American Capitalism: An Evolution or a Revolution?

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CRB Executive Director Robert Strand was invited to testify to a U.S. Congress committee hearing on December 4, 2019 to consider issues of responsible business in American capitalism. Below is the formal testimony Robert submitted in advance of the hearing followed by the subsequent formal response submitted by Robert after the conclusion of the hearing.

The full testimony can be viewed here with Robert’s testimony beginning at 16:56 with relevant exchanges about American vis-a-vis Nordic capitalism at 1:05:18 and 1:13:00.

CCC

“The success of American capitalism in the 21st century will be measured against the Sustainable Development Goals.”

Statement of Dr. Robert Strand

To be presented to:
United States House Committee on Small Business, hearing on
“Embracing Corporate Social Responsibility: Small Business Best Practice”
December 4, 2019

I am Robert Strand, Executive Director of the Center for Responsible Business and faculty member at the University of California, Berkeley. I also hold the title of Associate Professor of Leadership and Sustainability with the Copenhagen Business School in Denmark.

The 20th century was defined in large part by the ideological battle between American capitalism and Soviet communism. The 21st century will be defined by whether American capitalism sufficiently meets our collective needs and tackles our greatest challenges including climate change, growing inequalities, decent work for all, and threats to our democratic institutions. The 17 UN Sustainable Development Goals (SDGs) succinctly articulate these needs and challenges1. The success of American capitalism in the 21st century will be measured against the Sustainable Development Goals.

With this in mind, I deeply welcome the recent restatement on the purpose of the corporation by the Business Roundtable to embrace a stakeholder view of the firm2. This represents a pragmatic step to improve American capitalism3 4 as a stakeholder view increases our likelihood to successfully achieve the Sustainable Development Goals.

A stakeholder view states that the purpose of a firm is to provide value to its stakeholders. It represents a stark shift from the previous stated purpose known as “shareholder primacy” long promoted by the American economist Milton Friedman that prescribes a lone corporate purpose to maximize profits5.

Dr. Friedman was a central figure in the ideological battle between American capitalism and Soviet communism6. For Freidman, anything other than a free market response was the enemy and profit-maximizing firms were central to Friedman’s view of free markets. Friedman contended anyone suggesting firms have a responsibility beyond profit maximization – such as avoiding pollution or addressing discrimination – were “preaching pure and unadulterated socialism.”7 That use of the word ‘socialism’ is a Cold War ideological relic – it served its purpose then but I cringe at its use today. The Business Roundtable’s restatement helps move us past these tired ideological debates.

I now turn attention to the smart policy and corporate governance structures necessary to best ensure the Business Roundtable’s words are turned into durable action supportive of the stakeholder view.

B Corps (i.e. Benefit Corporations) presents great promise. In 2012, when Patagonia became the first California company to sign up for B Corp certification, its founder Yvon Chouinard stated that B Corps created the necessary legal framework through which Patagonia could remain committed to a stakeholder view even through changes in ownership8 9. B Corps has yet to be widely tested in the domain of public corporations where I also look to examples from elsewhere in the world for institutionalizing a stakeholder approach en masse.

Chiefly, I look to the Nordic countries comprised of Denmark, Finland, Iceland, Norway, and Sweden given the Nordics are originators of the stakeholder view of the firm10 11 and have developed a variety of corporate governance structures that support the stakeholder view. This includes the Danish industrial foundation model12. Leading Danish firms like Carlsberg and Novo Nordisk are public corporations whose majority of voting rights are held in perpetuity by an associated industrial foundation. This enables the company’s management to embrace a long-term perspective supportive of the stakeholder view. The 1969 Foundation Law prevents such a structure in the U.S. We may want to revisit this.

A stakeholder view also comes with challenges. Patagonia is widely heralded as a responsible company in part because it provides a key stakeholder – its employees – with benefits like fully paid parental leaves, access to quality childcare, paid medical leaves, and sufficient healthcare coverage. I applaud Patagonia as such offerings are widely recognized as beneficial to society but I have significant concerns for a capitalistic system that pushes such responsibilities into the domain of business. This is inefficient and can unintentionally exasperate inequalities. Furthermore, it redirects the precious resources of small and medium sized companies who may not be able to satisfy these demands. My experiences in the Nordics have convinced me there is a much more efficient and equitable way to handle these things 13 14 15. I believe small business could be the champion of pragmatic explorations to consider what might work better in an American context.

In closing, I would like to point out that small business is the most trusted institution in the U.S.16 17. I am deeply concerned about mounting populist attacks on the concept capitalism. But I am equally concerned about inaction on the part of our business and political leaders to go about the pragmatic work of improving our version of American capitalism so it best meets our needs and tackles our greatest challenges. As representatives of the most trusted institution in the U.S., this congressional committee has the opportunity, and dare I say responsibility, to assume a leadership role to usher in a new era of American capitalism in which the stakeholder view is mainstreamed and the challenges represented by the Sustainable Development Goals are met.


Response of Dr. Robert Strand
December 11, 2019

To be amended to presentation for:
United States House Committee on Small Business, hearing on “Embracing Corporate Social Responsibility: Small Business Best Practice”
December 4, 2019

We need an evolution of American capitalism to avoid a revolution of American capitalism.

This past Friday, conservative New York Times columnist David Brooks wrote the article “Two cheers for capitalism, now and forever.18” I may have just submitted it as my testimony had he written it earlier in the week. Within it, Brooks offers:

These problems are not signs that capitalism is broken. They are signs that we need more and better capitalism. We need a massive infusion of money and reform into our education systems, from infancy through life. Human capital-building is like nutrition: It’s something you have to attend to every day. We need welfare programs that not only subsidize poor people’s consumption but also subsidize their capacity to produce.

We need worker co-ops, which build skills and represent labor at the negotiating table. We need wage subsidies and mobility subsidies, so people can afford to move to opportunity. We need tax subsidies for health care, to make it easier for people to switch jobs. We need a higher earned-income tax credit, to give the working poor financial security so they don’t get swept away amid the creative destruction. We need a carbon tax, to give everyone an incentive to reduce carbon emissions without pretending we know the best way to do it.

Every single idea I just mentioned comes from the American Enterprise Institute or Brookings or some other institution derided as being part of the neoliberal elite. All these ideas would make capitalism work better.

A big mistake those of us on the conservative side made was to think that anything that made the government bigger also made the market less dynamic. We failed to distinguish between the supportive state and the regulatory state. The supportive state makes better and more secure capitalists. The Scandinavian nations have very supportive welfare states. They also have very free markets. The only reason they can afford to have generous welfare states is they also have very free markets.

To this list, I would add paid parental leaves. Paid parental leaves benefit children, parents, small businesses, and society as a whole, and require no infrastructure to operationalize. This is not about the rich paying for the poor. This is about the middle class paying for itself 19 20. I applaud Congress for having reached the landmark agreement just this past week on paid parental leaves for federal employees and I am optimistic this will be expanded to all working Americans.

I wish to stress Brooks’ point: we need more and better capitalism. The ideological debate of capitalism versus communism was settled in the 20th century. Thankfully, capitalism won. But capitalism comes in many varieties and it is time we go about the pragmatic work in the 21st century of making the best possible variety of capitalism that we can for America. We must not rest on the laurels of past successes or close ourselves off to learning from others. We must engage with the world with curiosity and embrace an innovative spirit of experimentation.

At the core of Nordic capitalism is the ideal and practice to ensure equality of opportunity whereby those who desire to achieve success have the opportunity to work hard to do so. To me, this is the American Dream. It has been recently said if you want to live the American Dream, live in Denmark21. Denmark and their Nordic neighbors Sweden and Finland also regularly top the annual measurements of the Sustainable Development Goals (SDG) Index 22 23 thus indicating a comparative readiness of Nordic countries to address our greatest 21st century global challenges.

One can respond to such evidence defensively, dismissively, or aggressively. I take this evidence as a challenge. I desire to be part of an aggressive response whereby we make America the best possible version of itself through which all Americans have the opportunity and freedom to fulfill their full potentials.

We need an evolution of American capitalism to avoid a revolution of American capitalism. I am at your service in the work that lies ahead.

Onward!!!

Dr. Robert Strand
MrNordic@berkeley.edu

Executive Director, Center for Responsible Business
Haas School of Business
University of California, Berkeley

Associate Professor of Leadership & Sustainability
Copenhagen Business School
Denmark

Appendix A:  UN Sustainable Development Goals Index

1https://www.un.org/sustainabledevelopment. See also Appendix A.
2https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-thatserves-all-americans
3Freeman, R. E. Strategic Management: A Stakeholder Approach. Pitman Publishing: Boston, MA. (1984).
4Freeman, R. Edward, Jeffrey S. Harrison, Andrew C. Wicks, Bidhan L. Parmar, and Simone De Colle. Stakeholder Theory: The State of the Art. Cambridge University Press. (2010).
5Stout, Lynn A. The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public. Berrett-Koehler Publishers. (2012).
6Friedman, Milton. Capitalism and Freedom. University of Chicago Press. (2009)
7Milton, Friedman. “The social responsibility of business is to increase its profits.” New York Times Magazine 13 (1970): 32-33.
8https://www.patagonia.com/b-lab.html
9Chouinard, Yvon, and Vincent Stanley. The Responsible Company: What We’ve Learned from Patagonia’s First 40 Years. Patagonia. (2013).
10Rhenman, Eric. Industrial Democracy and Industrial Management: A Critical Essay on the Possible Meanings and Implications of Industrial Democracy. No. 2. Tavistock. (1968).
11Strand, Robert, and R. Edward Freeman. “Scandinavian Cooperative Advantage: The Theory and Practice of Stakeholder Engagement in Scandinavia.” Journal of Business Ethics 127, no. 1 (2015): 65-85.
12Thomsen, Steen. The Danish Industrial Foundations. Djøf Forlag. (2017).
13Matten, Dirk, and Jeremy Moon. ““Implicit” and “explicit” CSR: A Conceptual Framework for a Comparative Understanding of Corporate Social Responsibility.” Academy of Management Review 33, no. 2 (2008): 404-424.
14In the words of the American economist Arthur Okun, in a capitalistic society “there must be a place for markets and markets must be kept in their place.” From: Okun, Arthur M. Equality and Efficiency: The Big tradeoff. Brookings Institution Press. (1975)
15Sachs, J., Schmidt-Traub, G., Kroll, C., Lafortune, G., Fuller, G. (2019): Sustainable Development Report 2019. New York: Bertelsmann Stiftung and Sustainable Development Solutions Network (SDSN). Available at www.sdgindex.org
16https://www.pewresearch.org/fact-tank/2016/01/04/millennials-views-of-news-media-religious-organizations-grow-morenegative
17https://www.people-press.org/2010/04/18/distrust-discontent-anger-and-partisan-rancor/
18https://www.nytimes.com/2019/12/05/opinion/socialism-capitalism.html
19See also Partanen, Anu. The Nordic theory of everything: In search of a better life. Prelude Books, 2017.
20See also Collins, Caitlyn. Making Motherhood Work: How Women Manage Careers and Caregiving. Princeton University Press, 2019.
21https://www.weforum.org/agenda/2017/08/youre-more-likely-to-achieve-the-american-dream-if-you-live-in-denmark
22https://www.sdgindex.org/
23See also Appendix A

Happy Holidays!

On behalf of all of us at the Berkeley Haas Center for Responsible Business (CRB), I wish you a peaceful and joyous holiday season.

As 2019 comes to a close, we reflect upon this past year and the close of the decade.  For me, the young Swedish activist Greta Thunberg symbolizes 2019. The reality of our challenges are coming into mainstream focus as has the recognition for our collective inability to effectively address them at a systems level.  This is deeply discouraging. However, the 2018 photo below of Greta Thunberg gives me great hope. Then, she appears in isolation but today she is part of one of the most energetic and widespread movements of human history. Movements shape our world.

(photo credit Adam Johansson)

‘2020’ is a concept associated with vision.  In the year 2020, we must establish our vision for serious actions to take in the decade ahead.  The 17 Sustainable Development Goals (SDGs) bring focus to the challenges we face and provide the world a common strategic framework.  SDG #13 is Climate Action. SDG #10 is Reduced Inequalities. SDG #12 is Responsible Consumption & Production.  These SDGs and their associated colorful logos travel the world and provide a common language.  

Since their launch in 2015, I am frankly shocked at how little attention the SDGs have drawn in a U.S. context when compared to the Nordic countries whose governments are establishing policy and companies are aligning strategy to support the SDGs.  Great steps are also being taken in continental Europe, Japan, and beyond. The University of California, Berkeley and Haas has an incredible opportunity to assume a leadership role to usher in the SDGs into the U.S. context. (And the UC-Berkeley Signature Initiatives map almost directly to the SDGs.)  As the world’s largest and most consuming economy, we must get the U.S. onboard.  

Movements need institutions to succeed.  The University of California, Berkeley can be such the institution to ensure the success of the SDGs.  As I offered in my recent congressional testimony, “The success of American capitalism in the 21st century will be measured against the Sustainable Development Goals.”  The CRB is committed to serve as a platform within the Haas and broader UC-Berkeley community to usher in attention and action against the SDGs.

I wish to highlight the importance of our company partners in our work:  Patagonia, Microsoft, Levi Strauss & Co., General Mills Natural & Organic Operating Unit, and Applegate.  And of course, our wonderful students. Our students are our heart and soul and are the reason we are here.  We are particularly grateful for our CRB Student Advisory Board and the collaborations we have with students and beyond through the Institute for Business & Social Impact.

With your support, we will continue to develop leaders who redefine business for a sustainable future.  We are building a movement – and you are very much part of it. Thank you for your continued support and my very best holiday wishes to you and yours.

Onward!!!

Robert Strand

CRB Executive Director

Nordic Talks: Parental Leaves in the Nordics. Inspiration for California?

“It’s easy in Sweden to work and have kids.” — Making Motherhood Work

Nordic countries are renowned for their generous parental leaves. All evidence suggests that these leaves bring a host of benefits including improved maternal and infant health (SDG #3), promoting gender equality (SDG #5), supporting economic benefits including a more robust and resilient labor force (SDG #8), and directly tacking issues of economic inequality (SDG #10). Despite these many known benefits, the United States is the only country in the developed world without guaranteed parental leaves. No longer satisfied with the status quo, innovative states like California and companies like IKEA are working to shift the paradigm to provide guaranteed parental leaves.

Hear from experts including Anu Partanen, author of Nordic Theory of Everything, and Professor Caitlyn Collins, author of Making Motherhood Work with video introduction by Professor Robert Reich. Moderated by Dr. Robert Strand, this event will be highly interactive in nature with significant audience participation. Our intent is to inform parental leave policy and practice in California to take action. We will specifically consider what barriers are present in a California context to implement successful parental leaves and how might we overcome these barriers, drawing inspiration from the Nordics.

We are grateful to the Nordic Council of Ministers for their generous support, Johan Bävman for use of imagery from Swedish Dads exhibit, and Norden Living for kindly providing the Nordic themed stage vignette. This event is the first in a series of collaborations with the Nordic Council of Ministers from which the podcast “Nordic Talks” will be produced. #TheNordics

Meet Namrata Gummalla: 2019 Patagonia Case Competition Finalist and Patagonia Corporate Development Intern

Beginning in 2016, the Berkeley Haas Center for Responsible Business and industry leader in sustainability, Patagonia, came together to bring next generation thinking to Patagonia’s most pressing sustainability challenges. The partnership is a collaboration focused on optimizing Patagonia’s sustainable business practices and engaging student innovators from business schools across the country through the Patagonia Case Competition.

The topic for the case is released each fall and teams from graduate programs across the globe submit proposals to present their solutions to Patagonia’s executive leadership in the spring. Case topics are aimed to combat Patagonia’s most pressing sustainability roadblocks. From eliminating single-use packaging, to achieving carbon neutrality, to creating a regenerative agricultural supply chain, the competition challenges teams to innovate, learn, and collaborate around real-world issues.

Each year, over 100 teams compete and present promising and insightful solutions. While only one team wins, just participating in the competition is an exceptional experiential learning opportunity for students. This was the case for Namrata Gummalla, a member of a finalist team in the 2019 contest and Corporate Development Intern at Patagonia. Executives at Patagonia were impressed with her team’s proposal to the 2019 prompt of using a seaweed-based bioplastic in place of single-use plastic, as well as Namrata’s previous experience in warehouse management. After reviewing her resume, the Tin Shed Ventures team asked her to join them as a Corporate Development Intern that summer. 

The Center for Responsible Business recently sat down with Namrata to get a closer look at what it’s like to compete in the Case Competition and to hear more about her internship experience.

Being part of an interdisciplinary team was essential to their success and the success of the other finalists as well.

When considering how to best design a competitive alternative to Patagonia’s single-use packaging, team ‘The Big Green’ from Dartmouth brought together two MBA students and two engineers to tackle the challenge. Namrata highlighted that being part of an interdisciplinary team was essential to their success and the success of the other finalists as well. Everyone brings something different to the table, so having an array of expertise, Namrata explained, fortified their strategy and made collaborating more facile.

The solution her team proposed was using seaweed as bioplastic packaging for Patagonia products. Invented with consumer behavior in mind, the team wanted the packaging to be sustainable no matter how the buyer disposed of it. They grounded their design in concrete scientific findings and a clear-cut implementation plan. Namrata explained that their solution hinged on technology and design, but clarified that there were many ways to approach the question. Some teams’ solutions, she elaborated, focused on sustainable packaging-waste disposal and emphasized logistical and operational approaches. While there are many solutions, the uniqueness of her team’s proposal caught the attention of the Patagonia executives and made them stand out above the rest.

The opportunity for collaboration the competition creates facilitated personal and professional growth for Namrata and her peers. She and her team forged lasting relationships that made the competition all the more valuable. Though they didn’t win, Namrata expressed gratitude for how much she learned while competing and how participating in the case study opened new doors in her career.

As a participant in the case competition, Patagonia had access to Namrata’s resume. Her prior warehouse expertise and evident passion for sustainability made her the perfect fit as the company was searching for a Product Development Intern to assist with their Worn Wear line. Worn Wear is Patagonia’s e-commerce business for returning and reselling used products in order to reduce the company’s carbon footprint by minimizing the waste generated by garment production. Customers appreciate the strides toward sustainability and the low costs of Worn Wear gear, while Patagonia is happy to do right by the planet.

As it was though, the Worn Wear production process still had areas prime for innovation. Namrata was tasked with optimizing Worn Wear operations, investigating how to re-model the processing of garments for resale in the most efficient, cost-effective, and sustainable way possible.

Going into the internship, Namrata knew she would be working on Worn Wear’s operations, but she was able to scope the specifics of her internship once on-site. As a result, she was able to mold the project around guidelines that allowed her to receive credit for her Master of Engineering Management program. This autonomy allowed her to work best against her strengths to launch a highly successful plan to maximize efficiencies in the Worn Wear line.

Namrata dug deep into Worn Wear’s operations to refine production processes, examining improvements that can be made at every stage of the garment’s reentry to the marketplace. She reached out to store operators and warehouse managers with surveys to gain insight on how Worn Wear processes flowed in real time. Understanding the challenges at the front line of garment collection allowed her to enhance warehouse operations by refining the physical layout of warehouses, proposing creative solutions to business requirements through modeling, and innovating solutions the training team could utilize to educate employees.

A challenge that Namrata helped to address was that not every garment accepted for trade-in meets Worn Wear quality standards for resale. This results in a deficit as Patagonia compensates customers for garments without an obvious reuse. While the rejected product never goes to landfill as Worn Wear has textile recycling partners, further innovation was needed to help recapture some of the high-costs. As a solution, in the fall of 2019 Worn Wear launched a new line called ReCrafted which creates high-quality “new” garments from parts of Worn Wear rejects. Namrata’s work in enhancing forecasting models and warehouse layouts included incorporating new processes for ReCrafted.

Namrata describes her internship with Patagonia as one of the most significant professional experiences she’s had. She confirmed that Patagonia is a great place to work thanks to a phenomenal company culture. Since the conclusion of her internship and receiving her Masters degree, Namrata is now actively seeking jobs in supply chain management. Her experience at Patagonia lead her to realize her passion for optimizing supply chain operations and her desire to pursue a career in that field. 

For more information about the 2020 Patagonia Case Competition, past case prompts, and past winners: click here.

With the 2020 Patagonia Case Competition Prompt Announced, How Can You Start Building Your Team Now?

Written by Tiffany Tran and John Monaghan, both Berkeley Haas MBA ’20 candidates and 2019 Patagonia Case Competition Runner Ups.

Centered around one of the most admired companies in the world and focused on solving some of the most relevant corporate sustainability challenges, it is no wonder that the Patagonia Case Competition attracts teams from across North America to compete. For the 2019 program, 123 teams were formed to compete for prize money, Patagonia gear and the opportunity to present again to the entire Patagonia staff at their headquarters. Private surf lessons with their team off the Ventura coast didn’t hurt either.

With steep odds, how can you get the most out of the program and best position yourself for success? John Monaghan and Tiffany Tran, both 2020 FTMBAs at the Berkeley Haas School of Business, placed second along with their team the Hungry Bears, provide their top tips:

Leading With Values

Few companies inspire as many people through their values as Patagonia. This was evident throughout the competition and in the case itself, and during the judging process and our experience with the Patagonia team on site at headquarters. They genuinely care about these issues and are putting forward some of the most difficult challenges that cross their desks. 

The Patagonia team wants to find breakthrough technologies and business models, as well as modest changes that help them to realize their mission of saving our home planet. Your work will be thoroughly considered and will inform their work on these core questions. That alone was a great honor and should be at the core of why you hope to participate.

Systems Challenges Require Interdisciplinary Teams

Our competition focused on how the company can distribute all its food and apparel products in packaging that is reusable, biodegradable, renewable, or easily recyclable by 2025. With such a broad prompt, we knew we’d need expertise beyond just our own and sought out partners from across campus to assemble a team representing four different graduate problems: business, material science, architecture and development practice. 

The team came with diverse subject matter knowledge, design capabilities and industry experience, but a shared passion for the project. Our backgrounds allowed us to find solutions and present material unlike any of the teams I have worked with comprised only of MBAs. In fact, all of the top three teams had materials science PhD students on their teams. Consider what skills might be necessary for this prompt and where they might live in your schools!

Consider the Full Prompt

Last year’s case was exhaustive and thoroughly cited, with extensive details on previously attempted initiatives and case studies from their peers in the industry. Be sure to address the entirety of the prompt, understanding the complexity of the challenge ahead. Using that as your roadmap, what are the solutions that they haven’t considered and can you look for adjacencies in other industries? 

Talk to Consumers and Get Creative

Though it can feel daunting, our team went to places where we thought we could find the target consumer and started asking questions about their core values and perceptions. These conversations informed some of our go to market strategies and gave us insights we wouldn’t have otherwise considered. 

A team from the University of Toronto videotaped their interactions allowing for great footage to share in their presentations. Patagonia cares about their consumer and wants to make sure they do right by them. Speak to as many of them as you can, and you’re solutions will be both more attuned to the need and more persuasive.

Try and Build Your Prototype Solutions

One of our ideas that caught the judges’ attention was packaging single serve items like soup mixes, coffee or oats, in edible, dissolvable “Tide Pods.” Though our understanding of the technology was still early, demonstrating a prototype helped to speak to the possibility of the idea with the judges. Similarly, peer schools came to the competition with prototype bioplastics or containers that helped the judges to conceptualize their idea. It also helps inform your recommendation as your propose solutions have tested them yourselves.

Our Experience

Last year’s case focused on how the company can distribute all its food and apparel products in packaging that is reusable, biodegradable, renewable, or easily recyclable by 2025. In the first round of competition, graduate teams submitted their innovative solutions to the case prompt. Patagonia leaders then reviewed all submissions and selected ten finalists to present their ideas to Patagonia executives at Berkeley Haas. Over 100 solutions were submitted, and Berkeley was among one of the finalists. 

The Berkeley team comprised of a cross-disciplinary group, made up by John Monaghan (MBA), Tiffany Tran (MBA), Aaron Hall (PhD Material Science & Engineering), Lily Fryer, (Masters of Development Practice), Natasha Mehta (Masters of Development Practice), and Thomas DeVore (Master of Architecture). The team’s solution focused on eliminating the idea of disposable packaging by utilizing usable containers to package foods and introducing edible and dissolvable food pods. The team came in second place, winning prize money and a trip to Patagonia headquarters to meet with employees and go surfing. 

Over the summer,  the Berkeley team, along with the first place MIT team, visited Patagonia headquarters in Ventura, California. The morning started bright and early with a surf lesson provided by a local surf organization. All students borrowed wetsuits and surfboards and were coached to catch some waves.

Interested in forming a team? Sign up to stay in the loop here.