What types of business model should we have in today’s society?
With multi-nationals getting bigger and bigger such that they have much power and influence over Governments with regards to employment and tax incentives, it is about time that we had another look at what models of business are best for everyone, not just the relative few millionaires. As with the concern about companies hiding their money in tax havens, not knowing who the beneficial owners are, and issues about ethics, sustainability, the environment and provenance, there needs to be a re-think of how we do business. Also, we need to get away from having one main employer in a town because if it closes it effects the whole community directly and indirectly.
Therefore, I believe, we should do a mixture of models which are both ‘local’ and ‘franchised’, through employee ownership, co-operatives and social enterprises, all coming together. Through changing to such models will help make sure that people feel part of the business, helping to make a real difference to society as well as seeing jobs becoming more interesting and satisfying, as well as better paid. Also, most of the ‘profits’ stay in the community as they are re-invested. It would be good also if a proportion of the income is used to help other similar organisations to get off the ground and for giving to suitable local, national and international charities that meet certain criteria.
Let us now have a look and the three models.
1 – Social Enterprises
‘A social enterprise is an organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being—this may include maximizing social impact alongside profits for external shareholders. Social enterprises can be structured as a for-profit or non-profit, and may take the form (depending in which country the entity exists and the legal forms available) of a co-operative, mutual organization, a disregarded entity, a social business, a benefit corporation, a community interest company, a company limited by guarantee or a charity organization. They can also take more conventional structures. What differentiates social enterprises from other organizations is that their social mission is as core to their success as any potential profit.’
- Continuous activity of the production and/or sale of goods and services (rather than predominantly advisory or grant-giving functions).
- A high level of autonomy: social enterprises are created voluntarily by groups of citizens and are managed by them, and not directly or indirectly by public authorities or private companies, even if they may benefit from grants and donations. Their members have the right to participate (‘voice’) and to leave the organisation (‘exit’).
- A significant economic risk: the financial viability of social enterprises depends on the efforts of their members, who have the responsibility of ensuring adequate financial resources, unlike most public institutions.
- Social enterprises’ activities require a minimum number of paid workers, although, like traditional non-profit organisations, social enterprises may combine financial and non-financial resources, voluntary and paid work.
- An explicit aim of community benefit: one of the principal aims of social enterprises is to serve the community or a specific group of people. To the same end, they also promote a sense of social responsibility at local level.
- Citizen initiative: social enterprises are the result of collective dynamics involving people belonging to a community or to a group that shares a certain need or aim. They must maintain this dimension in one form or another.
- Decision making not based on capital ownership: this generally means the principle of ‘one member, one vote’, or at least a voting power not based on capital shares. Although capital owners in social enterprises play an important role, decision-making rights are shared with other stakeholders.
- Participatory character, involving those affected by the activity: the users of social enterprises’ services are represented and participate in their structures. In many cases one of the objectives is to strengthen democracy at local level through economic activity.
- Limited distribution of profit: social enterprises include organisations that totally prohibit profit distribution as well as organisations such as co-operatives, which may distribute their profit only to a limited degree, thus avoiding profit maximising behaviour.
Ongoing research work characterises social enterprises as often having multiple objectives, multiple stakeholders and multiple sources of funding. However their objectives tend to fall into three categories:
- integration of disadvantaged people through work (work integration social enterprises or WISEs)
- provision of social, community and environmental services
- ethical trading such as fair trade ‘
‘Social franchising is the application of the principles of commercial franchising to promote social benefit rather than private profit.
In the first sense, it refers to a contractual relationship wherein an independent coordinating organization (usually a non-governmental organization, but occasionally a governmental body or private company) offers individual independent operators the ability to join into a franchise network for the provision of selected services over a specified area in accordance with an overall blueprint devised by the franchisor. Once joining the network, operators are given the right to employ previously tested incentives including: professional training, use of brands or brand advertisements, subsidized or proprietary supplies and equipment, support services, and access to professional advice. Members also gain beneficial spin-off effects such as increased consumer volume and improved reputation due to brand affiliation. Franchisees must adhere to a range of requirements including: providing socially beneficial services, meeting quality and pricing standards, undergoing mandatory education on provision of services, subjecting outlets to quality assurance mechanisms, reporting service and sales statistics, and occasionally, paying fixed or profit-share fees. Social franchises have been used for primary health services, pharmaceutical sales of essential drugs, HIV testing and counseling, and reproductive health services in the developing world.
A second application of social franchising is as a means of enabling social enterprises and the social economy to create more employment for disadvantaged people and achieve social aims. This is done principally by enabling joint working and knowledge sharing and transfer. The European Social Franchising Network has identified over 60 social franchises of this type in Europe, which employ over 13,000 people and more recently in 2012 The International Centre for Social Franchising identified 140. The largest of these is De Kringwinkel in Flanders employing 5,000 people. Others, like the Le Mat hotel and tourism social franchise or the School for Social Entrepreneurs operate in more than one country. Social franchising provides an opportunity to rapidly grow the sector to the benefit of disadvantaged people and society more generally.
The international Centre for Social Franchising (ICSF) was founded to help replicate proven social ventures to scale. They have a number of useful resources and have published papers such as Investing in Social Franchising which looks at the viability of investment into franchised social enterprise in the UK and Social Franchising: Innovation and the Power of Old Ideas which is a comparison between McDonald’s and the social franchise Foodbank.
2 – Co-operatives
A cooperative (also known as co-operative, co-op, or coop) is “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise“. Cooperatives may include:
- non-profit community organizations
- businesses owned and managed by the people who use their services (a consumer cooperative)
- organisations managed by the people who work there (worker cooperatives)
- organisations managed by the people to whom they provide accommodation (housing cooperatives)
- hybrids such as worker cooperatives that are also consumer cooperatives or credit unions
- multi-stakeholder cooperatives such as those that bring together civil society and local actors to deliver community needs
- second- and third-tier cooperatives whose members are other cooperatives
Research published by the Worldwatch Institute found that in 2012 approximately one billion people in 96 countries had become members of at least one cooperative. The turnover of the largest three hundred cooperatives in the world reached $2.2 trillion – which, if they were to be a country, it would make them the seventh largest.
One dictionary defines a cooperative as “a jointly owned enterprise engaging in the production or distribution of goods or the supplying of services, operated by its members for their mutual benefit, typically organized by consumers or farmers”.] Cooperative businesses are typically more economically resilient than many other forms of enterprise, with twice the number of co-operatives (80%) surviving their first five years compared with other business ownership models (41%). Cooperatives frequently have social goals which they aim to accomplish by investing a proportion of trading profits back into their communities. As an example of this, in 2013, retail co-operatives in the UK invested 6.9% of their pre-tax profits in the communities in which they trade as compared with 2.4% for other rival supermarkets.
The International Co-operative Alliance was the first international association formed (1895) by the cooperative movement.It includes the World Council of Credit Unions. A second organization formed later in Germany: the International Raiffeisen Union. In the United States, the National Cooperative Business Association (NCBA CLUSA; the abbreviation of the organization retains the initials of its former name, Cooperative League of the USA) serves as the sector‘s oldest national membership association. It is dedicated to ensuring that cooperative businesses have the same opportunities as other businesses operating in the country and that consumers have access to cooperatives in the marketplace. A U.S. National Cooperative Bank formed in the 1970s. By 2004 a new association focused on worker co-ops was founded, the United States Federation of Worker Cooperatives.
- Voluntary and open membership
- Democratic member control
- Economic participation by members
- Autonomy and independence
- Education, training and information
- Cooperation among cooperatives
- Concern for community
Co-operatives values, in the tradition of its founders, are based on “self-help, self-responsibility, democracy, equality, equity and solidarity.” Co-operative members believe in the ethical values of honesty, openness, social responsibility and caring for others.’
3 – Employee-owned businesses
‘Benefits for Business
The employee owned business sector in the UK is growing because co-owned companies tend to be more successful, competitive, profitable and sustainable.
Because they’re co-owners, staff in employee owned businesses tend to be more entrepreneurial and committed to the company and its success.
Because they have high employment standards, involve staff and give everyone a stake, employee owned businesses are better at recruiting and retaining talented, committed staff.
Because they’re run in an open way, employee owned businesses tend to have a strong commitment to corporate social responsibility and involvement with the communities they operate in.
Independent research suggests that a combination of shared ownership and employee participation delivers superior business performance.
Employee owned companies are more innovative because managers go out of their way to consult, share information about the company, and give staff responsibility.
Benefits for the Economy
Successive Governments have promoted employee ownership because they recognise its potential contribution to the economy. A range of factors combine to make employee owned businesses an asset to the UK economy:
Independent research suggests that a combination of shared ownership and employee participation delivers superior business performance.
The employee owned business sector adds to the diversity of Britain’s economy by offering a vibrant and different model for achieving business success.
Companies which are employee owned, or who have large and significant employee ownership stakes, now contribute £30 billion to GDP.
The sector is growing because employee ownership is proving to be a durable, successful business model that’s extremely well suited to the challenges of 21st century management.’
Types of employee-owned businesses
‘Employee Stock Ownership Plans (ESOPs)
The main vehicle for broad-based ownership in the U.S. is the employee stock ownership plan (ESOP). An ESOP is a type of retirement plan that invests primarily in company stock and holds its assets in a trust, in accounts earmarked for employees. Plan participants do not directly own the stock and are, for the most part, paid out after they leave the company. Most ESOPs are in privately held companies, not companies that trade on the stock markets.
Equity Compensation Plans
The other main category of employee ownership is equity compensation, which refers to a grant of stock or its equivalent from the employer. A stock option plan grants employees the right to buy company stock at a specified price during a specified period once the option has vested. An employee stock purchase plan (ESPP) is a little like a stock option plan. It gives employees the chance to buy stock, usually through payroll deductions, and most often at a discount. Restricted stock plans grant or sell employees stock that they can possess only once certain restrictions (such as vesting) are met. A company may also offer an unrestricted direct grant of shares.
Creating an Ownership Culture
Companies that adopt employee ownership plans do not have to treat employees any differently than before, but it will be to their advantage if they do. Many employee ownership companies have found, and research confirms, that a more participative approach to management makes for a workplace that is not only more pleasant but also more productive; see our article Employee Ownership and Corporate Performance.’
It would be great if all businesses were to become small and local with employees, locals, and customers all having a say in the way a company is operated. That way, there would be an increase in accountability, hardly any corruption, ethics and sustainability would be central, and the impact on the environment vastly reduced.
This form of business (incorporating all three of the models above) could be used in all forms of enterprises including ownership of land and property.
For this to happen, would require a huge change in our culture, but I believe it is achievable if councils and governments got together with those that already involved in the three models to formulate a plan which would include funding and legislation to make sure standards are met. I am sure it would also help those disadvantaged and possibly reduce the poverty that exists here and overseas.
Is there anyone out there who is willing to be a ‘champion’ for this to take place? It will involve taking on multi-nationals and many other business owners, as well as engaging thousands of individuals who hopefully will believe in such a campaign.