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The business of the future is ethical, sustainable, and employee-owned

Companies that lay out strong environmental goals and share ownership with their workers outperform all other businesses on all social impact measurements.

The business of the future is ethical, sustainable, and employee-owned
[Image: higyou/iStock]

You may not know it, but when you’re buying clothes from Eileen Fisher, you’re buying from an employee-owned company. Fisher founded the company in the early 1980s, but instead of going public, she sold 30% of the company to her own employees in 2006 (they now own 40%). That’s helped her keep the brand’s principles aligned: Eileen Fisher was one of the first clothing companies to offset 100% of its carbon footprint, and it’s become a pioneer in advancing localized, sustainable production, setting itself on a path to use 100% organic cotton and linen by 2020.

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In 2015, Eileen Fisher became a Certified B Corporation, completing one of the most stringent assessments of business as a force for ethical and environmental good. Because the company’s employees are partial owners and share the same commitment to ethics and sustainability, Fisher, who’s nearing retirement, feels confident that the brand will continue on in the same way after she leaves.

A new report from the Democracy Collaborative, a nonprofit that advocates for employee ownership structures, explains how the clothing company exemplifies a mission-led, employee-owned company: One in which employees, through their ownership stake, help drive the brand’s ethical commitment to environmental sustainability, social equity, or ideally, both.

According to the Democracy Collaborative’s Fifty by Fifty program, which has a goal of 50 million employee owners in the U.S. by 2050, there are around 45 such companies in the U.S. While big-growth brands, and the conglomerates that buy them up, tend to garner the most attention, the Democracy Collaborative’s new report makes the case that it’s the smaller, steadier companies that should attract the spotlight.

The intersection of a strong sustainability and ethical mission and employee ownership, says Sarah Stranahan, an associate at the Democracy Collaborative, represents the sweet spot for good business–and something more companies should be aiming to achieve. The Democracy Collaborative calls businesses at this intersection “next-generation enterprises” because they proactively address persistent problems, including income and wealth inequality, environmental degradation, worker exploitation, and lack of community accountability.

There are many companies built around one of the elements of a next-gen enterprise. Around 2,945 Certified B Corporations worldwide pass a rigorous assessment that requires them to demonstrate positive impacts across multiple categories, including environmental stewardship, workplace culture, and community benefits. There are also around 5,400 benefit corporations in the U.S., which follow a less stringent criteria. More than 6,000 companies in the U.S. have some kind of employee ownership model, whether that be an Employee Stock Ownership Plan, in which employees own a percent of a company’s stock, or a worker-owned cooperative, in which employees collectively own and govern the company (the former is much more common).

Both–especially compared to more mainstream, investor-owned companies–perform well by ethical standards. But the Democracy Collaborative got interested in measuring if employee-owned companies tended to perform better on environmental metrics overall. “Our hypothesis was that employee-owned companies, if they had a strong environmental mission, would perform better on those metrics than non-employee-owned firms with a strong environmental mission,” Stranahan says. The nonprofit B Lab collects data on the performance, across many metrics including environmental impacts, of B Corporations, so Democracy Collaborative was able to compare the results of employee-owned B Corporations to more traditionally owned B Corporations.

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Their hypothesis was born out, Stranahan says, but only marginally. “But as we started doing this, we realized that we should look at their workers’ scores, look at their corporate culture scores, let’s look at their overall B scores and compare them more broadly,” she says. What Democracy Collaborative found was that employee-owned firms with a strong environmental and ethical mission consistently outperform all other businesses on all social impact measurements. In fact, 37 of the 45 employee-owned B Corporations that Democracy Collaborative identified were named in the Best for the World rankings in the past two years. Those firms include the Vermont-based King Arthur Flour, which merges sustainable sourcing with employee ownership; Amicus Solar, a cooperative network that builds out clean energy solutions while creating well-paying jobs and ownership opportunities; and of course, Eileen Fisher.

If we’re going to solve the dual crises of inequality and climate change, Stranahan says, companies have a substantial role to play. The employee-owned, sustainability-driven companies that Democracy Collaborative identified are paving the way, and could be the model for what a next-generation business should look like.

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About the author

Eillie Anzilotti is an assistant editor for Fast Company's Ideas section, covering sustainability, social good, and alternative economies. Previously, she wrote for CityLab.

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