The Case for More (Not Less) Regulation
As the founder and CEO of a West Michigan plastics manufacturer employing a thousand people, Fred Keller lives by rules. There are those he must follow, passed down by big-letter entities such as OSHA, the DOL, and the EPA. There are others—like ISO, the voluntary international certification of quality management—that he and other manufacturers follow. And there are still others that a much smaller but growing group of companies heeds—LEED green-building standards and B Corporation guidelines of social and environmental responsibility.
Following the letter of so many laws could easily become overwhelming, confusing, and—as opponents of regulation might argue—paralyzing. But a well-thumbed card in Keller's wallet has long served as a cheat sheet or a compass:
Do all the good you can
By all the means you can
In all the ways you can
In all the places you can
At all the times you can
To all the people you can
As long as ever you can.
It's a quote from 18th-century theologian and social reformer John Wesley, co-founder of the Methodist movement. It's also a highly unusual set of business principles, but Keller doesn't hesitate to pull it out in the middle of meetings. It's a gesture that might seem grandiose. But since starting Cascade Engineering 38 years ago, Keller, by nearly all accounts, has walked the walk. He has built a $250 million company and helped uplift an entire community by steadfastly asking the question: What good can we do?
These have been difficult years for U.S. manufacturers. In the past decade, nearly 54,000 factories have been shuttered or moved offshore, including 40 percent of facilities with payrolls of more than 1,000, according to data from the Bureau of Labor Statistics. The U.S. has about five million fewer manufacturing jobs than it did in 2001, a decline of 28 percent.
Thoughtful and easygoing at 66, Keller seems more like a well-groomed college professor than a hard-charging businessman. But mention manufacturing's decline, and Keller gets fired up. "We've lost industry after industry—we don't make shoes here; we don't make fabric here; we don't make machine tools," he says. "You can look at it and say, 'Well, it's a global economy, and we just have to buy where the lowest cost is.' You hear the argument that we're just not competitive. But American industry is not dumb. We can compete."
Launched in 1973 as a plastic injection molder with six employees, Cascade Engineering has blossomed into a diversified manufacturer with 15 business units and a product line that includes waste containers, auto parts, and furniture components—and, more recently, wind turbines, solar panels, and affordable water filters for the developing world. The company's technical innovations, sustainability efforts, and programs for employees have earned it multiple awards, including Chrysler's Technology Role Model Award, the White House's Ron Brown Award for Corporate Leadership, and the National Governors Association's Distinguished Service Award. Sales were hit hard during the recent recession—they plunged 40 percent, leading to an unprecedented round of layoffs and voluntary separations. But thanks to a recovering economy and growing new business lines, revenue is projected to grow 17 percent this year, and the company is hiring once again. About 1,000 employees work at 14 locations worldwide, with about 500 in Grand Rapids.
Keller, of course, isn't the only American manufacturer who is thriving. But you would be hard-pressed to find many others who share his approach to business. Although the National Association of Manufacturers, or NAM, which represents 11,000 U.S. manufacturers, has forcefully condemned recent moves by the EPA to regulate greenhouse gas emissions, Keller voluntarily cut his company's emissions 20 percent from 2005 to 2010. Though NAM would trust national energy policies to "the marketplace and its proven ability to meet the nation's energy needs," according to its official policy statement, Keller advocated for a renewable portfolio standard in Michigan (requiring electricity providers to get 10 percent of their power from renewable sources by 2015) and supports a mandated phaseout of U.S. oil imports. Though various business groups complain about the cost of regulatory compliance, Keller believes that going "beyond compliance" has saved him money. "I'm all for setting goals and having voluntary compliance," says Keller. "But is it enough? That is the question."
Far from simply embracing regulation, Keller seems to go out of his way to find ever-stricter standards to obey. Last October, for example, Cascade became a certified B Corporation, a sort of LEED certification for socially responsible businesses. The B stands for benefit, and companies seeking the status undergo a rigorous assessment process and periodic audits to document their performance on more than 170 specific measures of environmental stewardship, employee pay and benefits, and contributions to community well-being. (In addition, B Corps pay a sliding-scale annual membership fee—Keller, whose revenue puts him in the highest bracket, will cough up $25,000 per year.) Cascade is by far the largest company, and one of the only manufacturers, to join the network of nearly 400 businesses. (See "The Social Entrepreneurship Spectrum: B Corporations." )
"It's one thing for a company making an organic energy bar to become a B Corporation; it's another to take a company from a traditionally dirty industry and make a transition," says Andrew Kassoy, a co-founder of B Lab, the nonprofit that created the standards in 2007 with founding companies such as King Arthur Flour, Seventh Generation, and Method. "Submitting to third-party certification and the transparency that comes with it is really putting yourself out there. Fred's a totally different kind of person to make this commitment."
Amid the noisy debate about how to revive American manufacturing, Keller is something of an outlier. "The best thing business can do for the world is to do business and make a profit," says Kenneth P. Green, a resident scholar at the American Enterprise Institute. "By doing that, you improve employees' lives and everyone else's lives." Requiring businesses to comply with tougher standards on things such as energy use and workplace safety, meanwhile, is downright harmful, according to NAM. "We do not support overregulation and reactionary regulation that hinders business with no measurable results," says the association's spokesman, Michael Froelich. David Vogel, a professor at the University of California, Berkeley's Haas School of Business, supports regulation of greenhouse gases as a way to shift business incentives. But he doubts that Keller's approach would work for more than a handful of businesses. "It is a viable strategy for some companies," Vogel says. "But it's a niche model. Many firms aren't able, or willing, to do it."
As much as his approach puts him at odds with conventional economic wisdom, Keller can also seem at odds with himself—a registered Republican who calls for more regulation of industry; a plastics maker who speaks out against U.S. reliance on fossil fuels; a nonunion employer whose wages and benefits are a model for the region. But, fueled by these contradictions, he is pioneering a model for the next wave of American manufacturing—and maybe a new way of thinking about business.
Although Cascade Engineering has a Grand Rapids mailing address, its Michigan campus is in the township of Cascade—across the road from Paragon Die & Engineering, a manufacturer that Keller's father, Fred M. Keller, bought in 1962 for a dollar and made a leading manufacturer of molds for plastic auto parts. Keller Sr. ran the company until he retired in 1999 at age 89, inspiring his son with an expansive sense of a business's obligation to workers and society. It's something of a West Michigan trademark—in Grand Rapids, the names of philanthropic business leaders are imprinted on the civic landscape through the buildings they commissioned, among them the Fred M. Keller Engineering Laboratories at Grand Valley State University. And the companies they built—Steelcase, Herman Miller, Amway—are still here, too.
As his father was, Keller is very much a public figure. He has counseled political leaders, led economic development efforts, endowed programs at local colleges, and donated considerable sums to local philanthropies, individually and through Cascade. In many ways, Keller is a throwback to an earlier generation of business leaders who remained devoted to their communities even as their businesses expanded and developed interests around the world.
Keller has also been influenced by his involvement in the Methodist Church. "This is a place where business leaders still go to church and talk about spiritual issues," Keller says of his hometown. "It's a matter of being grounded in principles and carrying them out."
A commitment to sustainability is a widely shared principle. Grand Rapids is home to the nation's first LEED-certified YMCA and art museum. The city's mayor, George Heartwell, has set the goal of switching to 100 percent renewable power by 2020, and the city has been recognized as a center of expertise in sustainability by the United Nations and the most sustainable midsize city by the U.S. Chamber of Commerce and Siemens. Meanwhile, Grand Rapids's jobless rate stands at 9.4 percent, compared with 10.4 percent for Michigan as a whole.
Parking his Prius outside Cascade's West Plant, Keller dons a pair of safety glasses before entering to a rock-star welcome from the 40 employees on the first shift. The plant is clean and brightly lit, noisy but not deafening. As forklifts beep and spin, teams of men and women on the first of three daily shifts are assembling dash mats, acoustical automobile components that insulate a vehicle's interior from engine noise. One part of the team pulls molded black panels from a large press, then hands them off to colleagues who use hand-held sonic welders to attach a sound-absorbing pad. The finished parts are added to a growing stack destined for GM, Ford, and Chrysler.
Over the past decade or so, Keller has refocused all of Cascade's business units around the dual themes of reducing customers' use of oil and helping them move to zero waste. In the auto-parts unit, efforts have been focused on the former, mostly by engineering plastic components to serve as lightweight substitutes for components made of heavier materials. The dash mats are a prime example of this.
But products are only one part of Keller's plan. What really gets him excited—as an engineer and a longtime proponent of Japanese quality management, or kaizen, principles—is improving processes. The lens of continuous improvement informs Keller's attitude toward regulation, too. Like most business owners, Keller is no fan of what he considers excessive or punitive regulation. But he is willing to collaborate with regulators. He began working with Michigan OSHA consultants in the early 2000s; in 2010, Cascade attained "star" status, in recognition of three consecutive years with rates of significant safety incidents below the industry average.
Instead of viewing regulations like those mandated by OSHA as a nuisance (NAM and the U.S. Chamber of Commerce for years fought against implementation of the original OSHA legislation and continue to lobby against efforts to expand the legislation), Keller came to see them as a blueprint for improvement. He also argues that fixing tomorrow's problem today is not just a way of fending off inspectors and avoiding pesky fines but a practical strategy for putting Cascade ahead of the curve. Which is exactly where Keller wanted to be with sustainability.
Keller started thinking about becoming a B Corporation in mid-2010. The organization seemed like a perfect fit. Its goal is highly ambitious: to create an economic sector composed of triple-bottom-line businesses—that is, companies explicitly committed not just to earning financial returns but to creating social and environmental value. "The interesting thing about sustainability is the interaction of the three points," Keller says. "So many people in industry just think about green and stop there." Getting the external stamp of approval was, for Keller, a way of encouraging others to consider the standard, with the long-term goal of developing a sustainable-business cluster that would help drive the West Michigan economy.
Kenyatta Brame, Cascade's chief administrative officer, oversaw the certification process, with help from managers across the company's operations. Cascade has spent years focusing on employees, the community, and sustainability, so making the grade was largely a matter of documenting existing practices. And having gone through ISO and LEED certifications, Cascade had a lot of the needed proof available.
But more important, the process of completing the comprehensive B Corporation survey helped Brame's team identify opportunities for improvement. The certification process also brought the company's supply chain into sharper focus. "One thing Cascade is very good at is looking at ourselves; this survey made us want to look at the people we work with as well," says Brame. Although Cascade was able to document its successes in workplace diversity, local charity, and community service, the company did not have verification that its suppliers were making similar efforts. "In many cases, we're the first company they're dealing with that's talking about a triple bottom line," Brame says.
There's no doubt in Keller's mind that the future can't run on oil—and that, he says, presents opportunities for Cascade. In 2007, the company created a renewable-energy business unit, which makes a small wind turbine for residential use and distributes and installs solar panels. "You don't even need to believe in climate change and carbon and all that stuff," says Keller, who supports a mandatory 10- to 15-year phaseout of fossil-fuel imports. "If we change our fuel systems, we'll decrease our imports, which will help our economy and create a new area for manufacturing. That kind of policy would be tremendous."
For a manufacturer of plastic, the signature product of the fossil-fuel era, this sounds near suicidal. Not so, Keller insists. Plastics manufacturers need fossil fuels—nowadays, mostly natural gas—as a raw material. "That's a good reason not to use them for fuel," Keller says. "We're avoiding greenhouse gases by turning natural gas into a long-lasting product that can be recycled, as opposed to burning it."
Greening up plastics manufacturing is neither cheap nor easy. Nonpetroleum-based bioplastics are not yet viable or cost effective for the kind of heavy-duty products Cascade specializes in. And increasing recycled content requires technical innovation, a more laborious manufacturing process, and sometimes—depending on fluctuations in the price of recycled versus virgin-plastic resin—additional costs. Nonetheless, Keller and Cascade command considerable respect in the industry. In 2008, the Society of Plastics Engineers presented Cascade with a Greener Environment Award for its EcoCart, a heavy-duty recycling container with up to 50 percent recycled content, more than any similarly sized container on the market.
Some sustainability initiatives have increased costs. But Keller is quick to point out that many others do just the opposite. Cascade's waste-reduction program, for example, has slashed landfill costs from more than $250,000 in 2002 to less than $10,000 in 2010. And recycling doesn't add any significant expenses of its own: Recyclers of products as diverse as paper and glass and plastic scrap and batteries offer free collection. Meantime, as the first Michigan office building to attain LEED Platinum status, the highest green-building rating, Cascade's headquarters uses 22 percent less energy than comparable facilities.
What's more, the company's embrace of sustainability has been a powerful differentiator—and customers with sustainability agendas have gravitated to Cascade to pursue partnerships. Lowe's, the home-improvement giant, recently tapped Cascade to become one of the first vendors involved in the Energy Center, a store within a store that gathers a variety of home-efficiency products, including compact fluorescent bulbs and solar panels. The centers debuted in California in late 2009 and will soon be launched nationally. Lowe's will also carry Cascade's home wind turbine, as well as a Cascade-produced line of consumer products bearing the Re:set brand; the first product is a remote-controlled system for completely shutting power to appliances that are turned off but still drawing energy in standby mode.
Keller's youngest daughter, Christina, 29, has inherited her father's mindset. She worked at a carbon-trading organization in Washington, D.C., before coming to Cascade to lead a new-business unit called Triple Quest. Its initial product, the Hydraid BioSand Water Filter, is a low-cost purification system designed by a Canadian civil engineer. Initially, Cascade manufactured the filter as part of a humanitarian effort in conjunction with a NGO partner called International Aid. But when that group ran into financial troubles, Cascade took the mold back and decided to try a for-profit model.
For now, the plan is to sell to nonprofits and governments. But long term, the Kellers, father and daughter, envision a microfranchising model, in which entrepreneurs in local communities sell the filters to their neighbors. A pilot program in Honduras is testing that model. "If it works," says Christina Keller, "the product line would expand to include things like solar lanterns and cook stoves, and other essential-needs products to people at the base of the pyramid. If it fails, at least a lot of people got clean water."
Being a capitalist with goals that seem more in line with those of a nonprofit is not without its challenges. "In business school, you learn a Milton Friedman approach, where the most important job of a business is to maximize profit," Keller says. "That's the head talking. The heart says we want to make an impact on this world, do something positive."
So four times each spring semester, Keller flies to upstate New York to teach such principles at Cornell's Johnson School of Management. He has been doing so for 10 years, a relationship that began when entrepreneurship professor David BenDaniel invited Keller to present a case study about an instance in which Cascade was considering purchasing a plant in California. Keller was woefully out of sync with what was then being taught in business schools. At the end of the class, when he told students what actually happened (he didn't buy the plant) and why, his spiel on values left them dumbfounded. "Fred, we don't teach that here," BenDaniel told him. "We teach maximizing value in three to five years and selling." "Well, I don't believe in that," Keller responded. And then BenDaniel talked him into teaching a course on what he did believe.
The extent of Keller's efforts demonstrates a core belief that businesses are accountable beyond their walls and balance sheets. In the language of triple-bottom-line business, this work falls under the rubric of social-capital building. And in our version of capitalism, there is no accounting for it. A Cascade program that offers jobs to welfare recipients, for example, is responsible for 40 current employees, which saves the state about $500,000 a year in benefits payments. Cascade, by contrast, does not receive a cent in incentives or tax breaks. "It's fun to be a leader and to be recognized," Keller says. "But ultimately, you want to see policy changes so that businesses who are willing to do these things can monetize them."
By establishing a standard for measuring such efforts, B Corporations are a step in that direction—giving social entrepreneurs a place in the legal infrastructure of the corporate system and investors a framework for assessing their performance. Keller sees this as a new form of capitalism, in which profit-making remains key but financial rewards reflect not only goods sold but good deeds done. It's not as radical as it sounds. Adam Smith, whose Wealth of Nations is a touchstone of modern capitalism, had a similar vision. For Keller, Smith's overlooked first book, A Theory of Moral Sentiments, holds the key to mitigating the cold, invisible hand of free markets. "His basic premise was that man is eminently moral," Keller says. "He was talking about candlestick makers and butchers and broom makers working together to make an ecosystem for a community—as opposed to what we have today."