Recession spawns sustainable innovation
The disruption of the banking industry, which started in Fall 2008, continues to besiege the industry through bank foreclosures, apparent lack of credit and the pressure for banks to be highly capitalized.
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The disruption of the banking industry, which started in Fall 2008, continues to besiege the industry through bank foreclosures, apparent lack of credit and the pressure for banks to be highly capitalized. While these are certainly difficult times, the challenges have created some opportunities.
High unemployment rates and a permanent shift of housing as the biggest source of income to the working community has created new opportunities, including the dramatic move to entrepreneurship and the expectation that the building of companies must include social and environmental benefits.
It is generally the case that when people are out of work, they use the opportunity to think about the company they would like to start or the company where they would like to work. This is in fact how companies such as UPS (NYSE: UPS), FedEx (NYSE: FDX), Costco (NASDAQ: COST) and countless other companies were launched during recessions.
Today, numerous entrepreneurial companies are in formation, many of which are focused on solving environmental concerns. The green chemistry industry is exploding, churning out materials such as resin-based products with wood fiber as the bonding material rather than petroleum-based binders. Companies are transforming petroleum-derived products, such as plastics and used motor oil, back into input petroleum. And innovative products, such as those using human motion to charge batteries for cell phones and GPS systems, are hitting the market.
Some mission-driven companies are focused on making social change, such as donating land—which in the current real estate market is less valuable—to community parks or gardens. Others are using their corporate contacts to raise funds for community development or service projects.
Many of these new entrepreneurial companies, however, promise to deliver more than financial returns to investors and stakeholders. Environmental and/or social returns are becoming part of the matrix as well. Such returns can include:
- Elimination of formaldehyde from the manufacturing process.
- Reduced use of petroleum imported from outside the United States.
- Non-monetary reward systems for employees, such as time to participate in community activities, different approaches to health care, more flextime and part-time employment.
For these companies to be successful, they value employee retention and want to do all it takes to attract the brightest future employees. With more than 76 million people expected to retire over the next 20 years, it is clear there will be a shortage of experienced employees in the decades to come. It is imperative that businesses find creative solutions to address this issue. Companies in which employees value their work, co-workers and the community in which they live, are much more successful than companies in which employees are “just doing a job.”
Another type of company is focusing its product to be a vehicle for helping other companies in the community. Examples include companies that are using their product to assist health care and other personal care in their or providing their excess land for park purposes, adding to the wealth of the community. Others are using their corporate contacts to raise funds for community development or service projects.
Building a company that is attractive to both the investor and employees yields many returns: wealth generation, community development and expansion of product lines that consume less resources throughout their life cycle, are just a few. When a business focuses on these areas, it not only enhances the relationship between its leaders and its employees, but it invests in a long-term strategy for its own health.
An increasing number of investors, from SRI in the Rockies to the SOCAP conference in San Francisco to the ReVisioning Value (ReVV) conference in Portland, are seeking an expanded return on investment in a number of areas:
- A return on financial capital at least equal to the return on peer companies.
- A return from improved usage of the environment.
- A return from improved employee and community relations.
They recognize each of these returns is instrumental to the long-term benefit of the company. They expect the company to be in the community for a long time, and they are positioning the company to do so. They are not looking to build the company and then sell out to financial or strategic buyers. They are looking to retain the company in its community and are looking for the wealth they generate to stay in that community.
These investors are looking for a “blended,” “triple bottom line,” “balanced,” or “sustainable” return. These are the companies that ShoreBank Pacific is trying to bring along with our banking activities, and what others are assisting through equity, preferred stock, mezzanine and subordinated debt. Collectively, we expect to see the same emphasis on financial return but enhanced by these other measures.
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