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International and Cross-cultural Ling- English Manage the business

Not just for profit: corporate design for social purpose

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, 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.”

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). (…)

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 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.

But this shareholder-centric model has also contributed over the years to what former Citigroup CEO John Reed has called the “iron triangle of short-term pressures” — hedge funds, stock options, and stock analysts — that keeps companies narrowly focused on quarterly profits.

The financial meltdown of 2008 was a direct result of the pursuit of immediate profit by investment bankers and mortgage brokers who disregarded the impact of their actions on customers, on the larger economy, and indeed on stockholders and the company itself in the long term. Those who wanted to operate with integrity found it difficult. They were constrained by a corporate design that reinforced the need to “make the numbers” by any means possible

One helpful way of thinking about these designs is as representing a hybrid between the traditional for-profit archetype, which has profit at its nucleus, and the traditional nonprofit archetype, which has social mission at its nucleus. This type of hybrid has been dubbed the “for-benefit enterprise”, (…) a new type of organization with a blended purpose at its core: serving a living mission and making a profit in the process.

The essential framework of such a company — its ownership, governance, capitalization, and compensation structures — are designed to support this dual mission. And it is this design that enables companies to escape the pressure to maximize short-term profits and instead to fulfill a more fundamental purpose of economic activity: to meet human needs and be of benefit to life.

Today, at least three broad approaches to for-benefit architecture offer promising models:

  1. Stakeholder-owned companies, which put ownership in the hands of nonfinancial stakeholders;
  2. Mission-controlled companies, which separate ownership and profits from control and organizational direction; and
  3. Public–private hybrids, where profit-driven and mission-driven design elements are combined to create unique structures.

Read on at Not Just for Profit.

 

 

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International and Cross-cultural Ling- English Manage the business Strategy

Nobel Prize: Money not the whole story

When he was awarded the Nobel Peace Prize last year, Yunus said that Grameen Bank had lent nearly $6 billion over the last 30 years in loans that average $130 each. A key stipulation of the program is that its loans must be for income-producing activities, not consumption. But, perhaps more important, Grameen’s borrowers also must commit to the program’s “16 decisions,” which include family planning, educating their children, not accepting or giving dowries, and embracing “discipline, unity, courage and hard work” in all walks of life. (…)

The most important lesson from Grameen is that cultural values, even those long entrenched, can be successfully modified. Bangladesh is a Muslim country, where concepts such as charging interest or using contraception are considered “un-Islamic.” Yet, by using micro-loans as a cultural stimulus as well as an economic instrument, Yunus changes the attitudes of his fellow citizens at the grass-roots level. (…)

The operational details of Grameen are equally noteworthy. By requiring weekly payments, borrowers are constantly reminded of their obligations. The close relationship between borrowers and lenders means that they know exactly the consequences of non-repayments: other potential borrowers — often fellow villagers — will be deprived of their opportunities. Grameen’s emphasis on behavioral changes alone may indeed be more of a help in easing people out of poverty than the money itself. (…)

The Grameen Bank miracle is in using those micro-loans as a social stimulus to effect needed changes in personal behavior and cultural values. This key point is often missed by those enthusiastic in replicating the bank’s success. (International Herald Tribune)

 

See also: Microcredit

 

Categories
Ling- English Manage the business Strategy

Microcredit

As founder of the Grameen Bank receives Nobel Peace Prize, the profile of microcredit lending grows

Bangladeshi Economist Claims Nobel Peace Prize [Real Player] http://www.npr.org/templates/story/story.php?storyId=6605060

Nobel Peace Prize Award Ceremony 2006 [Windows Media Player]
http://nobelprize.org/award_ceremonies/ceremony_oslo/video/2006/index.html

Grameen [pdf, Windows Media Player
http://www.grameen-info.org/

The Microcredit Summit Campaign [pdf]
http://www.microcreditsummit.org/

Kiva.org: Loans that change lives
http://kiva.org/

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