strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: February 24, 2009

 
 

Not Just for Profit

Emerging alternatives to the shareholder-centric model could help companies avoid ethical mishaps and contribute more to the world at large.

When Muhammad Yunus and the Grameen Bank received the Nobel Peace Prize in October 2006, one endeavor lifted into the limelight was Grameen Danone Foods Ltd. This was a pathbreaking collaborative en­terprise, launched that year as a 50–50 joint venture between Groupe Danone — the US$16 billion multinational yogurt maker — and the Grameen companies Yunus had cofounded. Yunus called the joint venture a “social business,” which he said could be a pioneering model for a more humane form of capitalism. As Yunus explained in his book Creating a World without Poverty: Social Business and the Future of Capitalism (PublicAffairs, 2007), a social business is a profit-making company driven by a larger mission. It carries the energy and entrepreneurship of the private sector, raises capital through the market economy, and deals with “products, services, customers, markets, expenses, and revenues — but with the profit-maximization principle replaced by the social-benefit principle.”

Farmers delivering milk to a Grameen Danone yogurt factory in the village of Bogru, Bangladesh — one of many small community enterprises established by this joint venture.
Photograph © HALEY/SIPA

The mission of Grameen Danone Foods is to bring affordable nutrition to malnourished children in Bangladesh with a fortified yogurt, under the brand name Shokti Doi (which means “yogurt for power” in Bengali, the country’s language). It began in October 2005, when Franck Riboud, the CEO of Groupe Danone, took Yunus to lunch in Paris. “We would like to find ways to help feed the poor,” said Riboud. Yunus suggested the revolutionary joint venture and proposed that a new structure be invented for it, a hybrid between nonprofit and for-profit.

Like a conventional business, Grameen Danone must recover its full costs from operations. Yet, like a nonprofit, it is driven by a cause rather than by profit. If all goes well, investors will receive only a token 1 percent annual dividend, with all other profits being plowed back into the business. The venture’s primary aim is to create social benefits for those whose lives the company touches. For example, the first Grameen Danone fac­tory, which opened in November 2006, was deliberately built small, as a prototype for community-based plants that would provide jobs across Bangladesh. “It’s just a tiny little plant, but it has a big message,” said Yunus in a speech to the Global Alliance for Improved Nutrition, the nonprofit organization brought in to monitor the company’s impact on local health. “While we make money, we can also do good.” Riboud adds, “I’m deeply convinced that [humanity’s] future relies on our ability to explore and invent new business models and new types of business corporations.”

Yunus and Riboud are not alone in seeing the critical importance of instilling a purpose other than short-term profits at the core of corporate designs. In a celebrated January 2008 speech at the World Economic Forum, Bill Gates called for a new form of “creative capitalism.” And around the world — largely beneath the radar of mainstream awareness — alternative designs are being developed that, like Grameen Danone, seamlessly blend a central social mission with profitable operation. These include the burgeoning microfinance industry, emerging hybrids like nonprofit venture-capital firms, new architectures like Google.org that embody “for-profit philanthropy,” dual-class shareholding structures, employee-owned companies, the foundation-owned corporations of northern Europe, and a variety of cooperatives on every continent. These models vary enormously in size and mission, but they are significant for the same reason: Together, they represent an evolutionary step in the development of corporate structure.

The Soul of a New Design
For years, critics of the corporation have argued that the prevailing design of publicly held corporations is innately flawed. That design involves a board that is elected by shareholders — with votes allocated proportionately to the number of shares held — whose members then appoint a semiautonomous CEO as the shareholders’ agent, who in turn delegates authority down through the ranks. In many ways, this has been a highly effective model. The “managerial hierarchy” structure, as corporate historian Alfred D. Chandler Jr. called it, has ac­complished more in a short time than any other form the world has known.

 
Page 1 2 3 4 5 6 7  | All | Next Last>
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

Resources

  1. Arvind Ashta and Matthew Bush, “Ethical Issues in Sustainability, Outreach, and Impact of Microfinance: Lessons in Governance from the Banco Compartamos IPO,” 2008: Case study review of this Mexican microbank.
  2. John Elkington and Pamela Hartigan, The Power of Unreasonable People: How Social Entrepreneurs Create Markets That Change the World (Harvard Business Press, 2008): A guide to social enterprises around the world.
  3. Marjorie Kelly and Allen White, “Corporate Design: The Missing Business and Public Policy Issue of Our Time (PDF),” Tellus Institute, November 2007: Principles for corporate architecture accountable to broader societal interests.
  4. Art Kleiner, “Jack Stack’s Story Is an Open Book,” s+b, Fall 2001: Profile of the founder of one of the most innovative cooperatives, Springfield ReManufacturing Corporation.
  5. Riccardo Lotti, Peter Mensing, and Davide Valenti, “A Cooperative Solution,” s+b, Summer 2006: Describes why some of the most successful companies in Europe, including Rabobank and Italy’s COOP supermarket chain, are stakeholder-owned.
  6. Dana Brakman Reiser, “For-Profit Philanthropy,” 2008: Includes an analysis of Google’s boundary-breaking innovations in for-profit philanthropy.
  7. Corey Rosen and Ed Carberry, Ownership Management: Building a Culture of Lasting Innovation (National Center for Employee Ownership, 2002): Offers concrete, specific ideas on how to structure plans and get employees involved in decisions.
  8. Muhammad Yunus, Creating a World without Poverty: Social Business and the Future of Capitalism (PublicAffairs, 2007): Recounts the founding of Grameen Danone Foods and outlines the author’s concept of social business.
  9. The Fourth Sector Web site: Outlines Heerad Sabeti’s concept of for-benefit organizations.  
  10. The National Center for Employee Ownership Web site: Authoritative source on employee stock-ownership plans, equity compensation plans, and ownership culture.
  11. The National Cooperative Business Association Web site: Has a mission to develop, advance, and protect cooperative enterprise.
  12. Corporation 20/20 Web site: A multi-stakeholder initiative cofounded by author Marjorie Kelly, which aims to develop and disseminate corporate designs in which social purpose moves from the periphery to the core of the organization.
  13. For more business thought leadership, sign up for s+b’s RSS feed.