In an environment where climate change, the drought and workplace reform dominate the media and Federal politics in Australia, there is little doubt that externalised corporate impacts are well and truly becoming internalised, and expressed as a part of corporate balance sheets. These impacts and remedial strategies have materialised in the form of carbon accounts, regulations on water and energy use efficiency, and development of climate change business risks. Now, perhaps more than ever before, corporations are finding that their place in the community involves neutralising their footprints and leaving a positive social legacy.

This growing corporate paradigm shift has initiated new thinking that perhaps there is a better way for corporations to be founded. This has lead to the search for a structure that can overcome the weakness of the tragedy of commons, a term popularised by Garrett Hardin in his 1968 Science article “The Tragedy of the Commons." The key to the tragedy of the commons is when individuals use a public good for which they do not bear the entire cost of their actions. Each seeks to maximise individual utility and so ignores costs born by others. This is an example of an externality. The best (non-cooperative) strategy for an individual is to try to exploit more than his or her share of public resources. Since every rational individual will follow this strategy, the public resource gets over-exploited. Corporations are founded on the premise that they are, and act like, individuals hence exploiting more than their share of public resources.

To examine the foundation of corporations, one must go back in time to examine the history. Corporations were born to protect proprietors in the 17th century, where owners, managers, labour and consumers co-existed in social communities. Sea trade began to separate the consumer from the community in the 18th century, which gave birth to the term ‘stakeholders’. The 19th century saw the industrial revolution preserved the fusion of ownership and management, but created a division to labour. Capital markets were created to foster growth in the 20th century, delineating management from ownership. An intermediated economy matured in the 21st century, with ownership intermediated by investment funds, and thus stakeholders intermediated by management. This social dichotomy created over the centuries also resulted in corporations (in today’s sense of the word) being separated from the environment, therefore losing touch with the local environment within which production took place.

As a budding small boutique advisory firm working in the exact space of corporate sustainability, lodging forms with the Australian Securities and Investment Commission to form a corporation was unnerving. Were we just about to form the exact same profit-making, externalising entity that we were trying to work with to make it a responsible corporate citizen? We paused for a moment to consider our alternatives. This led us to reflect on the following objectives for our existence:

• To be well-respected partners focussed on the long-term, on sustainability, values and on non-traditional out-of-box thinking seeking to increase true value for our clients and providing a caring home for our affiliates.
• To find a mechanism to give back to society using our intellectual property.
• To attract affiliates with similar value sets.
• To be sustainable in our activities from an economic, environmental and social perspective.
• To communicate and work with the entire market.
• To undertake research and foster innovation as a think-tank.

To achieve these objectives we set out to develop an appropriate model for a new breed of corporation. What resulted, and remains, is an experimental corporation of tomorrow (or corporations to be more precise). Two companies – one for-profit, and the other not-for-profit. Net Balance Management Group and Net Balance Foundation were set up respectively to deliver the above objectives in a manner that is seamless, coherent and brand-building. There are other similar examples, but not many. A well-known example is www.google.com and www.google.org. The employee-owned and bonus structured Management Group would work with the corporate and government sectors whilst the Foundation would work on a cost-recovery basis with the small-to-medium companies, communities, and establishments in the non-profit sector such as non-government organisations, professional and industry bodies. The Foundation would also undertake free-to-access open-source research. It will have a formal mandate to put back into the environment and communities what we believe is a re-investment into the future. One of our criteria for staff bonus is to spend at least twenty percent of their time undertaking Foundation activities. Staff members also have other opportunities for voluntary and pro-bono activities.

Our service areas include sustainability strategy development, sustainability measurement and reporting, strategy implementation and performance benchmarking, independent assurance of public reporting, social and environmental risk management, provision of solutions to combat climate change, product and services stewardship management and stakeholder engagement.

And why ‘Net Balance’? The definition for net balance is “what is left at the end of a transaction”. Environmental and social externalities are the result of business transactions, and which are often the “left over” at the end of the transaction. The acronym of ‘Net Balance’ – NB - also stands for “Nota Bene” a Latin phrase meaning "Note Well," originating from notâre — to take note (of those externalities).

Accordingly, we have also adopted the Brundtland plus definition of sustainability, which we define as “sustainable management of resources, systems and natural and social capital in maintaining and aiming to improve the quality of life and social justice of today’s societies, without compromising the capacity for future generations to do the same”. The Net Balance Management Group and Net Balance Foundation will both be built upon the above business model in order to make a difference to industry, government and communities.

Our history has just begun as Net Balance Foundation, but it brings together over 25 years of corporate sustainability, environmental auditing, sustainability reporting, assurance, socially responsible investment, natural resources management and management consulting experience, as well as significant voluntary effort in sustainability. We have developed a unique business model and philosophy with the formation of Net Balance Management Group and Net Balance Foundation that hopes to create its own history in terms of helping companies understand, manage and implement corporate sustainability thus creating value for shareholders and stakeholders.

2007: Formation of Net Balance Foundation

2008: Our plan is to be around by then, at least!