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Published: February 24, 2009

 
 

Not Just for Profit

In other cases, the mission is preserved through governance designs that feature nonfinancial stakeholders. At CROPP (Organic Valley), for example, governance by a central board is supplemented by a network of regional farmer pools, each with staff support. In still other cases, for instance, with cooperatives, governance design is shaped by laws that stipulate a policy of one person, one vote, as contrasted with one share, one vote. Diversity is the hallmark of these governance innovations. For if capital is the only group with a seat at the table, capital’s view of the corporation is likely to prevail: The company will be seen as a piece of property whose worth is measured by stock price.

Meeting the Mainstream
Leaders of traditional firms may recognize the opportunities in these new forms. They can achieve a broader array of goals by adopting a for-profit philanthropic division, as Google has, or attempt a social–business joint venture, along the lines of Grameen Danone Foods. They can rapidly improve their operational excellence through the engagement inherent in employee ownership, as founder and CEO Jack Stack has at Springfield ReManufacturing. A few may even attempt to transition to a mission-controlled design, like that employed by Interface.

Such models will have to overcome long-standing, deeply embedded cultural traditions and legal imperatives. But as nascent alternatives to the conventional structure quietly succeed, options may continue to open in coming years, particularly among business startups. “It is the entrepreneurial spirit that has always led the evolution from one age to the next,” said Mike Thomas, a former executive with Granite Construction Company who is now a senior partner at the Monterey Institute for Social Architecture in Monterey, Calif.

In certain cases, alternative enterprises best serve their social mission by keeping profits low. On the other hand, some alternative models can be very economic­ally competitive. Studies have shown, for example, that employee-owned firms modestly outperform their peers, and that when these companies have high employee involvement, they do even better. In a 2002 paper, Steen Thomsen and Caspar Rose of the Copenhagen Business School found that foundation-owned firms — common throughout northern Europe — perform no worse than and even slightly better than traditional firms. The critical difference is that these companies do not set making money apart from other goals; there is no false choice between making a profit and fulfilling other missions. The design of the company is aimed at accomplishing multiple goals at once.

We live in an age when short-term pressures have allowed speculation to overtake the more traditional, human functions of business. Alternatively designed companies offer important lessons in how corporate ownership and governance can evolve differently. And they’re important in their own right as well, for they are likely to prove better adapted to the cultural and ecological demands of the 21st century than the industrial age models they might one day replace. Such businesses may seem like anomalies today. But they more closely reflect the priorities that have engendered the longest-lasting businesses throughout human history.

Reprint No. 09105

Author Profile:
Marjorie Kelly is a senior associate with the Tellus Institute in Boston and is writing a book with the working title Economic Genesis, from which this article is adapted. Formerly the editor of Business Ethics, she is a cofounder of Corporation 20/20, a multi-stakeholder network working to envision and advance alternative designs.
 
 
 
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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.