Startup Citizenship—Enterprise & Common Good: New business creation happens within society and the startup interacts with all stakeholders, whether intentionally or unintentionally. Traditionally a startup business plan does not use words like the common good, but if the entrepreneur ignores the nature of the ways it interacts with people, the entrepreneur will adversely impact the chances of success. To help your awareness and ideas this 2022 Forbes article is worth reading.
Entrepreneurs have plenty of concerns other than the common good, or the social impact of their new 
venture. From Day One of the business, their new business will particularly impact two stakeholders: their employees and immediate communities, whether positive or negative, or either noticed or ignored. The new product and potential customers will most likely be the major preoccupation—without them there’s no business.
The trouble is, that often founders are strategically ill-prepared to deal with employee relationships and interaction with the community. However these two stakeholders are often in a position to make or break the fledgling enterprise.
The early stages in the life of the business is the best time to pay attention and have a positive social impact and avoid blundering into situations that can threaten the life of the business. Bear in mind, though that startup citizenship will be manifested through being part of the community where the startup is located—through local employment, taxes, purchases and other expenditures.
Four states in the US use the term Commonwealth is a term used in their full official long form state names: Kentucky, Massachusetts, Pennsylvania, and Virginia. Commonwealth is a traditional English term used to describe a political community as having been founded for the common good—that is, to the happiness, health, and safety of everyone in a community or nation. It is not for the individual enterprise to take on the full responsibility for the commonwealth or commonweal of the stakeholders, but as a good citizen, it should be a positive contributor within its own community.
Membership of the Company
In a legal sense, a member of a company refers to an individual or entity that holds shares in it and thereby possesses certain rights and responsibilities. I would wager, however, that most employees would consider themselves ‘members’ of their company—in the colloquial sense. In a startup, most likely the shareholders would be the founders themselves, given that less than one per cent of startups get venture capital. However, once there are other shareholders, the company’s directors have a fiduciary duty to act in their interest, which may or may not include any impact on employees or the community.
This situation and the issues of conflict that arise are of critical importance to the debate on the future of capitalism. Startup founders have a pivotal opportunity to decide how they want to constitute their company. An increasing number of them opt to establish their business legally as a Benefit Corporation, where shareholder primacy does not rule and the corporation aims to have a positive benefit in society. Many others prefer to become a Certified B Corporation, whatever their legal status1.
In any case, there are many ways that startups can manifest their own sense of citizenship.
Example of Startup Citizenship
My startup partner suggested that once we became profitable (we did in Year Three), we should give ten per cent of pretax profits to the community. Back in 1984, I was hesitant about this form of startup citizenship, but it turned out well. From our fourth year on, that’s exactly what we did, as well as paying for up to 7 days paid volunteering a year for all members of staff. Our CPA thought we’d lost our marbles. However, it turned out not only to be a ‘good thing to do’, but also the return on investment was very high.
The motivation to introduce these startup citizenship policies were based on altruism, not considerations of financial performance. Altruism though, as it turned out, brought many benefits. We found that people we recruited were attracted to the culture that the policy it represented. They stayed in the company and were highly motivated by the atmosphere that the policy engendered. Our reputation as citizen of the local community, was also positively beneficial to the company as it grew. You can read a bit more about our experience here.
It is difficult to find out the extent to which startups indulge in corporate citizenship in the form of either charitable donations or volunteer paid time off (VTO). Anecdotal evidence suggests that today’s startups tend to combine a focus on both profits and purpose, including a commitment to employees and the community. Hence, they will also tend towards charitable donations and volunteer paid time off.
Citizenship Is Vital to Stakeholder Capitalism
Stakeholder capitalism has the purpose of serving the long-term interests of those upon whom it depends for its success—not just the interests of shareholders, which tend to be much more short-term. Stakeholder capitalism is a much maligned concept, especially by those who consider that movements such as stakeholder capitalism are built on ultra-liberal, business-negative narratives.
However, there is a growing body of research that demonstrates the fact that businesses committed to stakeholder capitalism “outperformed the rest in earnings, revenue, investment, and job growth,” according to McKinsey. Indeed, profitability in necessary, but not sufficient.
One of the stakeholders upon which a business depends for its sustainable success, is any community in which it operates, so business citizenship covers moral and ethical responsibility to the citizens of those communities, including people who are employees or may join the company.
According to a 2017 Glassdoor survey, giving back is a priority for employees in the US: 75 per cent expect their employer to support those in need, either with donations or volunteering efforts.
Charitable Donations: In the 21st century US, the average of corporate charity donations amounts to 1 per cent of pre-tax profits and though the amount varies year by year, to total percentage has not changed significantly over the 40 years to 2019.
Walmart, for example, gives about 1.3%, though Target gives nearly three times as much as a percentage of pre-tax profits. It is difficult to estimate the absolute total in dollar terms, since many companies will also match personal donations by employees.
Volunteer Paid Time Off: Volunteer time off is a form of paid leave (though sometimes unpaid), where employees receive their regular compensation for hours spent in service to an approved charitable or community organization.
As of 2018, nearly one in four companies in the United States were using VTO to their advantage. The number of them is rising as they come to appreciate the benefits.
If you want to go further into stakeholder capitalism, and you don’t know how to begin grappling with the subject for your own startup, take a look at the Stakeholder Strategy Evaluation Tool.
Management of Startup Citizenship: Charitable Donations and Volunteer Hours
One of the issues that we discovered about our startup citizenship, over a quarter of a century ago, was that it was fine to just manifest startup citizenship itself, but it became necessary to formally manage the process. So, we established:
• a process for charitable giving: all employees could propose suggestions, agree & monitor progress;
• a named company fund with a local community foundation to distribute funds;
• a new line on staff time sheets to monitor employee volunteer time;
• that volunteers report their experiences to colleagues;
• that the company’s named fund at the foundation produced an annual report.
Challenges to Establish and Manage Policies & Programs
Even when there is goodwill by entrepreneurs or corporate managers, establishing and running citizenship programs is tough. If an entrepreneur is interested in introducing a policy on citizenship and does not know where to start, a good place might be the organization Startups Give Back, who offer a mentoring service for startups that want to make a profit and a difference.
The firm Encast is also potential partner in the process. This startup consulting firm and designer of digital apps, such as Encast Social ImpactTM, is a company based in Austin, Texas. It aims to “support great cultures by fostering relationships through common values.” It works both in the interests of company clients and their employees. The app manages donations for client companies and enables individual portable accounts for employees that stays with them wherever they go.
The company’s founder, Leo Ramirez, observes that millennials (born 1981-2001), who form about half the American workforce “seek purpose in their job as well as social impact.” If you want to learn more, contact him by email, and tell him I sent you. I’m sure he will gladly help. Leo says, “Build a company people love.”
There is also Benevity is a company that offers employee engagement software and also helps nonprofits through offering the Benevity Causes Portal. There are very useful nonprofits, too. One example is the Giveback Foundation that offers a workplace giving platform and helps employers set one up. Volunteer Match is another; it offers exactly as the name implies: it offers a corporate volunteer SaaS program. United Way can help match you with volunteers in your locality, too.
Notes
- Here is a guide to the differences the differences between a Benefit Corporation and a B Corp.