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Seventh Generation founder discusses responsible business

Christian Myers | Sunday, February 20, 2011

Jeffrey Hollender, co-founder and former CEO of Seventh Generation, brought his ideas about socially responsible business practices to the Mendoza College of Business Friday.

Hollender’s lecture, “The Future of American Business,” was part of Ten Years Hence Speaker Series, which explores ideas likely to affect society and business for the next decade.

Hollender, a career entrepreneur, started two businesses prior to co-founding Seventh Generation, a company that produces organic cleaning products. He started Seventh Generation with the vision of creating a new kind of company — one focused on being both ethical and sustainable.

According to Hollender, these ethical and sustainable practices included employee ownership, radical transparency, organic inputs and products and pay equality.

Hollender believes in the merits of employee ownership. He said there are many studies and statistics supporting the concept that employees are more productive and engaged when they have some level of ownership in the company they work for.

Radical transparency is another concept Hollender enacted at Seventh Generation. According to Hollender, radical transparency is a business sharing both its successes and its mistakes with investors and the public.

“[Radical transparency] is difficult to maintain,” he said. “Most companies only talk about what they are doing well … We in the business world usually don’t like to dwell on our mistakes.”

Organic inputs and products was the center of Seventh Generation’s sustainability commitment. They produce toilet paper made from recycled materials, non-chlorine bleach, phosphate free cleaning products and more.

Hollender’s concept of pay equality is that CEO’s and other business executives are being paid too much. As CEO of Seventh Generation he limited his pay to 17 times the pay of the lowest wage employee in the company.

“Let me tell you, you pay a lot more attention to the lowest paid workers when their wage determines your own salary,” Hollender said.

In 2008, Hollender stepped down after eight years as CEO of Seventh Generation but continued to work for the company. Then, about sixth months ago he was fired from Seventh Generation, which he attributes to disagreements about the direction of the company between himself and the board of directors.

“[Being fired] is an experience I plan to learn from … At Seventh Generation I worked to make the company an exception to the rule,” he said. “Now, I want to dedicate the rest of my life to changing the rules.”

Hollender now works as an author, speaker, consultant and activist. He has consulted with corporations such as Microsoft and Wal-Mart. He is a board member of Greenpeace U.S., the Environmental Health Fund and Verité, a workers’ rights organization.

Hollender is also co-founder of the American Sustainable Business Council, a coalition of business leaders committed to sustainability and changing business practices.

In regards to the current economic situation, Hollender brought up the high unemployment rate and the growing income gap as major concerns.

“The income gap here in America is greater than in either Egypt or Tunisia,” he said. “In fact, today one in seven Americans is using food stamps.”

However, the “rules” were the main focus of Hollender’s assessment of the current economic situation.

“We have a system that provides incentives for businesses to do the wrong thing,” Hollender said.

Hollender pointed to the example of America’s third largest producer of solar panels moving to China because the Chinese government invests very heavily in renewable energy technologies.

He also said that the American government subsidies are hurting producers of organic products. He explained that Seventh Generation toilet paper costs more than non-organic brands because the government subsidizes new timber to the point where it is cheaper than recycled materials.

This problem is mirrored in the retail industry, according to Hollender. Hollender said some retailers tend to mark-up organic products to a greater extent than other products. Hollender said he believes that, until there is parity in pricing, organic products will not be able to compete. However, he believes there is a trend away from this practice.

“Target, for instance, has done a great job pricing green products in parity with other products,” Hollender said.

Government subsidies of petroleum products are also a big problem, Hollender said. He said he thinks these subsidies should be gradually removed so that there is incentive for more environmentally friendly alternatives and for a change in consumer behavior.

“I think that gas should cost six or seven dollars,” he said. “There are many benefits and the only negative is that low-income individuals are most affected; that would have to somehow be offset.”

Another problem, according to Hollender, is that society pays for air and water pollution rather than the corporations causing the pollution.

One concept Hollender advanced is full-cost accounting. According to Hollender, full-cost accounting is the notion that product prices should reflect all costs of production, including environmental, energy and traditional cost factors.

“If we had full-cost accounting, bad products would cost more and good products would cost less,” he said. “Right now it is the other way around.”

He pointed to the Mondragon Corporation in Spain, which has had great success with worker-owned cooperative businesses. According to Hollender, this successful business model is currently being used to revitalize business in Cleveland, Ohio, through the Evergreen Cooperative Development Project.

According to Hollender, the cooperative businesses in the Evergreen Project are guaranteed revenue from other member businesses. For example, a hospital pledged to use a local laundry service for all of their laundry needs and to get all of their food from a local greenhouse.

Hollender said the project has been successful so far because the biggest risk facing small business is the uncertainty of revenue. The guaranteed revenue within the Evergreen Project has allowed many new small businesses to start up.

As many as 50 other U.S. cities are looking at the Cleveland model, according to Hollender.

Most of Hollender’s current work is focused on transitioning businesses as they exist now to sustainable business models. He said he sees this as a critical part of solving America’s business problems.

Hollender finished by calling upon the business students in the audience to work on addressing the types of issues he discussed.

“The world needs you. It will be up to all of you to help these companies transition to the sustainable business models of the future,” he said. “How much of your life are you willing to dedicate to solving these problems.”