Wondering what you can do to embed sustainability in your legal and operating structure … and if there risks associated with tying sustainability into the formal legal and governance structures of a company? We recently met up with Christopher Marston, founder and CEO of Exemplar Companies, and Lara Pearson, Vice President and Sustainability Steward of Exemplar Companies, to ask these questions and more. We hope you enjoy their insights and responses as much as we did!
What are three things that companies can do to embed sustainability in their legal and operating structure?
- Reinvestment Principles: Sustainability needs to start with your business. All too many businesses suck the economic life out of their enterprises each year instead of building sustainable enterprises that can have multiple times the impact of individuals alone. Just as you would never give birth to a child and then starve it of food and water, a business is a legal living creature that can make great impact on the world through the values and principles instilled in it by its founders. Starting with solid reinvestment principles is an important step in the right direction for meaningful impact.
- Values Protections: One of my [Christopher Marston’s] favorite quotes is, “you’ve got to stand for something, or you’ll fall for anything.” The difference between Core Values of a business and those that merely live in a distant page of the employee manual is how they are used both in the businesses’ operating principles as well as in its legal and compensation structure. At Exemplar, our eight core values are an integral part of team member reviews, they impact compensation, and specific values serve as requirements for continued employment with the company. A company can go a long way in creating cultures of excellence with values protections and business practices that integrate them. In addition, similar to Certified B Corporation and benefit corporation requirements, legal language can be added to the corporate articles that allow management to make decisions that consider more than just shareholder value … but stakeholder, environmental, and social value as well.
- Social Contribution Mandates: Collective action can move mountains. Organizations would benefit from having corporate activities that involve the team in accomplishing its mission, such as focused volunteer work or team contributions to a cause. Making an impact is so much more than sponsorships and memberships. It’s about action and we are so much stronger together than we are on our own.
Are there risks associated with tying sustainability into the formal legal and governance structures of a company?
Absolutely. Without specifically addressing the values system and how it plays into governance and decision making, the default rule is that corporations exist to maximize shareholder value (their investment). Thus, management has fiduciary duties to their investors to act ONLY in that interest. While many indirect/social contributions can be characterized as creating shareholder value, some shareholders scrutinize management behavior and other bottom lines dutifully, which can lead to lawsuits without the proper protection. Integrating these legal constructs gets increasingly difficult later on, so it is important to incorporate them as early as possible to avoid roadblocks later in the life of a company.
What questions should a company's management team ask their legal counsel about sustainability?
Here are some top questions:
- How can we protect management’s ability to use its judgment in making a contribution to multiple bottom lines within the existing legal structure?
- How much leeway do we have in extending the concept of sustainability to our people through employment practices (such as hiring on values, firing for poor values) or promotion of health and sustainability of the people within our organization?
- There are so many associations, membership, and certifications. How do the certifications inter-relate, and what restrictions might these put on our company from the standpoint of management, how we allocate profits, or what we represent to the public? There are also government, such as the Federal Trade Commission (FTC), regulations that govern marketing of third party seals and certifications. So be sure your counsel either is aware and comfortable guiding you on these or can refer you to someone who is.
What questions should a company's management team ask their financial advisers about sustainability?
- Do our financial practices promote the growth of our own business as a sustainable enterprise? (This is sustainability as a financial concept)
- Looking back at my last year’s contributions to our external goals for impacting sustainability, have we achieved a return on an investment?
- How can we improve the decisions we make this year for greater impact?
What should social enterprises keep in mind when touting their greatness?
As previously stated, social enterprises need to be cautious of how they market, advertise and promote the environmental and/or social benefits created by their business, products or services. Claims of environmental and health benefits in particular must be substantiated through independent scientific evidence. The FTC recently released new Green Guides to provide a framework for marketers making claims regarding environmental benefits. The FTC also has a set of Endorsement Guides that address third party seals and certifications, which are becoming all the more prevalent. Make sure your counsel has a good understanding of these agency regulations so that you don't run afoul of them.
On the Exemplar website, you talk about the Quad Bottom Line. How does your approach differ from the more familiar "triple bottom line?"
There is a philosophical concept driving Exemplar’s addition of a fourth bottom line, the “Spiritual” bottom line, to the traditional triple bottom line. The other three bottom lines operate similarly at Exemplar as elsewhere, but the Social and Environmental bottom lines are outward facing, meaning they govern how we interact with the externalities of third party stakeholders and the natural environment. Business is all about your people, and an organization has a responsibility internally to have happy people in order to accomplish the other, outward facing, bottom lines.
The Spiritual bottom line is based in a feeling of connectedness, passion, or sense of mission that your people have for what they do every day. It is rooted in Exemplar’s change away from Karl Marx’s labor theory, which commoditized people into fungible silos and labor units, to the most accepted economic theory: Value Theory, which focuses on bringing the unique skills and attributes of your people to the table to create outstanding outcomes for our customers. Exemplar was the first corporate law firm in the country to abandon hourly billing in favor of fixed and value-based pricing, which was necessary to support the ever-important spiritual bottom line … the foundation and heart of our business.
What do you see as the biggest trend in sustainability for businesses in the next 1-3 years?
For founders and values-leaders, we will begin to see a significant rise in the multi-bottom-line business and legal structures that make accommodation for businesses to accomplish not only financial, but social and sustainability oriented goals. Businesses that stand for something more than just the product they sell will become more the norm and will expect to do business with other companies that stand for something.
Do you have more questions or thoughts that you would like to share? You can reach Lara @Laraslight to join the conversation on Twitter.
About Christopher Marston
Christopher Marston is the founder and CEO of Exemplar Companies, Inc. Talented business attorney and Former Chief Financial Officer, Christopher serves as trusted counsel to mid-market companies across the nation. Christopher’s practice focuses on M&A, Private Equity, Securities and Corporate transactions spanning nationally across industries such as sustainability and new-industry entertainment. Christopher also serves as a Fellow in the VeraSage Institute, an economics think-tank dedicated to changing the economic model of the professions.
About Lara Pearson
Lara Pearson is an Intellectual Property (IP) attorney and responsible business advocate who has practiced IP law exclusively for the past 14 years and handles trademark and copyright issues. She’s the Chief Pontificator at Brand Geek where intellectual property law, branding, and corporate social responsibility collide, as well as a trademark attorney who thrives on helping responsible companies’ craft brand protection strategies in her capacity as Vice President at Exemplar Companies, Inc., where she also has the privilege of serving as the firm’s Sustainability Steward.
Lara speaks and writes frequently on issues of IP law, as well as on environmental and social responsibility. She co-founded the Section of Intellectual Property Law of the State Bar of Nevada is a past Chairperson of the Section. She currently serves on the Advisory Boards of Rock the Earth and Sustainable Tahoe and on the Board of Directors of GreenUP!
Exemplar is a closely integrated family of companies including Exemplar Law, LLC, Exemplar Business, a Business Execution Firm, and Exemplar Capital, a Business Capital and Investment Banking firm, converging to form the most holistic and powerful combination of services to accelerate the growth of business in the market. This innovative new economy professional services firm serves high-growth mid-market companies, and specializes in being the most highly valued primary-care professional services firm across the disciplines of Law, Business, and Capital.