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By Ellen Pearlman
Strategic Thinker:
Marjorie Kelly
Credentials: Kelly is a Senior Associate at Tellus Institute and co-founder of Corporation 20/20, a project to create the vision and chart the course for the future corporation. Kelly was also co-founder and editor of Business Ethics, a national magazine on corporate social responsibility, and is the author of The Divine Right of Capital, named by the Library Journal as one of the best business books of 2001.
Big Idea:
Alternatives to the shareholder-centric model are emerging that could help companies avoid ethical conflicts and contribute more to society
Article:
"Not Just for Profit" published by strategy + business, Spring 2009
Creating wealth is the backbone of our economy. But sadly we've all discovered what can happen when people become consumed with making their quarterly numbers, creating short-term profits, and earning their outsized bonuses at the expense of our economy and the long-term well being of individuals and businesses.
While many assume the shareholder-centric model is a given for corporations, some alternative business structures are emerging that combine making a profit with social responsibility. There are different names for these innovative models depending on their focus. One term that has been used by Muhammad Yunus, the founder of the Grameen Bank and winner of the Nobel Peace Prize in 2006, is "social business" or a profit-making company driven by a larger mission.
According to Yunus, social businesses replace the profit-maximization principle with the social-benefit principle. For example, the mission of Grameen Danone Foods, a joint venture between Grameen companies and Groupe Danone (the multinational yogurt maker), is to bring affordable nutrition to malnourished children in Bangladesh. The company is structured as a hybrid between nonprofit and for-profit. Like a for-profit company it must recover its full costs from operations, but like a nonprofit it is driven by its cause. In fact, if successful, its investors receive a 1 percent annual dividend; the rest of the profits are plowed back into the business.
In a recent strategy + business magazine article, Marjorie Kelly, senior associate at the Tellus Institute and co-founder of Corporation 20/20, wrote about three different approaches to a "for-benefit enterprise" (a term coined by Heerad Sabeti, CEO of the TransForms Corporation) that offer innovative forms of ownership and governance: stakeholder-owned companies, mission-controlled companies, and public-private hybrids.
Stakeholder-owned companies use a cooperative model of ownership. This type of company is owned and controlled by the members they serve. Members could be customers, producers, homeowners, employees or the community. According to Kelly there are now 800 million members of cooperatives around the world and "more Americans hold memberships in co-ops than hold stock in the stock market." Some examples are SaludCoop in Columbia, which provides healthcare services to a quarter of the population, the John Lewis Partnership, the largest department store chain in the U.K., and the Cooperative Regions of Organic Producers Pool (CROPP, better known by its brand name Organic Valley) in Wisconsin, one of the four largest organic brands in the U.S.
Mission-controlled companies are publicly traded, but keep control in mission-oriented hands. For example, Interface Inc. is a Fortune 1000 flooring company with a goal of having zero negative impact on the environment by 2020. They call this "Mission Zero by 2020." Companies using for-benefit models like this sometimes find their objectives tied to the rise and fall of the stock market. Interface tries to offset this by creating a dual-class governance structure, this puts super-voting shares in the hands of CEO Ray Anderson and a few other top executives, says Kelly, giving them control of 72 percent of board votes, even though they own less than a majority of publicly traded shares.
"Mission control allows capital to trade freely, even as it ensures that the mission is not for sale," says Kelly. "It allows leaders to focus the company so that mission becomes the focal point while profits are energetically pursued," she adds.
The best models of mission-controlled companies have an explicit commitment to the mission in the company's charter and its governance procedures. At Novo Nordisk, the world leader in diabetes care, all products and services must "make a significant difference in improving the way people live and work." The company board must report to the foundation board annually on how it is ensuring its operations are "economically viable, environmentally sound, and socially fair."
According to Kelly, mission-controlled architecture "can offer a solution to the challenge that socially responsible companies face as they struggle to keep their social mission alive after founders depart or sell their shares." Upsteam 21 Corporation in Oregon has adopted language in its articles of incorporation that makes it clear that directors "shall" consider the interests of many stakeholders, not just stockholders. The company's voting rights give greater power to hands-on owners (including employees) and less to absentee owners.
Next: Blurring the Line Between For-Profit and Non-Profit
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