned by “rich people” who aren’t involved in the daily operations of their companies. Yet, the number of yachts and mansions they own keeps climbing. “There’s so much greed and excess on display.” It boggled his mind.

Back in Santa Barbara, Kababik reconnected with friends Fraser Kersey and Johnny Dresser. In 2010, it turned out that the owner of the kayak tour company they had worked for wanted to sell his firm. So the three men brainstormed to see if they could not only buy it but manage it, too. Kersey had earned a business management degree from Cal State Long Beach, Dresser had served in the U.S. Navy for eight years and Kababik had a recreation management degree from the University of New Hampshire. All three had read about “ethical” businesses, “impact investment” and other forms of socially responsible ventures. “We decided that we were going to have a triple bottom line, focusing on people, planet and profits.”

The term “triple bottom line” was coined in 1994 by a British consultant, John Elkington. It means that the value of a company includes not just its financial health but its social and environmental merit, too. “If we couldn’t (run the company) that way, then we didn’t want to do it at all.” But banks weren’t about to lend money to these do-gooders. Fortunately, the three friends were able to buy the company with owner financing. Yet, they weren’t certain how to manage their company in a socially conscious way — without losing money.

Some 3,000 miles away, a new corporate structure was taking shape. B Lab, a nonprofit based in Wayne, Pa., had seen a huge demand for companies that had “social responsibility” woven into their DNA. Lots of companies claim they’re responsible. (See Exxon and “greenwashing.”) But if a company asks them to, B Lab will actually measure those claims. Owners pay a fee (based on revenues) to go through the certification process, which includes questions such as: How well does your company treat its employees? How do you care for your community? If a firm passes B Lab’s rigorous standards, it becomes a certified B Corp.

That label indicates an “ethical business,” which appeals to a growing number of consumers. Polls show that many millennials will go out of their way to support firms that truly do “make the world a better place.” And that niche is slated to become a lucrative one. It turns out that, despite the current dire straits of millennials, they’re forecasted to start spending $200 billion a year by 2017. Many companies would like to capture some of that money.

But doing well as a so-called S Corporation is tricky. By law, the sole purpose of the traditional American business is to maximize shareholder profits. Yet, here was Channel Islands Outfitters, trying to save the whales. The small business couldn’t afford to be sued by its six shareholders for putting the planet before profits. “It was a real dilemma,” said Kababik.

By 2011, however, several states began passing laws that established a new legal entity — the Benefit Corporation. These chartered companies must create a “positive impact on society and the environment.” By registering their firms as such, owners have a broader fiduciary duty than just making money, and that mandate protects from certain shareholder lawsuits.

California’s Benefit Corporation law went into effect in January 2012. Kababik and his partners were eager to switch over and sought advice. “But everyone we talked to said we’d be crazy to do it.”

Dennis Clark, a tax manager at Bartlett Pringle and Wolf, said there is no tangible upside to registering as a Benefit Corporation under state law, or to getting certified as a B Corp. “It just ties your hands.” Plus, there’s no tax benefit. “We don’t have a single client who falls under that law,” said Clark. Some experts say that a better way to get corporations to behave responsibly is to elect a government that enforces existing laws. Others believe that the modern corporate animal — with its executive suite, shareholder class but no other stakeholder — is too entrenched to ever change. As Clark told me, “You’re not going to find baby boomers who subscribe to this and who are willing to pay $5 more to support a Benefit Corporation.”

Ah, but baby boomers were among the first to jump on the millennial bandwagon. The cherubic sexagenarians known as Ben & Jerry registered their ice cream company as a Benefit Corp. early on. In 2012, the 75-year-old Yvon Chouinard registered his iconic firm, Patagonia, of Ventura, Calif., as a Benefit Corp. and a certified B Corp. As Chouinard explained at the time, “the existing paradigm isn’t working anymore.” Many B Corps accomplish things that a Fortune 500 firm would never dream of doing. Greyston Bakery in Yonkers, N.Y., for example, offers a job to anyone willing to work, be they poor, homeless, previously addicted or formerly incarcerated.

When Kababik heard about these B conversions, “we were inspired to do the same.” In July 2013, CIO became a Benefit Corporation. But California law doesn’t guarantee that a firm actually walks its talk. So, Kababik and his partners went further by enduring B Lab’s rigorous certification process. CIO claimed that it used recycled materials. Fine, said B Lab: Send your firm’s policy statement along with receipts that prove you buy recycled materials. It claimed it was a sustainable business. Prove that you deposit with a local bank. “It took a lot of time to gather all the paperwork,” said Kababik.

But finally, CIO became not just a registered Benefit Corp. but a certified B Corp, too. Its mission? “(T)o save the oceans and natural places by fostering an understanding of them through education, adventures, and outdoor experiences.” It vows to treat employees well, and keep customers happy. In order to keep its B status, CIO must submit to surprise audits and apply for recertification every two years. Kababik is proud of the label: “We’ve tried to create a business system that meshes with our personal philosophy.” (Of course, the company’s record isn’t perfect. Kababik and his crew still haul equipment on Highway 101 in a diesel-fueled truck; fast food stops are not unheard of.)

But running a business is expensive: State and federal taxes gobble between 15 and 20 percent of revenues; federal, state and local regulations are costly; and workers' comp insurance and other coverage is expensive, too. “We try and keep the money here in town, but it’s hard,” he said: Some of its insurers are located in another state. CIO pays employees decent wages, starting at $12 an hour, which is no mean feat since 50 people work during the peak tour season. Even better is that its full-time workers receive health coverage. Plus, the B Corp insignia adds another layer of costs. For example, CIO gives employees 20 hours a year of paid leave to volunteer for causes related to CIO’s mission. And it trains teachers of developmentally disabled students so that these kids can paddle in the water, too.

Yet, the B badge does have its advantages. For one thing, it forces the owners to make sure they’re achieving what they set out to do. “It’s a great exercise.” And being part of a “conscious” business community expands CIO’s opportunities. “It gives us greater access to capital since socially responsible investors and ‘impact investment’ groups want to invest in firms like ours,” said Kababik. It also links CIO with other certified B Corp firms. “It’s great to work with people who share our core values,” he explained. And it fosters employee loyalty since people know they are working for something bigger than money.

That “something” is keeping the oceans off Central California clean. People here still talk about the winter of 1969, exactly 45 years ago, when a Union Oil platform blew. For eight days, the rig oozed 100,000 barrels of a dark oleaginous substance that killed thousands of fish and fowl, and tarred 100 miles of coastline and hundreds of square miles of water. The tragedy drew national attention and spawned the Environmental Protection Agency, the Clean Water Act and the modern-day environmental movement. Yet, today, when Kababik and his crew paddle out to sea, they bump into seals and cormorants that have been tangled up in plastic bags and poisoned by man’s garbage. “Santa Barbara used to be an environmental leader,” said Kababik. “But it was one of the last counties in California to ban plastic bags.”

Now with climate change and mounting pollution, Kababik and his employees believe that their environmental mission has become even more urgent. For them, the B Corps stamp is like the Good Housekeeping Seal for the Indie Capitalism set.

“We hope our customers see the value in our company and [are] willing to pay for it,” said Kababik.

The question is: Will millennials put their money where their mouth is? And will that make any difference in the way we do business?

By Kathleen Sharp

Kathleen Sharp reports on business and entertainment from Southern California.

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