THIRTEEN
ETHICAL NETWORKS
Reinforcing Shared Values

It is the day before Thanksgiving when I set out from Madison for the hour-and-a-half drive to the tiny town of La Farge, on a winding route that takes me deep into the rural rolling hills of Wisconsin, through cornfields and river bottomlands that are serene, uncrowded, and good for the soul. I lived in Madison in my early 30s, when I was launching Business Ethics magazine, and I used to take off for those hills on stressful afternoons when I needed to clear my head, to unloose the tight bands from the demands of business and remember who I was and what my life was about. It’s a land conducive to expansive dreams of possibility and creativity, the land that spawned the genius of Frank Lloyd Wright, who designed the majestic home and studio called Taliesin—in Welsh the word means “shining brow”—which resides as the brow of a cliff not far away, outside of Spring Green. That was where my car would point on those meandering afternoons of decades ago, when I would wander the grounds of Taliesin, which was at that time virtually abandoned, so that I could breathe in its ordinariness and its majesty.

In spiritual symmetry, the hill country of Wisconsin is also the land that spawned Organic Valley, the farmer-owned dairy with more than $700 million in revenue, which I am on my way to see this day.¹ I have an interview with CEO George Siemon. When I pull up in front of the company headquarters, I find that at the center of the complex stands a shiny metal building—cherry red—surrounded by cornfields and shaped like an outsized barn: a deceptively ordinary building that turns out to be LEED-certified. George himself is likewise deceptively ordinary, though he stewards one of the four largest organic brands in the nation. With his shoulder-length blond hair, new blue jeans, and cotton zip-up sweater, he looks every bit the farmer that he is. He talks about the 2,500 hens he used to keep when he had his own farm down the road. And during our interview in his office, he slips off his Dockers and sits with his feet bare under the table.

Organic Valley is owned today by close to 1,700 organic family farms. Not many years ago, it was owned by 900 family farms. To keep up with mushrooming consumer demand, the company reaches out to help farming families through the rigorous, three-year process of going organic. Each farm, as it’s added to the fold of organic certification, represents additional acres cleared of chemicals, additional watersheds washing clean of Roundup and Lasso. It represents the return of life to the soil, greater nutrition in the bodies of customers, and the advent of financial health for formerly stricken farm families. This company is growing rapidly, but it’s generative growth, leaving the world not diminished but enhanced.

For its organic milk, the company pays a price that historically has been typically 60 percent higher than the commodity price that farmers receive for nonorganic milk. That’s at the heart of it all. When former Texas agriculture commissioner Jim Hightower completed a study of the family farm crisis in America some time ago, he observed, “When all is said and done, it came down to one word. Price.” The overwhelming consensus among farmers was that most other concerns—such as overproduction, soil and water conservation, lack of credit, young farmers’ leaving the farm, and the industry’s high costs—could be managed if farmers got a fair price for their products.

Paying a fair price for farmers’ products is the Living Purpose of this company. The reality of that was demonstrated a number of years back, when the nationwide average price paid for milk was falling to $11, but Organic Valley that year increased its pay price from $17 to $22. Company profits that year were 1 percent—half those of two years prior. That was a deliberate decision made by the board of directors. Farmers not only compose the Rooted Membership of this company, but they’re also responsible for its Mission-Controlled Governance, via a board made up of farmers elected directly by farmer-owners. That board decided to accept lower profits in order to increase the price paid to their fellow farmers.

At the traditional agribusiness corporation, farmers are at the bottom of the supply chain. They sell product into a Commodity Network, where one gallon of milk is no different from the next. And for this commodity, the company pays as little as it can. Those are the rules of the game. Maximizing profits is the goal. Yet here is a successful company that puts the last first and the first last. It decreases profits so that it can pay farmers more.

MAXIMIZING MISSION

Wanting to talk with George about it all, I’ve asked for an hour of his time. He’s read my materials on the Web beforehand and greets me as a co-conspirator and friend, offering to extend our talk over lunch. My partner joins us as we drive to the only place nearby, Rockton Bar, 16 miles down the road, where 17 deer antlers line one wall, eight mounted deer heads hang on the wall opposite, and a wood stove crackles in the corner. At tables around us, a crowd of hunters in blaze orange drink Coors Light and Mountain Dew, cracking open peanuts and dropping the shells on the floor. As we lunch on deep-fried cheese curds and beef chili, the bill for three comes to $16.

“We’re not trying to maximize share price but maximize mission,” George tells me. “Most CEOs wake up in the morning and look at their stock value and sweat bullets about how to raise it. When you take away that whole aspect, you now have a clearer focus,” he says. With no emphasis on stock value, there is no need to maximize the earnings that are the foundation of that value. Organic Valley tries to manage profits rather than maximize them. It aims for 2.2 percent annual profit, within the normal range for its industry. “We don’t have any need for profits much over 2 percent,” George tells me. “We’d just pay taxes on it. We’d rather give it to the farmers.”

Organic Valley has often received buyout offers from major corporations, he says. But he and his board aren’t interested. “There’s no exit strategy in sight. Farmers are into the long term.” One result of this refusal to monetize the value of the firm is that George will never pocket the tens of millions from stock options that he might have arranged for himself if earlier on he’d decided to make this a publicly traded company. He doesn’t seem to mind. He apparently prefers things as they are, having work he feels passionate about, a community where he feels at home, and plenty of personal income.

George’s reluctance to put himself far above everybody else is central to what makes Organic Valley what it is. From the beginning, he’s been part of a community of farmers who banded together to market their milk collectively in an effort to save their family farms.

Their interest is in staying on the farm. In helping them to do this, the company also aims to nurture local communities, creates healthy products for customers, contributes to environmental sustainability, pays a healthy wage to employees, and offers an attractive return to investors. “We’re a farmer cooperative that serves a whole community of stakeholders,” George tells me.

As founders of the company, they drew the social boundaries of the firm in ways appropriate to their mission, creating a cooperative owned by the suppliers who create its milk, cheese, eggs, meat, and other products. Different kinds of cooperatives draw their member boundaries in different ways. Farm co-ops like Organic Valley often encompass producers. Housing co-ops involve the people who live there. Consumer co-ops are about shoppers, while worker co-ops are composed of employees. All involve Rooted Membership. That’s fundamental to the cooperative model. A cooperative, by definition, is a private business that is owned by the people who use its products or services and is controlled democratically by them.

Organic Valley is owned by people intimately connected to the life of the company—people like David and Susan Hardy, who regularly go into New York City to talk about farming and butter making to kids in elementary school, who may never have been to a farm and don’t know where milk comes from. Other owners are people like the Meyer family in Hardwick, Vermont, where sons Taylor and Nick run the farm and asked for donations from neighbors to help in the transition to organic farming, honoring their most generous donors by naming milk stalls after them and adding little blue nameplates to each stall.

Governance at Organic Valley—as at all cooperatives—is also in the hands of those dedicated to Living Purpose. Co-ops are governed democratically by their members. Yet in a design similar to that of the John Lewis Partnership,² Organic Valley employs not only a traditional board of directors but also a separate network of advisory farmer councils. These councils are the executive committees of the producer pools through which distribution is organized. They provide a place where farmers can talk together about issues they care about, like the quality of milk being sold or standards for pasturing cows. These committees also provide critical input to the board and management team on topics such as supply management, pay price, and pool policies. They serve as the communication link between the members they represent and the board. And they’re the seedbed for the future leadership of the cooperative.

Producers are organized into regional pools as a way to get fresh milk and other products to market efficiently, without having to truck them long distances. For a customer like me, it means that when I buy Organic Valley milk in Boston, I can be sure that I’m buying New England milk. When customers in Seattle buy Organic Valley milk, they’re buying milk produced in the Pacific Northwest. This is a design that makes Organic Valley nationally local. Customers can find its products across the nation yet can trust that production is mostly local.

In an intriguing way, this design also embodies the new notion of the economic person that theologian John Cobb and economist Herman Daly talked about, the idea of person-in-community. In the old notion of Homo economicus, all of us are lone individuals out to maximize our own income. But person-in-community sees his or her own well-being as integrally related to the well-being of others. We see this at work in the case of Organic Valley, where its farmer-members enjoy the strength of a national brand—the strength of being in community—but they have the dignity and independence of privately owning their family farms.

Organic Valley also uses the approach of Stakeholder Finance. Like Equal Exchange, it sells preferred stock. This makes the financial statements strong, because preferred shares represent long-term investments that appear on the balance sheet as equity. Yet the co-op views it as debt. Investors get a fixed return, 6 percent annually, and have limited voting rights. From 2004 to 2010, Organic Valley raised more than $40 million this way from outside investors. “We raised a phenomenal amount of money within 60 miles of here,” George says. The company had its first annual investors’ reception for preferred shareholders at the Kickapoo County Fair in 2006. It’s since grown to attract more than 500 shareholders every year.

These investors are “a new group of friends,” he says. “That’s what they are, they’re friends.” This isn’t Casino Finance, with distant, speculative relationships to the company based solely on numbers, but Stakeholder Finance, with intimate relationships based in community. Not incidentally, Organic Valley’s issuance of preferred shares has limits. I tried to invest in the company myself but found that its offering had closed. Having raised the money it needed, it was no longer accepting new funds. At least for the time being. (I was told that the cooperative may decide to offer the stock again in the future.) It struck me how different this approach was from that of the investment banks that kept bundling and selling mortgage derivatives, long after the process made any sense.

Holding all these design patterns together—Stakeholder Finance, Mission-Controlled Governance, Rooted Membership, Living Purpose—is a fifth design pattern. It’s outside this company, found in the Ethical Networks that reach out to the social and ecological communities of which this firm is a part. One network holds organic standards that originated in the work of people close to the soil and later were formalized in federal law. There is the network of consumers who want organic products, which allows this firm to charge more for its products and thus to pay more to farmers. And there is the network of investors and investing advisers, like the network that Donna is part of, where people seek to partner with companies they believe in.

Perhaps most important, there is the global network of cooperatives—a network that’s found in many nations of the world and that reaches back in time to the Rochdale Pioneers, who created the model in the 1800s. In terms of excellence in generative ownership design, the cooperative form is the most highly developed in remaining focused on serving the common good. A key reason is that all cooperatives operate inside an explicitly ethical frame. It is articulated in a formal set of ethical principles, the Rochdale Principles. These include open membership, democratic member control, cooperation among cooperatives, and concern for community. Because of these principles, the way they’re embodied in the law of many states and nations, and the way they’re celebrated by cooperatives, the cooperative form becomes elevated beyond a technical, legal ownership design. It becomes an ethical design—a set of patterns holding explicit moral standards. Cooperatives themselves become an Ethical Network.

An Ethical Network is the pattern that microfinance lacks and the reason why some of these companies began to lose their way. The original microfinance pioneer, Grameen Bank, does operate in a deliberately ethical way. But its standards have yet to be codified, industrywide. The same might be said of employee ownership. Many employee-owned firms are deeply committed to fairness, as the John Lewis Partnership is. But many give no voice to employees in governance. Such matters are left to individual company choice rather than being codified in standards.

BEING OF BENEFIT TO LIFE

Holding up cooperatives as emblematic of excellence in generative design doesn’t mean that all companies should be cooperatives. The design has its drawbacks—raising capital from outside investors can be difficult, for example. But it does mean that other generative ownership models might benefit from creating more explicitly ethical frameworks. We can think of these as ethical design standards. Developing such standards for microfinance, employee ownership, social enterprise, CDFIs, and other models may be an important future step in the progression of generative design.

Because of the many supportive networks that surround it, Organic Valley is not out there alone. It’s able to work with a full-fledged design—cooperative design—and introduce its own elements of excellence on top of it (such as the farmer councils and preferred shares). The combination makes Organic Valley a model of generative excellence, from top to bottom. Being of benefit to life is why the company exists. This living aim is woven into its purpose, ownership, governance, and capital design. It’s also in the way the firm is consciously networked into the communities around it. This is a profit-making company, but it isn’t profit maximizing. It offers a healthy return to capital, but its primary focus is living returns.

Organic Valley is a living system, with a life like that of a forest or a stream, where what benefits one species tends naturally to benefit other species. Because of its paradigmatic generative design, this living enterprise naturally generates the conditions for life—benefiting the web of life with which it is interdependent. Like an oak tree harboring birds, knitting together the soil, giving off oxygen, feeding insects, and sheltering travelers, this enterprise is a wellspring of benefits. Farmers benefit from healthy income. Employees benefit from stable jobs and rewarding work. Customers benefit from chemical-free food. Investors benefit from dependable rates of return. The biosphere benefits from the restoration of soil and watersheds. Farming communities benefit from the return of vitality that flows from farmers’ prosperity.

Yes, I know, saying all these things makes me sound like a commercial for Organic Valley. It’s hard to wax poetic when it comes to business—hard to talk about things like “revolution” (the word has been so thoroughly co-opted by advertisers). And it’s true—talking about business and investing isn’t what most of us think about when we think about social revolution. But this may be it: ownership and financial design as the foundation of a generative economy. This may be the unlikely thing we’ve been searching for—found in a place where we never even dreamed of looking. The compass point we need, to find our way through the colossal messes that our civilization is making.

As I sat there in the bar with George, with the deer antlers on the wall, the whole notion of property as dominion—the idea of turning every molecule of the earth into financial capital, using that capital to create more capital, trying to amass limitless amounts so as to exalt the self over all others—it all began to seem so archaic. Absurd, really. A kind of remnant from an earlier age, past its time. Sitting there with the peanut shells on the floor, I could feel what it is that might come next. On a large scale, it won’t come quickly or easily. But on the other hand, it’s already here, rising invisibly all around us, the generative economy.