The Basecamp fiasco and the social responsibility of business

Hey folks. This is the 6th edition of The Great Near, coming a bit late after a short nature break in the Appalachian mountains (picture below). Today’s post is the first in a series that will explore our fuzzy expectations of companies to create impact; interrogate the expectations, successes, and failures of social enterprise; and uplift the social justice enterprise as a new frontier for better business. 

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ICYMI, the software company Basecamp recently issued a controversial memo about changes at the company that blew up the internet. Among the many things that prompted one-third of employees to leave the company was this declaration from CEO Jason Fried:

“No more societal and political discussions on our company Basecamp account.”

There’s so much to talk about, from the cringe-worthy list Basecamp employees maintained on funny customer names to the new ban on internal committees which will divert decisions about ethics and diversity to the founders. For the sake of this piece, I’m interested in one part of the memo:

Fried says, “We are not a social impact company,” in hopes that it will get employees “back to individual responsibility, back to work” (whatever that means). Response has been overwhelmingly negative, prompting an apology from Fried that strangely reinforced the policies. This move followed in the footsteps of Coinbase, a crypto company that made a similar statement last year provoking hundreds of employees to leave the company. 

In past years, Fried was well-known for promoting Basecamp’s supportive employee culture, benefits, and unique work philosophies (he even wrote a book about it). This memo reflects a sharp 180. Heather Landy explains why these policies are so problematic:

“Many Black Americans feel isolated and alienated in workplaces where there isn’t space to acknowledge, for example, the problems of police brutality and how such news impacts them personally. The comfort of some, under Basecamp’s new rule, will come at others’ expense.”

On the heels of historic social movements encouraging companies to do better, what should we make of this backlash? It sounds like respecting employees as full people started to cut into Basecamp’s productivity and bottom line.

Basecamp refuses to be a “social impact company,” but what does that really mean? If we expect businesses to create value, should that not include positive social impact? There’s a spectrum of opinions on how to combine the “social” with the “enterprise.”

Business ⮕ Business + CSR ⮕ Social Enterprise ⮕ ??

Many people agree with Fried that the impact of a business should be contained to what it does and how it does it (e.g. a soap company that makes soap). They might argue that social impact should be left to the government, nonprofits, and/or a niche subset of businesses called social enterprises (e.g. a soap company that makes soap and makes it a mission to hire formerly incarcerated individuals). 

Some businesses fall in the middle of this spectrum, meaning they kind of care, but they’re ultimately in the business of business. These companies may opt for pledges (“more diversity! #BLM!”) and corporate social responsibility (aka CSR or churning a percentage of your profits into charitable activities).

These models might not cut it anymore.

In 2020, we had front row seats to a horror show where certain corporations left workers behind during a pandemic (despite record profits) and continued their paths of climate destruction. Public scrutiny was merited—these companies accepted unbelievable sums of taxpayer money in the form of federal relief, including $104 million given to companies that avoided paying any U.S. taxes in the last year.

Has the past year inspired companies to take more responsibility to solve big problems? Have movements like Black Lives Matter encouraged social entrepreneurs to prioritize equity, justice, and systemic change? Is there a better model for the enterprise that actually prioritizes workers on the same level as shareholders? I’ll explore these questions throughout this series. 🔍

The responsibility of business.

Why should we hold businesses responsible for more than “doing business?” 

Capitalism, in its current form, isn’t working for the majority of Americans. Don’t take my word, even the founder of the world’s largest hedge fund agrees. Shareholder primacy—the principle allowing companies to prioritize shareholder interests before those of other stakeholders, including customers, employees, and affected communities—is legally protected by many jurisdictions in the U.S. This means profit maximization is often encouraged by boards and shareholders at the expense of social responsibility. 

What’s wrong with this picture? Thousands of workers can legally be furloughed without healthcare during a pandemic as CEOs are handsomely compensated. Minority communities suffer disproportionate health effects because companies legally place noisy, polluting warehouses in their communities with no recourse. The list goes on and on.

Basecamp’s executives would like to think that business can be divorced from politics and social trends. Aaron Tanaka, Boston-based community organizer and Director of the Center for Economic Democracy, explains why this has never been the case:

“The most successful capitalist firms understand that competition within markets alone is a failing strategy. Politics and culture determine the winners of the economy, and the winners of the economy dictate politics and culture. Corporate allocations for lobbying, political action committees (PACs), and advertising are examples of this logic at work.”

Backup a bit. When did our expectations of businesses start to change? 

Milton Friedman and other pro-market economists gained prominence in the 1970s for their belief that everybody wins when businesses focus on profit maximization. This credible opposition to Lyndon B. Johnson’s “Great Society,” the era of big-government spending, gave CEOs cover for a few decades. They argued that the market would solve little inefficiencies (like that pesky climate change) and that “rising tides would lift all boats,” meaning a growing economy would benefit everyone. That tide really just lifted the yachts.

The rise of this neoliberal ideology, or free-market capitalism, opened the door to the social enterprise as the solution to problems created by the market, such as the absence of financial services in low-income communities. Rather than reform or regulate the corporate sector, we accepted social enterprise as our savior. 

Companies like Warby Parker pacified us for a while (I’m buying glasses AND they help people!!) until a global pandemic brought this facade crashing down. Despite decades of trying, social enterprise had not delivered the equitable, resilient society that could weather a global crisis. We started to see the flaws in our logic: the social sector couldn’t fix problems as fast as corporations were creating them. Remember when Facebook almost brought down our democracy? That was fun. 😅

So… all companies should try to become social impact companies?

Well, no. For one reason, “social impact companies” don't really exist. There are no universally accepted definitions for “social impact company,” or “social enterprise,” so anyone can claim, or reject these labels. That soap company might not be responsible for solving climate change, but there are still ways it can “be social.” Liza Mueller, VP of Knowledge at Echoing Green, puts it well: “All business should be social. All businesses should care about the health, future, and wellbeing not only of customers, but of everything.” << This should not be a controversial opinion.

Does this put too much pressure on businesses to solve unrelated problems? 

This requires us to interrogate what is unrelated. If your company operates in an area with high forest fire risk and your employees’ homes are destroyed in a seasonal fire, I bet climate change would become your business. Let’s go back to Basecamp. Fried’s memo is likely a response to the historic protests against systemic racism that might have captured the attention of his employees last year. Fried calls this the personal business of employees, but what then is the business of tech?  Heather Landy offers this perspective:

“Politics and societal issues shape the world of work in myriad ways, including both the products that Basecamp builds and the experiences that people have while working there. We know, for example, that people’s racial and gendered biases get built into algorithms; that programming terms can reflect racist histories...”

The tech industry has a huge role to play, especially after decades of baking racist assumptions into software, from credit score algorithms to facial recognition. When companies like Basecamp forcefully ignore these injustices, they shut out people who can offer critical perspectives on technology, like women and people of color. Not to mention, a presumed lack of diversity is bad for innovation and a company’s bottom line.

What should companies be expected to do then? 

Pick a lane. It’s unrealistic to demand every company become a worker cooperative or completely divest from environmentally destructive supply chains when their raison d'être is to generate shareholder returns. This is where strong public policy must complement the “better business” movement. (For example, this proposal to the Biden-Harris administration that Common Future helped spearhead.) 

Liza Mueller says there are three ways companies must take responsibility, specifically when it comes to racial equity.

“First, companies should consider taking significant steps inside their institutions to change practices and policies. This internal work can require long-term changes. In the interim, companies can provide large sums of money to racial equity organizations, or go through organizations that regrant capital to local leaders, like Echoing Green.”

As I’ve said, before changing the world, companies should change the lives of the employees who work for them. This is possible. Here are a dozen case studies from Project Equity of companies successfully transitioning to worker ownership to help employees build wealth. Employee stock ownership plans (ESOPs) give workers ownership of the company by making them shareholders. Data from over 6,000 companies with ESOPs found that the average employee-owner had $142,245 in retirement assets. That might not sound like a lot, but remember that 1 in 4 Americans have no retirement savings.

My take on the Basecamp controversy?

It’s too early to tell if Basecamp will set off a larger trend. Most other Fortune 500 companies are taking the opposite approach and doubling down on pro-social efforts, from Amazon’s sweeping climate pledges to Nike’s commitment to the Black community. 

These pledges are largely band-aids that ignore structural change, so which company is more ethical: the software startup opting out of social justice, or the ones ignoring human rights violations and supporting BLM and climate change on paper? 

People have legitimate reasons to care about so-called “political” issues like systemic racism or the warming climate. Refusing their presence in the workplace is frankly delusional. Black lives matter is not a “distraction” and racism does not stop at the doors of your office. I’ll be waiting for Fried’s second apology tour.

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Coming up… social enterprises were meant to be the answer to these problems—what went wrong? Are we in need of new terminology, perhaps new models, to meet our demand for “better business?” As a former social enterprise groupie, this is a piece I’ve been itching to write. See you then!

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What’s Up This Week? 👀 ✨

Caught my attention

To the credit of my colleagues who lament about this, the margin of error afforded people (specifically POC) who work in the social sector is tiny compared to the elite institutions who make baseless predictions about the future grounded in things like “proprietary data" and “expertise.” I’ll explain. “Goldman Sachs economists expected a total of 1.3 million jobs to have been added in April.” The actual number was 266,000. (!!) Similarly, Lyft executives predicted in 2016 that most customers would be using autonomous taxis and parking spots would be eliminated…by 2021. They just sold their autonomous vehicle division to Toyota for $550 million. No one’s going to blink an eye at this, but it’s worth interrogating who is allowed to fail. Nonprofits are already under-resourced, yet our sector (more specifically, POC nonprofit leaders) is consistently asked to be better than perfect.

Also… three strategies to build stronger small business communities from Common Future’s very own Rodney Foxworth. 1) support the support system, 2) reallocate local government resources, and 3) invest locally.

A deep dive

Letting Go is a book I’ve been excited to get my hands on. It chronicles the history of the solidarity economy, participatory funding, and ways in which activists have built democratic systems within capitalism.

“In Letting Go, Ben Wrobel and Meg Massey tell the story of the funders who have chosen to cede decision-making power to people with lived experience of the problem at hand. The stories range from a global foundation run by and for young feminist activists, to a neighborhood loan fund controlled by working-class residents of color.”

Curious to hear from you: should we do a deep dive? what questions do you have? Let me know in the comments ⬇ or via email.

Someone you should know about

You should know about… Aaron Tanaka! Aaron is a “Boston-based activist, community organizer, impact investor, and grassroots funder,” who is a bit of a rockstar in the “new economy” world. He’s the Director of the Center for Economic Democracy, an organization that supports workers and communities of color to build models that will transform American capitalism. What does this look like? Aaron co-founded the Boston Ujima Project, a first of its kind democratic investment fund that gives residents in Boston’s working class neighborhoods the power to invest in local businesses and vote on the direction of their communities. I interviewed Aaron for this series, and I’m excited to share some of his brilliance around the social justice enterprise.

Some Blue Ridge Mountains beauty to get you to Friday.

until next time,
-Caitlin