With for-benefit companies, opportunity to do good and drive growth

At MIT Sloan, Heerad Sabeti discusses role of the fourth sector in spurring economic growth

November 29, 2012

Heerad SabetiHeerad Sabeti

It’s not just for-profit companies that can help this country reestablish its economic equilibrium; the emerging “fourth sector” is already stoking the U.S. economic engine, thought leader on the fourth sector Heerad Sabeti said in an October talk at MIT Sloan.

For-benefit companies, which constitute a fourth sector of the economy (alongside the private, public and nonprofit sectors) are emerging hybrid organizations that blend a defined social purpose with an earned income approach. Well-known enterprises like Patagonia and Goodwill Industries are examples of this growing fourth sector.

What makes up the DNA of for-benefit companies? According to Sabeti, some of these entities have characteristics such as: shared ownership and governance rights among key stakeholders; giving shareholders reasonable returns that meet but don’t exceed expectations; reinvesting remaining profits to advance their mission; and a focus on long-term living wages for all employees.

Currently the fourth sector makes up 5 to 10 percent of U.S. gross domestic product and represents 10 to 20 percent of our jobs, Sabeti said. He reported that this sector is poised for continued growth, which could be central to the repair of the U.S. economy. More than $3 trillion of U.S. investments under management are in sustainable or responsible investment areas, Sabeti said, representing a growth of 12 percent from 2007 to 2010. And, he said, for-benefit and charitable occupations project twice as much growth as other jobs.

What is more, Sabeti said that industries like healthcare, journalism, education, and public utilities, among others, “are all ripe for the for-benefit model. These are all places where state and federal governments are looking for ways to enable fourth sector business creation.” MIT Sloan professor Fiona Murray, David Sarnoff Professor of Management of Technology and faculty director of the Martin Trust Center for MIT Entrepreneurship agreed.

“Learning from a wide range of business models—including hybrid organizations that bring innovative ways of engaging employees and stakeholders—is essential for a better understanding of how businesses can make an impact on the world,” Murray said.

Heerad Sabeti has spent over 20 years working toward the development of the fourth sector and for-benefit enterprises, and has been a driving force behind numerous national and international initiatives. He advises governments, businesses, and NGOs on fourth sector related issues, like multi-sector collaboration, sustainable economic development, and market-based solutions to societal challenges.

Sabeti visited MIT Sloan as a part of the Sustainability Speaker Series sponsored by the MIT Sloan Initiative for Sustainable Business and Society. The Initiative’s vision is to generate innovative management practices, business models, and supporting market infrastructures that make effective, sustainable use of natural and human resources and advance human welfare. We do this through the joint efforts of MIT students and alumni, faculty and researchers, and partners in business, government, NGOs, and hybrid organizations.