Truly Green Beers for St. Patrick’s Day

Truly Green Beers for St. Patrick’s Day

For those of you who actually needed a reason to drink beer, it has arrived.

Given the rise in consumer awareness when it comes to organic foods and the environment generally, there has been a surge in innovation from food and beverage producers to meet that demand.  Beer crafters have actually been somewhat ahead of the curve.  Microbreweries have been particularly active espousing both the “buy organic” and “buy local” movements.

By now, most people know about Peak Organic, a great organic brewery born here in Massachusetts in 1998 (now in Portland Maine).  The founder, Jon Codoux had a passion for beer brewing and a sustainability ethic, realizing that if you combine both, you can make some kick ass beer and support your local economy.  There are a range of organic and fair trade beers to suit just about everyone’s taste, featured on a fun website that shows just how local and funky this brewery gets.   The Espresso Amber Ale for instance, is made with organic fair trade coffee beans from an indie coffee shop located down the street from Peak.  The Maple Oat Ale is made through a collaboration of organic farmers located in Maine and Vermont.   The Pomegranate Wheat Ale with a touch of organic coriander….well I am just bringing that one up because it sounds really good.

Wolaver’s Certified Organic Ales since 1997 is located in Vermont.  Wolaver’s was one of the first USDA certified organic breweries and they don’t stop at just organic ingredients.  They bring a four prong philosophy to their entire brewing and distribution process.  1. They have four different organic certifications for their brews; 2. They employ energy reduction techniques to their brewing process including, a biodiesel  boiler, heat recovery, an energy efficient lighting system, and using local ingredients to minimize green house gases in transportation; 3. Depleted ingredients like hops, grains, and petals are sold to local farmers as cattle feed, they have an in-house waste water treatment system, and they use all recycled and bleach free materials for their packaging; 4. Finally they try to source everything the brewery needs locally to support their community.  With Ales, Stouts, and a nice collection of Seasonals, Wolaver’s beer is definitely something you can feel good about drinking.

Kona Brewing Company in Hawaii has also been sustainably focused since its founding in 1994.  Besides, organic beer, selling depleted ingredients to local farmers (and pizza/bread dough makers, hmm), recycling programs, and heat reclamation use, they are going solar.  Kona received quite a bit of press recently when they announced their plans to install a 229kW solar energy generating system at their brewery and pub location.   The PV system is estimated to produce an average of 900 KWh of electricity each day, allowing Kona to offset nearly 60 percent of its current electricity usage and save around $100,000 per year.  When guests visit the brewery they will get to view a real-time monitor showing how much energy is being generated while they sip on their beer.  So everyone, next time you are in Hawaii…..

Of course, Kona is not the first, nor the only brewery to go down the solar path.  Other locally and sustainably focused crafters are moving in the same direction, including: Anderson Valley Brewing Company and Sierra Nevada in California, Lucky Labrador Brewing Company in Portland; and New Belgium Brewing in Colorado.

So there you have it! Reasons or more reasons to drink beer and support small producing craft breweries as well as your local economy.

As always kids, DRINK RESPONSIBLY!

Side note: If you are not familiar with Microbreweries in your area, I suggest you start looking into them or you will be missing out on some great brews.  Matt Webster from Drink A Better Brew, here in Massachusetts, has an informative blog packed with the latest beer news you should know.

Peak Organic Beer: http://www.peakbrewing.com/

Wolaver’s Organic Ales: http://www.ottercreekbrewing.com/wolavers.html

Kona Brewing Company: http://www.konabrewingco.com/

Dogfish Head in Delaware (not organic as far as I know, but they are my favorite and therefore must be included): http://www.dogfish.com/

This post was authored by Jessica R. Manganello, Esq. of New Leaf Legal, LLC. Check out more at http://www.newleaflegal.com and @Mangojess.

Tags:  Alcohol, Beer, Breweries, Green, Local, Organic, Solar, Sustainability, Sustainable Business

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Which Business Entity is right for you? (Part 1)

Which Entity is right for you? (Part 1)

C-Corp versus S-Corp

There are five main types of Business Structures: Sole Proprietorships, Partnerships, Limited Liability Companies, Corporations and Nonprofit Organizations.  Generally speaking, most businesses must choose between the corporation and limited liability company structures, because these are legal entities that have separate legal existence and therefore protect their owners from liability.

 

In this first blog, I will give you the pros and cons of the C-corp and information on the S-Corp election, so that you can make a more informed decision.  This explanation is by no means exhaustive, but should be a good base to start from.

 

Considerations

 

There are four issues you want to consider when choosing which entity type you want for your business:

  1. The type of members/owners and management styles available;
  2. The type of investment or capital requirements;
  3. The tax repercussions and statutory governance requirements associated with the entity; and
  4. The level of protection afforded to your personal property against liability.

 

The Corporation:

 

Governance

 

In a nutshell, the “corporation” or C-corp is a legal entity consisting of one or more owners.  The entity is established by filing Articles of Organization with the state and fulfilling the corporate governance requirements, including establishing a Board of Directors, and authorizing and issuing shares.  Most importantly is establishing a Shareholder Agreement and By-laws for the company.

The Shareholder Agreement lays out the rules, responsibilities, and obligations of each of the owners.  For instance, what happens if an owner wants to sell? If someone dies, gets divorced, retires? Who gets to decide if the company is going to sell assets or bring on new investment?  Most importantly what rights do the company and other shareholders have if an owner wants to sell their shares? The Shareholder Agreement is an operating manual for the company, so that no matter what curveballs business throws you, you have a mechanism for dealing with them fairly and effectively.

The Bylaws set out additional important (and statutorily required) information for the business, such as when you hold a shareholder or a director’s meeting and how you give notice to the shareholders.  How do you elect officers?

While this may seem a little onerous, especially when you are just starting out, these documents and following their policies play a very important role in maintaining the corporate form and keeping up the liability shields between the owners and the entity.

All corporations have Shareholders (owners), directors, officers, and employees.  These positions are established by the laws in the state where the corporation is incorporated and have the powers and rights provided for in those laws as well as the Bylaws.

A C-corp may have an unlimited number of Shareholders and may have multiple “classes” of shares, which means that each of the different classes created by the company have different voting and financial rights.

Taxation

The C-corp runs on a fiscal or calendar year as designated by the Board of Directors.  C-corps are subject to “double taxation,” which means that the revenue of the company is taxed at the corporate level and at corporate rates, and then taxed again at individual rates when distributed to the shareholders.  While generally dreaded, the double taxation structure allows a corporation to retain earnings (maintain a rainy day fund or cash on hand for budgetary expenses), without the tax liability for such funds being the responsibility of the owners.  Additionally, the corporate tax rates are often lower than the individual tax rates.  There are also some unique deductions that the c-corp benefits from.   The C-corp can further provide deductible fringe benefits to employees, as a result of this structure.

The C-corp given its ability to provide multiple classes of shares with different rights, offer stock option plans, and “go public”, make it an attractive structure for large scale investments and tends to be favored by VCs.

S-Corp Election

An “S Corporation” is the same as the C-corp.  It is formed the same way and has the same structure and governance requirements, but after forming, an S-election is filed with the IRS in order to change the tax treatment of the entity. This tax filing places some restrictions on the S-corp’s functioning, namely:

  1. An S-corp can only be formed by individuals (as opposed to another corporation or trust);
  2. All owners of an S-corp must be US citizens or permanent residents; and
  3. An S-corp may only have one class of shares (so no creativity with control and financial rights, everyone is treated the same).

The S-corp election must be filed within 75 days of incorporation and then must be re-filed every year in order to remain effective.  The election will stay in place as long as the filings are made on time and none of the above three restrictions are violated.  If for any reason they are, then the election is broken and the company will revert to a C-corp in terms of tax treatment and restrictions.  Be careful when breaking the election.  Once you do, you are restricted from pursuing S-corp status for five years.

So what does S-corp status do? It makes the corporation a pass through entity, so that there is no double taxation, but all revenues and losses pass through to the individual owners at their individual tax rates.  This can be advantageous at the beginning, where you have long term plans for which the C-corp is the best structure, but in the meantime would benefit from pass-through losses and the less tax resulting from the lack of double taxation.  Another benefit is that you can limit self employment tax if you are receiving a FMV salary from the business and the remaining profits are distributed as dividends.  This scenario is pretty individualized though, so see your accountant!

Quick Breakdown of Pros and Cons

 

C Corporation

Advantages:

  • Can have complex and creative ownership structures providing for divergences

in equity ownership of the corporation and operational control of the business, references to dividends or other payouts, different voting rights attributable to various classes of stock and Income splitting between owners.

  • Provides deductible fringe benefits for shareholders/employees, such as group term life

insurance plans up to $50,000; Medical reimbursement programs; and 100% medical and

disability insurance premiums. Fringe Benefit possibilities are more available and flexible

than in an S Corp.

  • Election of fiscal year.
  • In some cases, corporate tax rates are lower than individual tax rates.
  • Passive activity losses are deductible by C Corps under certain circumstances.
  • The ability to deduct up to 80% of dividends received.
  • The ability to use multiple Corporations.
  • Can use an employee stock ownership plan
  • Can go public.
  • Qualified Shareholders may exclude 50% of capital gains from the sale of C Corporation

stock.

 

Disadvantages:

  • Tax on corporate earnings applies at the Corporate level and then a second time when

Shareholders receive and report dividends.

  • IRS audits can result in the creation of constructive dividends for what the IRS considers

personal use of corporate assets.

  • C Corporations are subject to the Alternative Minimum Tax
  • C Corporations may be subject to the personal holding company tax or the accumulated

earnings tax.

  • The accrual method of accounting is generally required.
  • C Corporations generally have less flexibility than other business entities.

 

S Corporation

Advantages:

  • Income earned by an S Corporation is taxed only one time, at the Shareholder level.
  • Corporate losses pass through to the S Corporation Shareholder and are deductible at the

Shareholder level.

  • Passive S Corporation Shareholders can offset passive losses from other activities with their

S Corporate earnings.

  • S Corporations are not subject to the accumulated earnings tax, alternative minimum tax, nor

the personal holding tax.

  • Active S Corporation Shareholders are not subject to FICA tax on the S Corporation net

income.

  • S Corporation Shareholders who materially participate and have incurred debt to acquire the

stock of the corporation are able to deduct the interest expense as business interest.

 

Disadvantages:

  • Fiscal years must coincide with the calendar year, generally, limiting the opportunity to shift

income.

  • Potentially higher tax rates on certain levels of taxable income.
  • Fringe benefits received by Shareholders owning more than 2% of the corporation are

included in Shareholder income.

  • Dissident or new Shareholders can cause the termination of the S election through a

disqualified transfer of stock.

  • On formation, election must be filed timely (within 75 days) if to be in effect for the first

year of existence. Can be filed within 75 days of commencement of fiscal year for post

incorporation fiscal years but all stockholders must sign. Once election is revoked/lost, it

cannot be used again for 5 years.

  • Not a good structure if stock options are to be used for employee incentives.
  • S Corp cannot be a subsidiary of another Corporation.
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Which business entity is right for you, Part 2

Why the LLC Kicks Ass!!!!

(Which business entity is right for you, Part 2)

 

A “Limited Liability Company” (“LLC”) is a bit of a hybrid entity in that it allows for “pass through” taxation but offers the liability protection that is often the basis for creating an entity.  The LLC might actually offer more liability protection than a C-corp due to the fact that there are no built in fiduciary duties in an LLC.

LLC’s can accomplish all of the same functions, including holding property, owning subsidiaries, engaging in any type of business.  As a for-profit the LLC is still eligible for the same certifications and/or funding that a C-corp is.  The one thing to consider is whether or not your business plan includes Venture funding.  Most seed and angel organizations are comfortable with the LLC, but many venture funds like the C-corp.  This is mostly because of the board membership and various share type options.

One of the reasons that I love the LLC is that you can get creative with it and have multiple levels of management power, profit distributions, and voting power.  In the typical LLC, you have members (passive owners), managers (run the day to day and make most decisions), or managing members (they do both).  Managers make all the decisions except for the major ones requiring a member vote and profits/losses are distributed based on equity ownership.   This doesn’t have to be the case though.  You can customize your operating agreement to vary the amount of power the managers have versus the members.  You can have profit and loss allocations that differ from equity ownership, which is particularly helpful when someone is working in the business and someone else is not.  Just make sure you have a formula and justifiable reason for the discrepancy between profits/losses and ownership.  You don’t want an audit.

You can also create different classes of members.  So you can have voting and non-voting, managing and non-managing, or anything in between.  As long as the rights and responsibilities are spelt out in your operating agreement and not violating any state laws, you can run your business exactly as you would like to.

Additionally, an LLC’s yearly maintenance is relatively simple and does not require the same formalities as a Corporation.  You file your annual statement and keep good business records.  As opposed to the required annual board meetings and shareholder meetings, and the resolution drafting, etc. that is required by the C-corp, the LLC is very light on the corporate governance requirements.  This is especially beneficial when there is only one or a small number of owners and you have to send yourself a notice of the shareholder meeting, record that you showed up, what you discussed with yourself and what you decided to do. J

LLC’s are also useful to bring two or more business entities together for joint ventures.  If two businesses (LLCs or corporations) want to form a venture for a project or business, they can form an LLC as the joint venture to execute that particular project or business. This will allow profits and losses from the joint venture (the LLC) to flow directly to the respective entities, and at the same time can shield the owner/ entities and their other businesses from liabilities of the venture.

The majority of businesses are finding this to be the ideal structure due to the flexibility and low maintenance.  While the LLC is still considered to be a “new” entity, it has been widely adopted and in use for many years now, so most of the mystery has dissipated.  Most states allow a conversion from the LLC to a corporation in the event that need ever arises.

As a result of all the above (and below), I find that I am consistently recommending this entity type to the majority of my clients and that the LLC is capable of bending to meet their unique needs.  In short, well not quite, this blog is two pages long…..the LLC Kicks Ass!

Advantages:

  • An LLC can be treated as a partnership for tax purposes with the liability of the Member limited to his/her investment.
  • An LLC shields Members from personal liability.
  • The LLC is flexible. Contributing Members can make non-taxable contributions of appreciated property without regard to whether the contributing Members are in control and the LLC can make disproportionate distributions of money and property to its Members.  Profits, losses, voting rights and capital can be allocated in different ways among the members.
  • Potential avoidance of self employment taxes (if you are a completely passive owner).
  • An LLC is not required to hold Annual Shareholders/Directors meetings or comply with other corporate formalities.
  • Charging Order: If a person with an interest in an LLC is involved in a lawsuit and loses, the judge/jury may award damages to the other party. However, under most LLC statutes, all the creditor can recover against the Defendant’s interest in the LLC is a Charging Order. A Charging Order will give the creditor cash only when the LLC elects to distribute it.  The tax repercussions of a Charging Order make it unattractive as the creditor can be taxed on the income attributable to that share, even though no cash is distributed, and most attorneys will not have their customers accept such a lien.

 

Disadvantages:

  • Organizational and Operating requirements vary from state to state.
  • Some states impose higher filing fees and annual maintenance fees or income and franchise taxes than are imposed on Corporations. Also, state tax treatment may not follow federal tax treatment.
  • Members may not have limited liability in states that do not recognize Single Member LLC’s.
  • Due to the relative newness of LLCs, there is still a relative void of reliable case law and some unclear issues and variations between states as to treatment of LLCs, especially regarding creditors’ rights.

 

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Green Marketing or Green Washing? (Part Deux)

Green Marketing or Green Washing?  (Part Deux)

We left off in my last blog post  at Enforcement.  The best part!  So if the green guides when applied can be pretty stringent and since we can probably agree that most companies, whether or not unwittingly, violate the standards, then why don’t we have FTC actions coming out our ears?!

The Green Guides were implemented in 1992, but only 45 complaints have been brought under the guides since their inception.  During the Bush Administration, not a single environmental marketing complaint was brought.  Since Obama took office, seven complaints as of February 2010 had been brought and FTC Director, David Vladeck has said that tougher enforcement and guidelines are a major part of the Commission’s agenda.  Additionally, the FTC is revamping the rules to be more representative of the current green market and the language that producers, retailers, and consumers are using.  A new set of guidelines has been released that preliminarily include further definitions and we should be seeing an official draft soon.

Ok, seven cases, how is the FTC enforcing these guidelines?  The catalyst case thus far has been the Kmart Corporation case (07/15/2009).  In this instance, Kmart engaged in the following:

  • Marketed “American Fare” plates as “biodegradable”.
    • Biodegradable on its own implies a complete breakdown and return to nature within a reasonably short period of time.
    • 91% of solid waste in the US is disposed of in landfills, incinerators, or recycling facilities, in ways not amenable to the conditions required for American Fare to decompose.

As a fun little exercise, how could K-Mart have avoided this action? Certain disclosures perhaps?  Nothing like 100 words worth of fine print to accompany your branding.

So Kmart screwed up and they were called on it.  To solve this little matter, Kmart signed a “Consent Agreement” which is an admission of guilt for settlement purposes.  Companies that willingly sign these can expect to see some leniency from the Court and the order against Kmart is considered to be light.

    1. Court required that no claims be made of degradability, biodegradability, or photodegradability unless they are true, not misleading, and based on reliable evidence.
    2. That there can be no other representations of environmental benefit unless those representations are true and backed up by evidence.
    3. For 5 years after any representation is made, Kmart has to make available to the FTC for review at any time all advertising and marketing materials and all evidence that would either support, qualify, or call into question their representation in the company’s possession.  All complaints and communications with consumers or any governmental or consumer protection organization.
    4. A copy of the order had to be delivered to all current offices, directors, and principals and each of them were required to sign saying they have received and understand the order.  Additionally they have to provide a copy of the order to all current personnel and future personnel.
    5. The FTC has to be notified within 30 days of any changes in ownership, control, bankruptcy, or any change that may affect compliance.
    6. Kmart had to submit documentation of their compliance with the order within 60 days.
    7. The order is in effect for the next 20 years.

That is lenient and light?!

Dyna-E International, Inc.  and George Wheeler (President of Dyna-E) individually were cited for their biodegradability claims as well, when it came to their “Lightload” paper towels (12/15/2009).  Whereas there was no personal liability brought in the Kmart case, in this instance the FTC went after Wheeler as the President, and therefore controller, of the company.  Watch out for those fiduciary responsibilities!

Given the lack of previous enforcement in this area, the FTC is still feeling things out.  Each complaint/order is a little different.  Dyna-E and George signed a Consent Agreement.  Dyna-E suffered the same fate as Kmart.  George’s liability is that he must inform the FTC whenever he changes any contact information for the next 10 years, including if his position changes and what his new duties and responsibilities are. (This also applies if he leaves Dyna-E and goes to work with another company, bringing the new company under scrutiny. Good luck getting another job).

The Bamboo Cases have added some interesting consequences to the mix as well.  There have been a number of recent cases against Bamboo sellers for textile purposes:

  • In re The M Group, Inc.
  • In re Pure Bamboo, LLC
  • In re Sami Designs, LLC
  • In re CSE, Inc.

In these cases, producers were selling their product at a premium price due to the following claims:

  • Their textile fiber products are bamboo fiber;
  • Their textile fiber products are manufactured using an environmentally friendly process;
  • Their textile fiber products retain anti-microbial properties of the bamboo plant; and
  • Their textile fiber products will completely break down and return to nature, e., decompose into elements found in nature, within a reasonably short period of time after customary disposal.

In actuality, these products are not Bamboo, but rather are rayon, a regenerated cellulose fiber; nor are these textiles manufactured using an environmentally friendly process but rather a process that involves the use of toxic chemicals and results in the emission of hazardous air pollutants.  Additionally, the textiles do not retain anti-microbial properties of the bamboo plant; and products will not completely break down and return to nature, i.e., decompose into elements found in nature, within a reasonably short period of time after customary disposal because a substantial majority of total household waste is disposed of by methods that do not present conditions that would allow for this decomposition.[i]

The truly interesting part here is that in February 2010, The FTC sent a letter to 78 businesses warning them that they may be violating the rules by selling bamboo products where those products have non-compliant packaging/advertising.  Companies receiving the letter included Wal-Mart, Kmart, and Target.  So now it isn’t just the marketer/supplier that is on the hook.  It is the retailer.  They are on notice.

Doing business internationally? What’s happening there?

The UK (ASA, Advertising Standards Authority) implemented their environmental claims enforcement in 1995 and since 1998 they have very aggressively enforced it.  In 2003 they revamped their codes to close loopholes.  Some examples:

  • The ASA banned a Finnair add campaign because it led consumers to think flying was eco-smart. (2010)
    • Finnair had to pull all of its posters, adds, and digital versions of a campaign showing one of their planes flying over the Finnish coast with the tag line “Be Eco-Smart, choose Finnair’s new fleet.” Complainants challenged whether the claim “Be eco-smart” misleadingly implied that flying was environmentally friendly, and whether the advertiser could substantiate that the new fleet was “eco-smart” in comparison with older planes, says the ASA.
  • ASA pulled a British Gas “Zero Carbon” TV commercial because it implied that their fuel was carbon neutral. (2008)
  • ASA banned advertising for Cotton USA. “Soft, sensual and sustainable, it’s Cotton USA!” “Pure, sensual and renewable, it’s Cotton USA!” Cotton is a “pesticide- and insecticide-intensive crop” that could “seriously deplete” groundwater in the U.S. (therefore not sustainable or renewable) (2008)
  • The ASA banned a Lexus add that claimed “High Performance, Low Emissions, Zero Guilt” because it implies that the car causes little or no harm to the environment. (2007)

In 2008, Australia and France implemented environmental marketing guidelines and Norway followed.  These countries as well have been laying the smack down on green washing.

  • Norway banned “green words” from any car adds within their country on the grounds that cars are never good for the environment. They can only be less harmful than other cars in the marketplace.
  • France issued regulations saying that cars can no longer be portrayed in nature, as is a common practice in auto advertising. Instead, they must only be shown on roads and other routes open to traffic, where they are typically used. (showing the car in nature suggests an environmentally friendliness to the car)
  • Monsanto was fined by France for false advertising after claiming that their Roundup product, the world’s most popular pesticide, was “biodegradable.”

This is just a handful.  There have been many more.  Obviously these countries have been more stringent in their concept of green washing; they also have more bite to their bark.  While the U.S. has kept everything on an internal basis, unknown to consumers, unless they are nerds like me, the UK and France have pulled products off shelves and advertisements off of walls.  That is a big financial and good will loss for those companies.  It is retroactive, not just a going forward…

The Future

So what have we learned?

  1. The FTC is ramping up enforcement and retooling the guidelines.
  2. If you are a retailer, vet the products you sell.
  3. If you are doing business in Europe, BEWARE.

Also in the works are increased SEC regulations.  The SEC voted in January to require publicly-traded companies to disclose to investors the potential economic impact of new greenhouse gas regulations. The SEC has previously existing rules about climate change reporting, but they were vague and fairly ignored.  The SEC revised interpretations make reference to the fact that the EPA, our Federal Government, and State government are making fast strides to implementing new legislation, as well as international legal structures and norms that are taking place.  Therefore the SEC plans to reissue new regulations after public hearings that were held in the spring and will implement tougher and more comprehensive requirements.

Added to this plethora of regulations, states are getting involved to protect their residents.  California and Indiana have individually incorporated the Green Guides into their own environmental marketing laws.  So producers and retailers alike (especially online retailers) need to be paying attention to state consumer protection and advertising regulations, as well as federal, and foreign if you are that lucky.

Once again, a very wordy blog from my desk…sorry about that.  This is exciting stuff though and I hope I was able to break it down and bring out the fun stuff.  Bottom line, if you are in a “sustainable” business, no matter what the industry, be prepared to learn your green guides and start eradicating green washing from your system.  The Sherriff is on his way and you want to be a step ahead when he gets here.

 

[i] These actions also violated the Textile Act.  You cannot mis-label or mislead consumers about what the “ingredients” are.  You have to disclose the type and percentage of fibers.

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Green Marketing or Green Washing?

Green Marketing or Green Washing?

We have all seen a lot of green claims out there.  Greener! Sustainable! Recyclable! Post-Consumer Waste! Biodegradable! It seems that companies everywhere are grabbing onto a buzz word and plastering it on their packaging, websites, and commercials.  How can we as consumers be sure of the accuracy of these statements and how can companies be sure they aren’t violating the Truth in Advertising regulations?

Enter the FTC and its guidelines that aim to prevent green washing in marketing under the banner of Truth in Advertising. Unfortunately most businesses have very little knowledge of these guidelines, due to their lack of enforcement, and therefore even the most sustainably-minded companies are often guilty of green washing.  But the Obama administration has stated that enforcement of these guidelines is a priority going forward, so consumers are about to get some clarity!

To check out the green guides for yourself you can read them at the FTC website: http://www.ftc.gov/bcp/grnrule/guides980427.htm.  Or you can keep reading for a snarky summary. J

The Green guides apply to all environmental claims that are included in any kind of marketing, whether directly or by implication.  So a company needs to take the guidelines into account for every aspect of their marketing including labeling, advertising, promotional materials and any marketing through words, symbols, emblems, logos, depictions, product brand names, digital advertising, attributes of the products themselves, as well as the packaging, or services (if you are a services company).  The rules are actually pretty expansive.  If you even so much as place a leaf in your logo (see mine) , you better know the implications.

These guidelines are not definitive rules on how to do things.  Other approaches are permissible, but the guides are meant to be a safe-harbor for businesses/marketers.  If you followed them and your marketing was still green washing, then no harm no foul, just change your marketing to correct the error.

So the basic requirements are these:

  1. You have to be clear.
  2. Draw a distinction between the benefits of the product, package or service
  3. No exaggerations about environmental benefits.
  4. Explain comparisons, don’t leave us hanging (20% more than what?)

If you are making qualifications or disclaimers, they need to be understandable.  The customer needs to know what you are qualifying or disclaiming.  What is more relevant however, is knowing when you need a qualifier or disclaimer.  You need to be clear about what the claim is referring too.  Is it the product, the product’s packaging, a service, or just a portion or component of the product or service?  If you market something as recyclable, is every part of it including the packaging recyclable?

The Guides give more specific examples of how these principles are implemented, especially when it comes to the use of certain words. General claims whether intentional or not can be deceptive and misleading, including the company name.  If your name is “Green Fuel” and you own some oil platforms……… (doesn’t matter that your last name is Green).  I wonder if French’s mustard is misleading.  It certainly isn’t French.  Perhaps the apostrophe solves that problem.

  • Degradability, biodegradability, or photodegradability should be qualified (explained) in two ways: 1. the product or packages ability to degrade in the environment where it is customarily disposed and 2. the rate and extent of degradation.
  • Two things to consider: 1. can the package or product be safely composted in a home compost pile or device; 2. does the claim mislead consumers about the environmental benefit provided when the product is disposed of in a landfill.  If it is only compostable at the local municipality composter, then say that.  You also have to include a disclaimer that municipal facilities may not exist.  Also, how safe is the resulting compost? If it decomposes but leaves behind toxic chemicals, you have violated the rules because composting (in the mind of the consumer) is usually an environmental benefit and can be used for other purposes.
  • Pretty much the same as above.  It has to be recyclable, and accepted by recycling programs.  If because of size, shape, or any other reason, centers won’t take it, then you have misled the consumer, despite the fact that you did not technically lie. You also need a disclaimer about the limited access to recycling facilities. You have to tell people that they may not have recycling available in their area.  When was the last time you saw that on packaging? Hmmm……
  • Recycled content. Is it pre or post consumer (you don’t have to disclose that) but if it is pre, the marketer has to have solid evidence that the content would have otherwise entered the solid waste stream. The material has to have been recovered; it cannot be recycled raw materials.
  • Source reduction claims should be qualified. If weight, volume, or toxicity have been reduced, by how much and compared to what?
  • Need to have a collection or refill program set up.  If it is up to the consumer to be creative, get rid of the claim.
  • Ozone Safe and Ozone Friendly. Good Luck!

Obviously some big ticket items are missing, like carbon neutral, carbon recapture, carbon credits, etc.  The Ozone layer was the big concern/buzz words when these guides were initially drafted.  We now use a very different language to describe eco-benefits.   The FTC is currently reviewing these standards and will be issuing further guidance.  So stay tuned on the language we are actually using.

Main thing to remember:

When making any express or implied assertion or claim about the environmental attribute of a product or service, at the time the assertion was made, the marketer must have possessed and relied upon a reasonable basis (competent and reliable evidence) substantiating that assertion.

The “reasonable basis” is generally held to mean that there is reliable scientific evidence in the form of tests, analyses, research, studies, or other evidence based on the expertise of objective professionals in the relevant area.

The Green Guides are not actually enforceable regulations.  Compliance is completely voluntary.  These guides are an administrative interpretation of the laws administered by the FTC.  The real teeth are with Section 5 of the FTC Act.  Section 5 prohibits deceptive acts and practices in or affecting commerce.  So the only way the guides are enforced is that non-compliance may mean that you are failing to satisfy the rules in Section 5 of the FTC Act and the FTC can take corrective action there.

“Deceptive” is determined by three factors:

  • There must be a representation, omission or practice that is likely to mislead the consumer
  • Likelihood of misleading based on Reasonable person standard/Reasonable Group Standard.
  • The misleading representation, omission or practice was material

The reasonable person standard/group standard looks at who the marketing is intended for, whether that is an individual, a sub-culture, or a definable group and determines how they would reasonably interpret the representation.  Materiality is present if the misleading claim is likely to affect the consumer’s conduct or decision regarding the product or service.  Omissions are included.  If you neglect to say something material, it is deceptive.

So having read all that (sure you did), what do you think?  Green Marketing or Green Washing?

*

* Picture taken from the “Greenwash Guide” by Futerra Sustainability Communications.

Tune in for my next blog.  I will go over the current cases brought by the FTC and how companies have gotten into trouble.  I will also let you know how international transactions are being effected (Europe way harsher than the US thank god) and I’ll give you a heads up on what is heading our way.

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L3C What?

L3C What?

The L3C or Low Profit Limited Liability Company is a relatively new form of the LLC (Limited Liability Company), that, for now, is only known about and talked about by its advocates, but is quickly spreading across the nation and becoming a revolutionary new way of doing business.

The L3C differs from the LLC in that the primary purpose of the L3C cannot be to make a profit, but rather the purpose of the business must be to achieve a social benefit, with profit as a secondary or ancillary purpose.  The name itself, Low Profit Limited Liability Company, is a bit of a misnomer.  The business is not restricted in how much profit it can make at all.  ‘Show me the Money’ just can’t be the number one goal.

“The L3C must be organized and operated at all times to satisfy the following requirements:

  1. The company must “significantly further the accomplishment of one or more charitable or educational purposes,” and would not have been formed but for its relationship to the accomplishment of such purpose(s);
  2. “No significant purpose of the company is the production of income or the appreciation of property” (though the company is permitted to earn a profit); and
  3. The company must not be organized “to accomplish any political or legislative purposes.” Wikipedia.com

On a practical level, the L3C does a few things for business owners.  It provides all the benefits of an LLC structure, including flexibility in ownership, management, decision making power, and profit distributions.  It is still a pass through entity for tax purposes and has very little ongoing administrative and corporate governance burdens.  For the socially minded business, in my previous post To B-Corp or not to B-Corp, I addressed how B-Corp certification provides credibility to a business as well as shields the management from shareholder lawsuits for making the sustainable or social decision as opposed to the most economic one.  The L3C provides both that credibility and liability protection for the owners and management, while leaving enforcement to the state and not subjecting the business to periodic audits by a third party.  Plus, great branding and marketing opportunities.

Additionally, and here is the best part…………..the L3C bridges that gap between non-profits and for profits.  Due to the restrictions on an L3C and the requirements for establishing one (see above), the L3C complies with the IRS rules for “Program Related Investments” (PRIs) and opens up possibilities for this additional source of financing.   PRIs are investments made by Private Foundations to for-profit ventures that are in furtherance of a charitable, educational, or religious activity.  They are generally high risk/low reward investments.  Many Private Foundations shy away from making significant PRIs because of the difficulty in verifying that the for-profit is using the funds in furtherance of an eligible activity.  Hmmmm written into the corporate charter and mandated by state law…………..problem solved!*

So here is an entity that solves a lot of problems existing as a result of there being no middle ground between the non-profit and for-profit entities.  Many non-profits spend more time asking for money than they do executing on their mission, due to the restrictions on revenue streams.  For-profits, due to shareholder interests and tax deduction restrictions, have been struggling with maintaining a social mission.  This is an entity that allows for investment and ownership, just as in a for-profit, but can also exist for charitable, educational, or religious purposes.  The L3C is that perfect gray area, middle child.

So why would a company find this model appealing?  Well it depends on what you are doing and what your mission is.  Social Entrepreneurship is on the rise across industries.  If your goal is an altruistic one, such as to produce low cost diagnosis and treatment methods for the medical field, increase consumer access and making them affordable solutions for developing countries, well then this may work for you.  Are you looking to build green communities? Are you the one laptop per child project? E-waste rehabilitation? Water purification?  The list can continue forever.  Whether or not the L3C is feasible or desirable for your company is all a matter of your mindset and ultimate goals.

For those businesses that do want to have a impact on the world 1st and make money 2nd, this structure gives you credibility, liability insulation, branding, access to PRIs as funding, and access to many government R&D grants that require you to be a for-profit entity.

As of now, the L3C is available in Vermont, Michigan, Illinois, Wyoming, Utah, The Crow Indian Nation, and the Oglala Sioux Tribe.  North Carolina, Maine, Louisiana and New York have passed legislation and will start registering L3C’s shortly.  Legislation for the L3C is under consideration in Colorado, Georgia, Oregon, North Dakota, Tennessee, and Montana.  Fingers Crossed!  I am hoping that Massachusetts will jump on board soon.  The L3C is spreading rapidly and entrepreneurs across industries are starting to explore the doors that it can open.

*The Down Side:  Of course, nothing is ever perfect.  For starters, the L3C limits you to an LLC structure and the equivalent for a C-corp is not around just yet.  There is no operating history for this entity, so the legal and tax repercussions are undetermined.  Most L3C statues allow the state to revoke your L3C status and convert you to an LLC if you don’t live up to your “primary purpose” or start focusing more on money than on mission, but how does the state know that? How does the state determine it? What exactly is involved with the conversion and is there shareholder (member) liability there?  This goes as well for the tax side of things.  While the IRS has issued a few non-binding opinion letters, nothing definitive has been said concerning whether investment in an L3C will qualify as a PRI.   Many attorneys don’t want to touch the structure because there are too many unknowns for their clients. I am one of those crazy early adopters that embrace taking calculated business risks and trying out the new toys. J  There are a growing number of us out there that see the potential and excited about these new opportunities for clients.

So bottom line, if you are socially minded, this could be a great entity for you, but tread carefully.

Another new development to watch out for is B-corp legislation, like that being considered in California.  Is there overlap and are we setting ourselves up for a B-corp versus L3C showdown?! Guess you will have to wait until next time to find out.  I know that you are just Dying!

 

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To B Corp or Not to B Corp

To B Corp or Not to B Corp

For those of you who are unfamiliar with B Corporations, B Corp is a certification designed by B Lab, a non-profit third party auditor.

“B Corporations are a new type of corporation which uses the power of business to solve social and environmental problems. B Corporations are unlike traditional responsible businesses because they:
· Meet comprehensive and transparent social and environmental performance standards.
· Institutionalize stakeholder interests.
· Build collective voice through the power of a unifying brand.” http://www.bcorporation.net/about

In order to be a B Corporation, a business must take social and environmental issues into consideration when making business decisions. This includes changing corporate governance language to require that these bottom lines are implemented.

What are the pros of B Corp?

1. If the mission and values of your business include an environmental and social bottom line, this certification allows you to cement those values into the culture of your business by changing your corporate governance documents in accordance with the legal language B Corp has developed. Which means if there is a change of the guard at your business, the new soldiers will be required to keep towing that party line. This also may prevent shareholder lawsuits in the event that a business decision is made that is better for the environment or society than shareholder bank accounts. Shareholders will know what the company stands for before they buy.

2. Great marketing tool. The B Corp logo has caught on with consumers in the LOHAS industry and is continuing to expand its. The organization provides you with digital logos, flyers, and poster boards with which to advertise your B Corp status. Your company will also be listed on their website as a member. This gives your business credibility, which let’s face it, in green, is sorely needed. With all the bogus certifications out there, consumers know that B Corp can be trusted and that a B Corp certified business has been thoroughly vetted.

3. Access to B Corp member resources and a growing community of business owners with the same priorities as yourself.

4. Charitable giving opportunities. You can either pay the B Corp yearly fee, or join 1% for the Planet. Tax deductions and more great marketing points. Why wouldn’t you?

5. Accountability. This is probably the largest benefit. Entrepreneurs and business owners know that as much as we love our companies, hard decisions must be made and stress wears us down. B Corp gives us built in requirements and standards, along with random audits lighting a fire under our bums, in order to keep us on the straight and narrow.

What are the cons of B Corp?

1. Application process is a bit daunting. Even the application for a small 0 to 10 person shop asks many questions surrounding policies, benefits, and pay that aren’t necessarily feasible for a small/growing company. Now there are many small businesses that are certified B Corps, so there must be discretion built into the application process that allows for start-ups. You may, however, be forced to develop policies that you aren’t “big” enough for, in order to meet their minimum requirements.

2. There is a fee.

3. Potential Marketing Disaster. As mentioned before, there are random audits of all member companies to ensure that they are staying true to the certification. This means, if you are not, you will lose your B Corp standing. If customers and affiliates have come to associate your company with the certification through the genius of your marketing efforts, its loss will be noticed and questioned.

4. Accountability. Both a pro and a con in my book. This is allowing an unvested third party organization to play some role in the operations of your business. What happens when your choice is between health benefits for your employees or more product development? How do you weigh these factors and how do you know if you are jeopardizing your B Corp status. In the end, you have to make the best decision for the longevity of the company and will you be too afraid of losing your status to make the right one? Could you also be setting yourself up for shareholder lawsuits, if your shareholders don’t think you gave enough consideration to environmental and social factors?

Of course to everything there is a laundry list of questions and concerns. In the end, you have to make the decision that benefits you and your business most. I am psyched about the B Corp certification (I am sure you couldn’t tell I have a bias). This certification provides manageable guidelines and requirements with teeth that give them credibility. Yes there is more administration and more to think about, but if you are running a company that is sustainable on all three bottom lines, it shouldn’t be a hindrance, more a stepping stool.

So go forth and B Corp.

Author: Jessica R. Manganello, Esq. New Leaf Legal, LLC; http://www.newleaflegal.com; @mangojess

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What do these labels even mean?!

What do these labels even mean?!?!?!

So, I was surfing the web yesterday and I came across the most fantastic invention to date: bacon stuffed hot dogs. (http://www.4505meats.com/shop/#)  Oh. My. God. Yumm!

I know, I know.  As a total, annoying, scold your friends for being wasteful, Greenie, my love of meat is a bit of a contradiction.  We all have our vices.  I have several Michael Pollan books sitting on top of my “too read” pile and the greenness of a meat vs. vegetarian diet debate will have to wait until another day.  On the plus side, the 4505 hot dogs are made with all natural ingredients, uncured, and hormone & antibiotic free.  So, that is sustainable and healthy right?

This got me thinking.  How “natural” and healthy can you make a hotdog stuffed with bacon? What does “all natural” even mean?  Is this just the completed product? Does it include all the ingredients? Is this a representation of the entire life cycle of the product from birth of the animal until it ends up in my mouth?  I obviously need more hobbies.

This is a big issue, however, and there is a lot of confusion among consumers in the market place.  The big labels that exist are “certified organic,” “organic”, “100% organic”, “Made with organic ingredients”, “contains organic ingredients”, “all natural”, “natural”, “free range”, “sustainably harvested”, “no drugs or growth hormones”, etc.  Phew…….no wonder there is confusion.  So what do all these labels mean?

The USDA (United States Department of Agriculture) set up the National Organic Program (NOP) in 2002, which has put regulations and third party auditing systems in place.  The labeling requirements of the NOP apply to agricultural products, or rather raw, fresh products, and processed products that contain organic agricultural ingredients.   The terms a producer is allowed to use depend on the percentage of organic ingredients in the product.

“100 percent organic”—means that only organically produced ingredients* and processing aids are used.  So essentially, this is the best option.  Green through and through.

“Organic”—most of what we see is either labeled ‘organic’ or ‘certified organic.’ This means that at least 95% of the ingredients* must be organic.  Any remaining ingredients must be nonagricultural substances on the National List.

*excluding water and salt

For both of these it is good to know that while a producer may use the USDA Organic logo, they aren’t required to.  Good fact to be aware of while shopping.  Organic products must identify each organically produced ingredient in the ingredient list and they must identify their certifying agent. Organic foods must also be the product of organic farming practices, which are practices that recycle resources and promote biodiversity.  Crops must be grown without using synthetic pesticides, GMO’s, petroleum-based fertilizers, and sewage sludge-based fertilizers.  If it is meat that we are talking about, Organic livestock must have access to the outdoors and be given no antibiotics or growth hormones.

Also, any products labeled “100 percent organic” or “organic” cannot be produced using methods such as sewage sludge or ionizing radiation.

Wait, what??? Does that mean that non-organic products can be made using sewage sludge? Next time you come across someone who argues against organic, throw out that nice little tidbit.  Discussion over.

“made with organic ingredients”—these products must contain at least 70% organic ingredients and list up to three of the organic ingredients or food groups prominently.  i.e. “soup made with organic peas, potatoes, and carrots” or “soup made with organic vegetables.” Here again, no sewage and no radiation.

If a processed product contains less than 70% organic ingredients, they can’t use the term “organic”, but they can identify any organic ingredients in the ingredients section of the label.  So if you have time to read every can, jar, box, and or bag in the store, have fun with that!

“Natural”—this term is only regulated by the USDA when it is applied to meat and poultry (nothing else).  This term means that the foods are minimally processed and free of synthetic preservatives; artificial sweeteners, colors, flavors, or other artificial additives; hydrogenated oils; stabilizers; and emulsifies.   They are required to be minimally processed, meaning that the processing method does not fundamentally change them.  The labeling must also explain how the producer is using the term ‘natural.’ Using the term “natural” in line with the USDA regs, does not have anything to do with how the sources of those foods were raised.  Meaning, it has nothing to do with whether the animals were fed grass or corn, organic or not, hormones or not, etc.

Why do we go to all this trouble as a country to regulate Organic and why do we as consumers care you ask?  Good Question!

Well there are a lot of arguments stating that organic foods are not any healthier than non-organic.  Of course the food marketing institute in their 2007 report made that statement and then immediately followed it with the research showing that children who eat organic foods are exposed to “significantly lower” levels of organophosphorus pesticides.  I can’t pronounce that; it must be bad.  Organics also have significantly higher levels of cancer fighting antioxidants, generally 30% more.  Organically produced food also has lower levels of unsafe fungi than conventional samples, and less risk of e. coli contamination (in the case of livestock).  Every year more research comes out showing us that organic farming results in better nutrition for us and better environmental practices.  So that leads into why we nitpick and regulate.  We want to make sure that consumers are protected and know (and receive) exactly what they are buying.

There are penalties for misusing any of the USDA labels, or using them when not certified.  If a producer knowingly sells or labels any product as organic that is not produced and handled in line with the NPO’s regulations, they can be liable for a civil penalty of up to $11,000 per violation.  This also applies to retailers.  They are subject to regulatory requirements concerning their handling of organic products and are subject to fines of up to $10,000 per violation.  So they can’t knowingly sell a non-organic product that is labeled as organic (hear that Wal-Mart? tsk tsk), allow unpackaged organic products to contact unpackaged conventional ones, or permit organic products to contact prohibited substances like fungicides, preservatives, or fumigants.  This is a pretty tall order.

Again, Organic is the only regulated term.  So what about the rest?  “all natural”, “free range”, “sustainably harvested”……they can mean whatever the producer wants them to mean.  Generally speaking, when a producer uses the term “natural” or “all natural” when not referring to meat, they are expected to follow the USDA meat guidelines discussed above.  Since there are no regulations or oversight, however, it is pretty much up to the producer to define for themselves what “natural” means.

This is pretty dangerous, given that marketing studies have shown that American consumers mistakenly  believe that “natural” is actually greener than “organic,” that “organic” is a fancy way of saying expensive, and that “natural” is a regulated term.  “All natural” was the second-most common claim on food products available in 2008 and has increased in popularity.  If we go by the USDA meat requirement of minimally processed, then all natural products will not contain any ingredients not readily available to the average cook, aka nothing requiring a high tech lab.

If we go by this definition however, some of our most loved brands would no longer be able to label themselves as “natural” including Ben & Jerry’s, Kashi, and Gorton’s.  So for now we have to give ourselves an extra 30 minutes at the store to look at the ingredients list. Obviously, the term “natural” needs to be expanded and better regulated.  As does “free range” which is often used now to mean that there is access to the outdoors, not that the animals actually make it outside.  Think one doggie door for 30,000 chickens type of scenario.

So how do we protect consumers from all of these possibly misleading labels?  Do we have other regulations that can be applied?  Wow, these questions are so insightful; it is like I am asking them myself. Yes we do!

Tune in next month for my fascinating (and non-boring) post on FCC regulations against Green Washing.  J

 

 

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