A Legally Enforceable Triple Bottom Line -- Nau!

In a post last year, I advocated that companies put sustainability and triple bottom line language into their articles of incorporation and bylaws to make these commitments legally enforceable and more meaningful. I have been on the lookout for companies that have done so, but have been unsuccessful. Until Nau.

No, that's not a typo, that's Nau -- an outdoor apparel company committed to "inspiring and affecting positive change through a holistic approach to design." I learned recently that Nau actually did this, so when I found out that Eric Brody, Nau's Sustainability Manager, was the Interactivist this week on Grist, I posed this question: "I advocate that companies put a legally enforceable commitment to
sustainability and a triple bottom line in their articles of incorporation or bylaws. I have read that Nau has language to this effect in its bylaws. What is the language? Has this language helped or hindered Nau in raising capital?"

Grist asked Brody my question, and here is his interesting response (see all questions and answers here):

Even before Nau had raised any money to fund its efforts or had designed a single product, the team began to examine how to set the company on a deliberate social and environmental trajectory.

Corporate attorney Robert Hinkley influenced Nau's founders. Hinkley incorporated the work of management expert W. Edwards Deming and systems theorist Peter Senge to develop new ideas pertaining to the notion of a corporation as citizen. Deming had written that "most of the time it's the system that causes the problem, not the people in the system." He combined this idea with the insight of Senge, who said that to change any system you should "look to make the smallest change possible that will generate the biggest effect." From these theories, Hinkley created a code for corporate citizenship. In only 28 words, it stated that henceforth the "duty of directors shall be to make money for shareholders but not at the expense of the environment, human rights, public health and safety, dignity of employees, and the welfare of the community in which a company operates." Nau chose to follow Hinkley's guidance and include similar language in its corporate bylaws.

This issue has come up in the process of raising capital to fund the company. In fact, people have advanced the point of view that the language suggested a greater degree of responsibility and therefore could lead to the company being devalued. We have taken the opposite point of view and have been able to resolve any objections that we have received to date.

If you would like to see the exact language of Nau's Rules of Corporate Responsibility, please see the March/April '07 issue of GOOD magazine. Subscribe to GOOD magazine for a year and they will give 100 percent of your subscription fee to the nonprofit organization of your choice.

This is an extremely bold move by Nau. As Brody notes, some have indicated that Nau might be less valuable because it is taking on a greater degree of responsibility. And indeed, in a very real sense, Nau has agreed to internalize the societal costs of things such as the emission of carbon dioxide, for example, that almost every other corporation is free to externalize with almost complete impunity. And we are all the better. By taking this step, Nau creates a more valuable world, and its efforts should be widely recognized and applauded.

But we need to go futher. States should create a mechanism to encourage businesses to follow Nau's lead. New York, for example, could amend its Business Corporation Law to permit creation of a new corporate form, a "Sustainable Corporation." If the Sustainable Corporation includes statutory "sustainability" language in its charter documents requiring the business to comply with a set of specific environmental standards much higher than otherwise required (e.g., carbon neutral, commitments to waste reduction and recycling, green purchasing, etc.), the business would be entitled to a very specific set of benefits (tax credits, expedited permitting, business assistance, etc.). The "sustainability" commitments could be enforceable not just by the shareholder, but by the state's Attorney General as well, similar to how Attorneys General currently have oversight authority over charitable corporations.

Businesses such as Nau increase the value of the commons, and we must help them succeed.

Photo Credit: Nau, Inc.

Comments

[John Hunter]

Nice post, Dr. Deming described the purpose of an organization in New Economics, on page 51, as:

"The aim proposed here for any organization is for everybody to gain - stockholders, employees, suppliers, customers, community, the environment - over the long term."

My post on the the purpose of an organization - http://management.curiouscatblog.net/2005/08/16/purpose-of-an-organization/

[Steve]

Thanks, John. I think anyway you look at, the overarching societal purpose of any business enterprise is to help meet the needs -- food, clothing, shelter -- of the people over generations. The assumption underlying traditional single bottom line profit motive, as I understand it, is that by motivating individuals to meet their own gain, you maximize the overall productivity of the economy. This can only work, though, if the organization is not dumping on its customers, community and environment, and all of its true costs are internalized. This may be another way of articulating Deming's point.

[Chris MacDonald]

As far as I can see, Nau has implemented a vision, not a "bottom line" (let alone 3 of them). In fact, the 28 words include obligations to, by my count, 6 (not 3) sets of stakeholders. And I don't see anything like a "bottom line" for any of them.
Am I missing something? Why call this "Triple Bottom Line?"

[steven davies]

I've never heard about this company,but I like their mens outdoor apparel.
I will look for Nau in my country.