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FORDHAM UNIVERSITY SCHOOLS OF BUSINESS
Shareholder Value, Shared Value, or Social Value Creation – The Troubles of Managing for More than One Bottom Line Michael Pirson
Working Paper
2010-012 Copyright © 2010 by Michael Pirson Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.
Electronic copy available at: http://ssrn.com/abstract=1636661
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Shareholder value, shared value, or social value creation- the troubles of managing for
more than one bottom line
Introduction
The financial crisis of 2007/08 has caused many to question the basic premises of the current
business system. The productive sectors of the world‟s largest and most developed economies are
subject to the whim of financial market interests, leading us from boom to bust in seemingly ever
faster cycles with ever greater volatility. We witness constantly increasing inequalities between and
within countries. While hunger, poverty, and armed conflict often ravage two-thirds of the world‟s
population, the other third struggles with obesity, depression, and the spiritual emptiness that stems
from a culture of consumerism. We are also all acutely aware of the environmental degradation that
we cause and which will prohibit future generations from enjoying the comforts of our life style
(Pirson, Kimakowitz, Spitzeck, & Dierksmeier, 2010). „Business as usual‟ has come under heavy
scrutiny. Achieving environmental and social sustainability stand out as some of the major
challenges that current business leaders have to deal with (Jackson & Nelson, 2004). Social
Entrepreneurs who address social or environmental problems in innovative ways could thus serve as
role models to 21st century leaders. In a manner unsettling to traditional management styles, social
entrepreneurs try most often to create shared value and pursue dual objectives (Alter, 2006; Pirson,
2008a; Rangan, Quelch, Herrero, & Barton, 2007). Achieving positive social and environmental
impact is considered key to the motivation (Yunus, 2008). Traditionally, economic impact was
deemed the engine for innovation and hence scholars question, whether there are entirely new rules
and new strategies that lead to the success of a social enterprise. In this paper, I wish to focus
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specifically on the notion of a dual purpose or shared value creation that many social enterprises
pursue (Alter, 2006; Drayton, 2006). It is assumed that social entrepreneurs are able to create shared
value in the sense that they create social and environmental impact while earning income and be
financially sustainable (Elkington & Hartigan, 2008). This seemingly simple assumption questions
longstanding economic research, and questions some of the basic foundations of organizational
research. Scholars in economics and management have long made the case that general welfare is
increased most by organizations that maximize a single objective function. Jensen (2002) even
opined that without a single objective function, no firm could be managed meaningfully.
Accordingly, if organizations were now to focus on a balance of different goals, they would
necessarily undermine their impact and not maximize their potential. This tension between the
practice of social entrepreneurship and the theoretical insights merit further study, since all too easily
proponents of either side end up making arguments based more on ideology and wishful thinking
rather than facts. Hence in the below paper, I will examine the question whether social enterprises
can indeed create shared value and if so, under what circumstances. After a short introduction to the
concept of social entrepreneurship, I will then present three cases of rather prominent social
enterprises and analyze their evolution. I will conclude by presenting the conditions in which shared
value creation can be managed, and in which circumstances maximization strategies prove superior.
The concept of Social Entrepreneurship
Anticipating the crises of the private and public sectors, Etzioni (1973) suggested that a new form of
organizations would be needed to provide necessary innovations. That third alternative would
combine the efficiency of the market and the welfare orientation of the state. Since the 1980s the so-
called third sector grew faster than any other sector now providing up to 10 % of employment in the
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United States alone. Many scholars credit a new breed of entrepreneurs, the social entrepreneurs with
the fast growth of that sector.
Social entrepreneurs are similar to business entrepreneurs in the methods they use, but different as
they are motivated by social goals rather than material profits. As Leadbeater (1997) observes:
“(T)heir great skill is that they often make something from nothing, creating innovative forms of
active welfare, health care, and housing which are both cheaper and more effective than the
traditional services provided by the government.” Social entrepreneurship has many facets and
represents an umbrella term for a considerable range of innovative, dynamic, social value creating
ventures. Social Enterprises usually borrow and mix approaches from business, charity, and social
movements, and represent a new force in the social and environmental sectors. Nicholls and Cho
(2006) argue that social entrepreneurship comprises three main elements: Market orientation,
innovation and sociality.
Market orientation is a key feature that differentiates social entrepreneurship ventures from other
social organizations such as not for profit social service delivery or advocacy. Even though many
social purpose organizations are located in dysfunctional or non-existent markets, social
entrepreneurs nevertheless give primacy to the most effective deployment of resources towards
achieving a social goal (cf. Nicholls & Cho, 2006).
Innovation is another major distinguishing feature of social entrepreneurship. It is the pattern-
breaking change, the disruptive creation of new models and techniques, that differentiates the social
entrepreneur from other social actors (Nicholls & Cho, 2006).
The real difference between social entrepreneurs and classic business entrepreneurs is the domain in
which they operate. Both employ market orientation and innovation, but social entrepreneurs apply
them in the areas traditionally considered to be public goods. The qualification of entrepreneurship
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as „social‟ raises two issues (Nicholls & Cho, 2006). The first is conceptual and deals with the „what
kind of objectives‟ can legitimately be called social. Social objectives are not necessarily
homogenous, and can be deeply contested (see the pro-life/ pro-choice struggle with regard to
abortion). The heterogeneity of social interests depends on societal values, culture, religion and
ideology. The question of what is social is as difficult to determine as what is good. It can never be
conclusively answered and has to be continuously negotiated. The more a goal is universally
applicable the more support it is likely to garner. That support, however, can only be gauged through
an appreciative and discursive process, which includes all stakeholders, and thus securing the
legitimacy of the endeavor.
The second issue is operational and deals with the measurement of success. In order to determine
how much an innovative, market oriented solution is actually advancing a social objective
sophisticated measurements are necessary. Many researchers are currently struggling to conceive
useful social impact metrics. These metrics will have to enable everyone interested to better evaluate
whether a social entrepreneurial venture makes society indeed better off. Financial metrics alone
have proven to be inadequate (see also Diener & Seligman, 2004).
Models of Social Entrepreneurship
According to Alter (2006) the hallmark of social entrepreneurship lies in its ability to combine social
interests with business practices to effect social change. The crux of the individual social enterprise
lies in the specifics of its dual objectives – the depth and breadth of social impact to be realized, and
the amount of money to be earned. In the social enterprise, money and mission are intertwined like
DNA. Even though a wide range of social enterprises has emerged, Alter (2006) suggests there are
three main categories defined by the emphasis and priority given to its financial and social
objectives: external, integrated, and embedded social enterprises (cf. Alter, 2006).
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External Social Enterprise. In external social enterprises social value creating programs are
distinct from profit-oriented business activities. The business enterprise activities are „external‟
from the organization‟s social operations and programs. Businesses can partner with Not-for-
profit organizations to create external enterprises that fund respective social programs and/or
operating costs. This stage represents an incremental adoption of social value creation objectives.
Examples for external social enterprises are partnership programs such as Product Red or
licensing partnerships with the WWF. The relationship between the business activities and social
programs is supportive, oftentimes providing financial and non financial resources to the external
program. In such cases, for-profits maximizing a single objective function support non-profits
maximizing a single objective function (mission related).
Integrated Social Enterprises. In integrated social enterprises, social programs overlap with
business activities, but are not synonymous. Social and financial programs often share costs,
assets, and program attributes. The social enterprise activities are thus „integrated‟ even as they
are separate from the organization‟s profit oriented operations. This type of social enterprise
often leverages organizational assets such as expertise, content, relationships, brand, or
infrastructure as the foundation for its business (Alter, 2006). The Aravind Eye Hospital in
Madurai, India is an example of an integrated social enterprise. It serves cataract patients in a
main hospital, where wealthy patients pay a market fee for their surgery. The profit surplus
created by these fees is then used to pay for the surgery of poor patients in the free hospital
(Rangan, 1993). The relationship between the business activities and the social programs is hence
synergistic, adding financial and social value to one another. In the integrated approach there are
still two separate arms of a venture that pursue different objectives which are mutually
supportive, however.
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Embedded Social Enterprise. In the embedded social enterprise, business activities and social
programs are synonymous. Social programs are self-financed through enterprise revenues and
thus, the embedded social enterprise can also be a stand-alone sustainable program. The
relationship between business activities and social programs is comprehensive, financial and
social benefits are achieved simultaneously. Businesses that serve the base of the pyramid (see
Prahalad, 2005) could be regarded as such embedded social enterprises, and the group of
enterprises structured by the Grameen and BRAC groups present other approaches. The Grameen
Bank model of micro loans for example is based on the disbursement of model micro-loans to
the poorest of the poor without collateral. Since these loans are often the only chance for this
clientele, the pay back rate (incl. interest rate) is beyond any traditional rates (>90 percent), and
profit can be earned. As such profitability can serve a social goal of eliminating poverty. In
recent years, however, the microfinance models have been adopted by more traditional players
(incl. Citibank and most famously Banco Compartamos in Mexico), which are criticized for their
profit maximization strategies (Rennison, 2008). This discussion highlights the tension a shared-
value creation approach can entail. I will discuss these issues in more detail based on three
further examples of embedded social enterprises below, GrameenPhone, bracNet, and Grameen
Danone.
Shared Value creation in Embedded Social Enterprises
Below I will explore three embedded social enterprises that aim to create shared value,
GrameenPhone, bracNet, and Grameen Danone in more detail. I will outline the respective
background of the social enterprise and identify the issues related to managing shared value
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creation.
1) GrameenPhone
a. Founding story
In 1993, Iqbal Quadir identified an opportunity to help cover his native Bangladesh with
telecommunication services that it was sorely lacking, using the recent mobile telephony
technologies (Isenberg, Knoop, & Lane, 2007). He was able to enlist Grameen Bank‟s founder
Muhamad Yunus to support the idea, because a main goal of the project was to cover rural areas of
Bangladesh with access to mobile telephones (Malaviya, Singhal, Srivastava, & Svenkerud, 2004).
This access was deemed a crucial stepping stone to reduce poverty by allowing people, especially
farmers, to access information much more quickly than they had ever before. A significant social
benefit would also be derived as many of the separated families (migrant workers) would be able to
stay in touch with much missed family abroad or at home (Bhatnagar & Dewan, 2003). In November,
1996, GrameenPhone was offered a cellular license in Bangladesh by the Ministry of Posts and
Telecommunications, and in March, 1997, GrameenPhone was officially launched. The subscriber
base rose quickly, and new services helped to popularize the company. In 2005, Grameenphone had
reached 3 million subscribers, and in 2010 it claimed to serve more than 25 million subscribers,
making it the largest mobile service provider in Bangladesh (Isenberg et al., 2007; GrameenPhone
Website).
b. Relevant actors and their reason for joining the initiative
To finance such an endeavor, a separate venture called Gonophone was founded with the support of
private equity supporters, Iqbal Quadir and members of his family (Isenberg et al., 2007). For the
venture to work two organizations seemed crucial, a partner with the requisite technical and
operational knowledge and a local partner of size and credibility to support the implementation.
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While many telecom companies had signaled initial interest, only Telenor, the state-owned
Norwegian telecommunication provider stepped up. In addition, Grameen Bank founder Muhammad
Yunus created a separate non-profit entity called Grameen Telecom, which was to build a social
counterweight to the for –profit oriented Telenor (Isenberg et al., 2007). In the beginning, Grameen
wished to have other partners included to buffer against the potential imbalance of power. Marubeni,
a Japanese industrial conglomerate, joined the consortium following the pressure of Grameen to
offset Telenor‟s influence. Gonofone, the initiator‟s venture also joined (Isenberg et al., 2007;
Malaviya et al., 2004).
In the initial deal, Telenor was given 51 percent of the shares, and Telenor expressed the intention to
reduce its ownership to 35% over the coming 6 years. Grameen Telecom was given 35% of the
shares, Marubeni, 9.5%, and Gonophone only 4.5% of the shares. Over time Marubeni reduced its
engagement and in 2007 Telenor and Grameen Telecom are the joined owners of Grameenphone,
Telenor holding more than 62 percent of the shares (Malaviya et al., 2004; Telenor, 2008).
c) Purpose and objective function
Grameenphone declares as its vision: “To be leading provider of telecommunication services all over
Bangladesh with satisfied customers and shareholders, and enthusiastic employees (Zerogravity &
Shahed, 2009, p. 8).” Its mission statement clarifies that GrameenPhone Ltd. aims at providing
reliable, widespread, convenient mobile and cost effective telephone services to the people in
Bangladesh irrespective of where they live. Such services will also help Bangladesh keep pace with
other countries including those in Southern Africa and reduce the existing disparity in telecom
services between urban and rural areas (Zerogravity & Shahed, 2009, p. 8). Grameenphone is very
clear about the dual purpose in that it states that: GrameenPhone has a dual purpose: 1) To receive an
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economic return on its investments, and 2) to contribute to the economic development of Bangladesh
where telecommunications can play a critical role (Zerogravity & Shahed, 2009, p. 8).
d) Issues and problems with shared value creation strategy
With increasing success, it became clear that despite or because of the dual mission, financial returns
could be quite lucrative (Malaviya et al., 2004). Also, more financial support seemed needed to fund
the necessary growth of the resource intensive venture. With Telenor financing most of the growth
funds, ownership structures shifted towards the for-profit partner. An issue that caused considerable
concern for the partner mainly interested in the social mission of the venture, Grameen. Muhammad
Yunus, before accepting the Peace Nobel Prize, made the conflict public and asked the people of
Norway to put pressure on Telenor (54 percent state owned) and ask them to honor the initial
agreement to reduce its stake to 36 percent after six years (Berglund, 2006). Yunus, especially
complained about the new leadership at Telenor, which seemed to take the venture in a more
traditional direction (Berglund, 2006). One, in which shareholder value creation dominated the
business strategy and in which social value creation came second. Ethical behavior also seemed to
come second to shrewd business behavior (Rahman, 2008). During the partnership several conflicts
had increased the tension among the partners. In 2008, Grameenphone was found to use
unacceptable working conditions, including incidents of child labor (Telenor, 2008). Similarly,
Grameenphone has been found guilty of violating state law with regard to the usage of VOIP (Voice
over Internet Protocol) and was fined USD 55 million (Rahman, 2008; Telenor, 2008).
Analysis
As such it can be seen that a dual mission organization strongly depends on the partner‟s respective
mission. A partnership of a for-profit and a non-profit organization seems laudable in the eyes of
10
many, but given the power structure, the risk is high that the for-profit partner will become dominant.
Despite the initial collaborative spirit, the approach to the venture seemed to change over time.
Especially with new people entering the business leadership at Telenor, Grameen Telecom felt that
old agreements were not honored and a shareholder maximization approach took hold. Shared value
could still be created, but it could be argued that at this point of the venture the social value creation
has taken a back seat to the financial value creation. As Telenor states itself, it is time that the
shareholders see some return on their investment (Malaviya et al., 2004). In addition, competitors
with a traditional shareholder value maximization focus now viewed Bangladesh as a business
opportunity and stepped into the fray. For GrameenPhone to be successful it needed to deal with
these competitive threats.
2) BracNet
a. Background
Similar to Grameenphone, bracNet was started as a venture to reduce the digital divide by
bringing wireless broadband internet to all of Bangladesh, including all rural regions. Khalid
Quadir , Iqbal‟s brother, founded the venture as a for-profit business venture that aims to create
shared value by providing equitable access to information (Ebrahim, Pirson, & Mangas, 2009).
He felt doing business profitably was in itself an act of empowerment, and when business
approaches could be used to promote general well-being it should be done. Khalid had learned
some of the lessons at GrameenPhone and wanted to replicate what was done right. Building an
organization with a dual mission seemed crucial and using wireless technology (WiMAX) to
spread the internet seemed to him a natural fit for Bangladesh. Quadir saw his task as economic
and social development work, but he wanted to demonstrate a new model for development, one
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that was marked by cross-sector collaborations and for-profit opportunities. If bracNet was only
about building communications infrastructure, he argued that government should be in charge.
On the other hand, if his only target had been the rural population, perhaps bracNet should have
been a nonprofit organization. He explained:
bracNet has a social component which is a plus, but it is a clear for-profit venture.
The idea is to have a viable project for development which is not based on charity or
begging, where people from Bangladesh and others meet eye-to-eye not as dependent
receivers . . .(Pirson, 2008b)
The decision to be for-profit was also driven by concerns of financial sustainability. Quadir knew
that he wanted to bring the most advanced technology to some of the most impoverished areas of
the world in a way that would be financially sustainable. By September 2005 Khalid was able to
close the first round of financing and bracNet began its communication operations in November
2005 in Dhaka and Chittagong with services to corporate clients and home users. Rural services
(e-huts) were launched in April 2006. By December 2007 its operations covered the three main
cities of Bangladesh (Dhaka, Chittagong and Shylet), where it also serviced part of BRAC‟s
infrastructure of 10 libraries and 20 offices, and established 35 e-huts in Dhaka, Norshingdi,
Gazipur, Comilla, Munshigonj and some other districts. By May 2008, 50 e-huts had been
established and a total of 200 were to be setup by the end of 2008.
b. Relevant actors and their reason for joining the initiative
Quadir was looking at BRAC, another large NGO in Bangladesh, as a potential partner that could
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support his endeavor. BRAC‟s executive director Abdul-Muyeed Chowdhury, had a grasp of
technology and immediately understood the vision behind the project. He championed a
collaboration and convinced BRAC‟s management to engage with Quadir. When reflecting on
the importance of being connected to BRAC Quadir mused:
Having BRAC as a partner is extremely important. First for business reason[s], it is
a very well regarded brand name in the country. It has a reach almost all over
Bangladesh. All together it has 2,500 local offices which would help the new venture
to deploy its network. It is a clean organization with institutional integrity and
transparency. Lastly and most importantly, the vision and mission of gNet partners
matched with BRAC. We both wanted to build a financially sustainable and viable
enterprise with a social development objective (Ebrahim et al., 2009).
BRAC joined the venture mostly to support its social mission: to connect the rural population.
With the local partnership secured, Quadir focused on getting financial partners on board.
DEFTA partners, an international Venture Capital firm decided to sign up as lead investor in
early 2005. Marubeni Corporation, the Japanese trading conglomerate, which had already
invested in Grameen Phone followed. Calvert, a socially responsible mutual fund based in the
US, as well as Brummer & Partners, a Scandinavian hedge-fund, signed on later. Thirty percent
of the shares were bought by a range of private Japanese and American investors, and BRAC
itself bought 40% of the shares, which made it the majority shareholder (Ebrahim et al., 2009).
c. Purpose/objective function
All partners initially seemed to agree that a social mission can lead to financial value creation.
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Many of the existing partners were intrigued by GrameenPhone‟s success and trusted Quadir to
show a similar success story. Again, a shared value strategy was developed, but the venture was
declared a for-profit venture. If bracNet was only about building communications infrastructure,
Quadir argued that government should be in charge. On the other hand, if the only target had
been the rural population, perhaps bracNet should have been a nonprofit organization. He
explained:
bracNet has a social component which is a plus, but it is a clear for-profit venture.
The idea is to have a viable project for development which is not based on charity or
begging, where people from Bangladesh and others meet eye-to-eye not as dependent
receivers . . . (Pirson, 2008b)
The other partners of bracNet signed up based on this conception (Ebrahim et al., 2009).
d) Supporting infrastructure/ governance structure
In bracNet, the ownership was rather dispersed and the majority owner was BRAC itself, the
non-profit organization. This way the social goal of bridging the digital divide was structurally
supported by the governance and ownership structure. In addition, several other investors owned
smaller shares, which would possibly make it more difficult for the for-profit partners to collude
and pursue interest other than stated (Ebrahim et al., 2009).
e) Issues, problems, shared value creation?
Despite some early successes the roll out was moving far more slowly than expected mainly
because of the government collapse. In January 2007 an army backed care taker government took
over after riots erupted that contested the election results. Prior contracts were therefore up for
14
renegotiation. As of August 2007 the government effectively halted the addition of wireless
communication towers, because it planned a revision of the wireless broadband infrastructure
code. bracNet‟s leadership and its investors had to drastically reconsider their business plan and
focus on growing in the existing urban areas (Ebrahim et al., 2009).
While operational profitability had been achieved, overall break even was not yet reached. One
of the questions was if and how bracNet could influence any of the governmental decisions yet to
be made. Especially with regard to the corrupt environment, this seemed a tricky issue. Much of
bracNet‟s success depended on the credibility and trustworthiness of the brand. The reputation of
integrity is crucial, and could hurt bracNet in the short-term, as other competitors could benefit
from bribery. Since BRAC owns 40% of bracNet and their name is a visible part of the venture,
any kind of unethical behavior could hurt all of BRAC (Ebrahim et al., 2009).
In addition, even though the first round investors had already multiplied their investment on
paper (the initial investment was US$6 million), more funds were needed to secure the rural roll
out (Ebrahim et al., 2009). To push the rural expansion, new funders were needed. Strategic
partners, such as telecom companies, were also required to push the operational rollout. Bringing
on new powerful partners could change the existing balance of power. However, any new partner
needed to be in line with the dual value creation strategy, otherwise BRAC could opt out. In
2009, the Japanese telecommunication giant KDDI became a partner and co-owner of bracNet
(Quadir, 2009). It remains to be seen what consequences this will have for the original shared
value creation strategy.
Analysis
In many ways the story of bracNet is a sequel of GrameenPhone. One important difference seems
15
that the ownership structure was such that there were several partners with different motives and
that BRAC, the NGO concerned with the social mission, was the majority owner. Despite the
dual mission, it seems clear from the onset that the for-profit venture should please the investors
and an initial public offering at the Dhaka Stock Exchange was part of the strategy (Quadir,
2009). The recent difficulties with the rural roll out, the need for further technical expertise and
financial capital could have similar consequences to those at GrameenPhone. In addition, the
original founders of the deal have largely handed off the operations to a next generation of
managers, who might not share the same perspective. Having KDDI join the fray might tip the
balance that carefully gave the guardians of the social mission power to intervene when the
shared value creation strategy was in danger.
3) Grameen Danone
a. Founding story
Inspired by the success of Grameen, Franck Riboud the Chairman and CEO of Groupe Danone
offered to collaborate with Muhammad Yunus to „to do something good‟ (John, 2010). During
their initial meeting in October 2005, Riboud told Yunus that Danone had major activities in the
developing markets and wished to orient its business even more to serving the very poor. Yunus
recalls making an impulsive offer to Riboud (Yunus, 2006). „Your company is a leading producer
of nutritious foods. What would you think about creating a joint venture to bring some of your
products to the villages of Bangladesh? We could create a company that we own together and
call it Grameen Danone. It could manufacture healthful foods that will improve the diet of rural
Bangladeshis- especially the children. If the products were sold at a low price, we could make a
real difference in the lives of millions of people,‟ Yunus said (Yunus, 2006). Riboud agreed to
16
the offer and responded spontaneously saying, „Let's do it.‟ A hand shake followed and the deal
was sealed. Riboud also agreed to operate the project as a Social Business Enterprise (SBE). „It's
a business designed to meet a social goal. In this case, the goal is to improve the nutrition of poor
families in the villages of Bangladesh (Schneider, 2008).
b. Relevant actors and their reason for joining the initiative
Grameen Danone is a venture owned 50% by Grameen and 50% by Danone. For Grameen the
goal was to eradicate malnutrition in Bangladesh. For Danone this objective seemed attractive,
but the idea was completely novel. According to Schneider (2008), Danone management had to
completely change its approach to doing business the Grameen way. “So far, our sole objective
and mission was to maximize shareholder value. Now, we completely had to change perspective.
Profit was now a condition, a means – it was no more the end, no more the goal. This changed
the entire approach,‟ Emmanuel Faber, the chief of Danone's operation in Asia, who had been
assigned to oversee operations of Grameen Danone, said (John, 2010; Schneider, 2008). The
50:50 joint venture was established with an authorized capital of USD 3.67 million and a paid-up
capital of USD 1.103 million, and registered under the Companies (Bangladesh) Act (John,
2010). Being conceived as a social business, Grameen Danone was free from shareholder
pressure demanding quick returns. The project however had to be self supporting to generate
funds for its operations. At the same time, maximization of social goals had to be achieved.
c. Purpose/objective function
The mission of Grameen Danone is to reduce poverty “ by a unique proximity business model
that will provide daily healthy nutrition to the poor.” The specific objectives are stated as:
17
developing a product that has high nutritional value and is affordable for the poorest
individuals,
to improve the living conditions of the population : jobs, income level, enhancement of
the social fabric , and
to protect the environment and conserve resources, as well as
to ensure a sustainable economic activity (Danone, 2008; John, 2010).
d. Supporting infrastructure/ governance structure
Mohammad Yunus structured the organization of Grameen Danone around his idea of a social
business. Social Businesses were different from traditional businesses in that they maximize
social benefit and not financial value creation. According to Yunus a social business is a business
that pays no dividends. It sells products at prices that make it self-sustaining. The owners of the
company can get back the amount they've invested in the company over a period of time, but no
profit is paid to investors in the form of dividends. Instead, any profit made stays in the business
– to finance expansion, to create new products or services, and to do more good for the world
(Yunus, 2008). As he states, the bottom line for the Grameen Danone will be to operate without
incurring losses while serving the people, particularly disadvantaged people, in the best possible
manner. Grameen Danone will generate enough surpluses to pay back the invested capital to the
parties as early as possible. It is up to the parties to decide how quickly they want their money
back. Parties may decide to reinvest the surplus in the company for expansion, improvement of
quality, increasing efficiency, introducing new technology, innovative marketing to reach the
deeper layers of low-income people, particularly women, children, and disadvantaged
communities, undertake research and experimentation, to improve and diversify products and
18
services. Grameen Danone will try to pay back the Parties‟ capital out of the profit within a time
period agreed upon. Even after the capital amount is paid back, Grameen Danone will pay a 1
percent dividend annually to the shareholders (John, 2010; Yunus, 2008).
If an investor wants to withdraw his investment from an SBE at any point of time, he may do so,
provided he sells his shares to the existing shareholders, or to a new shareholder who accepts the
philosophy, practice and conventions of an SBE.
e.) Issues, problems, shared value creation?
Danone expressed high levels of satisfaction with the project, despite its unconventional
approach. However, it admitted that several challenges remained, before growth of the model
could be pursued. The level of professionalism was considered low, especially in the sales force.
Also, due to the perishable nature of the product, distribution and marketing were a major issue
(Black, 2009). Among other things, rising costs for basic agricultural goods were forcing Danone
to raise prices on Shoktidoi by about one-third. The profit margin was only Tk0.5/cup, and
according to Danone the operation did not yield profit as yet. „We're still in the pilot phase,‟
Emmanuel Marchant, managing director of Danone Communities said (John, 2010). Apart from
operational challenges, the project faced culture incompatibility between the highly educated and
experienced Danone professionals and the more laid-back and less skilled Bangladeshis of
Grameen. However, it seemed that at this point the partnership was growing stronger and both
partners kept innovating the business model and implementing changes to counter these
challenges.
Analysis
19
It seems likely that the experience with Telenor and the power struggle at GrameenPhone lead Yunus
to conceive of an alternative organizational form that would allow social value maximization. The
no- loss, no-dividend model considers concerns for shareholders but only to the extent that they
receive their investment back (possibly with a small interest payment). Within this model there is a
clear primacy for social value creation and no explicit assumption of shared value creation. To buffer
against the risks of financial primacy all shareholder asset transfers have to occur within the existing
Social Business approach. In that way the DNA of the organization, including the social value
maximization focus is protected. While the founders of Grameen Danone seemed to see eye-to eye
on the partnership a potential problem could occur with the second generation of leaders that need to
manage the partnership. Again, learning from the shared value ambitions at GrameenPhone, Yunus
made sure that the organizational integrity will be preserved regardless of leadership personnel, when
making sure that financial goals are secondary to social goals. It is conceivable that an organization
such as Danone will have to opt out of the SB approach and structure its endeavors more akin to the
dominant logic in its institutional structure. As such it is possible and likely that many of the
learnings generated in Bangladesh will be applied in different forms in other places, and in ways that
allow for financial value generation to become more prominent.
Shared value creation- a real possibility?
Depending on the notion of what shared value creation is, it seems that some of the cutting edge
experiments have experienced many problems to just do that. In all three cases one objective - the
financial or the social - had to take priority. At GrameenPhone the need for rapid growth required
access to larger sums of capital, which came with higher demands for return on investment. At the
same time the social value creation aspects took a back seat, and in many observers‟ perspective the
20
ethical blunders committed with regard to VOIP and child labor were attributable to an overly strong
focus on shareholder value creation. The structural imbalance of a for-profit dominating a non-profit
partner will eventually lead to decision making bias towards for-profit goals. While in the case of
GrameenPhone the social value creation aspect was crucial in getting the venture off the ground its
transformation towards a very traditional business that produces social value as a mere externality,
but not as an intentional goal, seems very possible. As such, a real shared-value creation strategy
seems unrealistic, and given the ongoing feud between the partners, impractical as well.
At bracNet the balance between social value and financial value creation strategies was struck by
allowing the NGO to own a majority of the shares. However, in growth phases the same pressure
became evident in that major partners needed to step up funding. As a consequence the ownership
structure was constantly changing, and with the entry of KDDI tilted towards the for-profit oriented
businesses. Only time will tell how that experiment will work; it is not unlikely that given the
institutional pressures, bracNet will also orient itself predominantly towards a financial value
creation model. In fact, it has already been conceived in that way; the planning for an initial public
offering demonstrate that. It seems that through the culture, the partnership with BRAC, and the
founding story, social value creation will always play a role, however, the social value creation
aspect could easily take a back seat ( e.g. the delayed rural roll out at this point) to establishing
competitive products to deal with the new entrants in the market.
The case of Grameen Danone highlights the many problems that shared value creation oriented
strategies induce. Having learnt some lessons from the GrameenPhone case, Yunus did not believe in
the possibility of shared value creation in which financial and social value creation go hand in hand.
He felt a clear need for a structure that supported social value creation above financial value creation.
The conception of Social Business allowed him to ensure that the vision of the organization will
21
outlast its founders, and that the institution as such will serve primarily a social cause, and not a
financial cause. However, it is also clear that the financial value creation plays an important role -
that of the enabler - which clearly distinguishes a Social Business from a traditional NGO.
The case of Grameen Danone and its historical context can be viewed as a testimony to Michael
Jensen‟s admonition that only one goal can be meaningfully managed. While at GrameenPhone the
financial goal seemed to supersede the social goals, a similar focus was evident at bracNet. As a
consequence, Grameen Danone took the opposite route and established a novel form of business in
which the social goals would be maximized rather than the financial goals.
While the intentions seem good when attempting to create shared value the old institutional logics
weigh heavily. Structural path dependencies seem to force any organization that intends to combine
social and financial value creation into the traditional structure of a either a) a for-profit, shareholder
value maximizing business, or b) a non-profit, social value creation oriented organization. Blending
these organizational types requires overcoming many structural obstacles, one of the main obstacles
being access to capital. Since many social problems are vast in nature, growth opportunities loom
large and growth becomes almost a moral imperative. As a consequence, more financial capital is
needed to support the social value creation strategy and most often the potential investors have to
play by the rules of the capital markets. As Yunus argues, there is a strong need for an alternative
capital market, one that values social value creation. There are several attempts to create such
alternative markets in Latin America and Asia as well, and these institutions might support
organizations that wish to create shared value better. At this point, social enterprises which intend to
manage several bottom lines need to be clearly aware that financial value creation, despite best
22
intentions, can easily become the overpowering logic. This result challenges the social enterprise
community, but also sheds light onto the need for a focused development of new organizational types
and different institutional support structures that allow for social value and financial value to be
created.
23
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