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Published: February 24, 2009

 
 

Not Just for Profit

One of the companies that is most explicit in using design to achieve a mission is the Upstream 21 Corporation, a socially responsible holding company launched by the social investing firm Portfolio 21 Investments in Portland, Ore. This holding company was set up explicitly to buy local companies in order to build natural, social, and economic capital within the region. Oregon stakeholder law says directors may consider the interests of many stakeholders, not just stockholders, in making decisions, and Upstream’s articles of incorporation adopt language saying directors shall do so. The Upstream design also reconfigures voting rights, giving greater power to hands-on owners (including employees) and less power to absentee owners.

The “directors’ duty” aspect of this design has since been replicated by more than 130 companies signing on to become B corporations, or beneficial corporations. This model is being promoted by Jay Coen Gilbert and his colleagues at the nonprofit B Lab in Philadelphia, who aim to create a unified marketing presence and certification process for B corporations. Unfortunately, they did not replicate Upstream’s redesign of voting rights in their model. Because virtually all B corporations today are founder controlled, these firms may be vulnerable to losing their mission when the founders depart. But as the B corporation model becomes more widely adopted, a community of practice could emerge — similar to the communities of employee-owned companies and cooperatives, with their networks of attorneys and consultants — that could help in the evolution of this promising new model.

Public–private Hybrids
A third school of for-benefit design involves company architectures that deliberately blur the lines between for-profit and nonprofit modes of operation — like Grameen Danone. One powerful model here is being termed “for-profit philanthropy,” and it is famously embodied by Google.org, a boundary-spanning entity created by Google. Google.org currently manages an annual philanthropic budget of $2 billion; the amount is based on Google’s initial public offering, which announced the company’s intention to contribute 1 percent of equity and 1 percent of profits to charity.

As Brooklyn Law School Professor Dana Brakman Reiser observed in a recent paper, Google.org is not a traditional foundation but a division of Google, standing alongside the engineering, sales, and finance functions, yet tasked with addressing climate change, disease pandemics, and poverty. By eschewing tax-exempt status, it gains the running room to combine investments with grants as it pursues its ambitious goals — drawing fully on Google’s staff, technology, and products in the process. As Reiser put it, “Google.org’s use of an integrated for-profit division inaugurates a new model: ‘for-profit philanthropy.’” The director of Google.org is Larry Brilliant, known both for his business acumen (he cofounded the Whole Earth ’Lectronic Link [WELL] computer network) and for his medical philanthropy (he was a primary figure in the World Health Organization’s eradication of smallpox and a cofounder of Seva, a foundation that has brought eyesight to more than 2 million blind people).

Another cross-sector governance structure involves nonprofit companies that create for-profit subsidiaries. The Great Neighborhoods Development Corporation (GNDC) in Minneapolis — where I serve on the board — has ushered in a renaissance in the once-blighted Phillips neighborhood by driving out disreputable bars, drug dealers, and prostitutes and bringing in a business incubator, health clinic, grocery store, and retail shops. Although GNDC is a nonprofit organization, its real estate projects are designed to operate in the black. “We’re in the business of changing the lives of the poor, and we’re using real estate business development to do it,” says Chief Executive Officer Theresa Carr.

Yet another model in this category would be “nonprofit venture capital” funds such as the Acumen Fund, which raises charitable donations to serve the poor but takes an investing rather than grant-making approach, offering equity and loans to both for-profit and nonprofit organizations that deliver affordable housing, energy, and clean water in South Asia and Africa.

 
 
 
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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.
 
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