Marks & Spencer

The case of Marks & Spencer illustrates how a company has used a sustainability scorecard that awards provisional, bronze, silver, and gold ratings to participating suppliers to promote its sustainability programme. The scores are based on environment, human resources and ethical trade, and lean manufacturing. Suppliers undertake self-assessments of the scorecard at least once a year, which are subject to audit and assurance. The programme has delivered substantial savings through waste reduction and environmental efficiency amounting to over £600 million since 2007.

Timberland and the Smallholder Farmers Alliance

Timberland designs, manufactures and sells footwear, clothes, and accessories for the outdoor. It is a good example of a business–nonprofit partnership. It has partnered with a Haitian non-profit organization, the Smallholder Farmers Alliance, with a view to creating a new supply chain to reintroduce organic Haitian-grown cotton and incentivize farmers to plant trees. From the start of the programme in 2010 it has grown to more than six thousand members in three thousand farms. It is an illustration of the results that can be achieved on the back of a strong understanding of the specific needs of farmers in a particular locality.

Mondragon

Mondragon is a federation of industrial cooperative associations with over 260 companies subsidiaries in thirty-five countries, founded in 1959 in Spain’s Basque Region. Today it employs seventy-five thousand workers producing revenues of approximately $14 billion. Membership of the cooperative gives employees equal rights to vote and ownership; management boards consist of employees from all levels of the organization; the highest managers earn no more than six times the salary of the lowest paid workers; no more than 20 per cent of workers can be temporary contractors; and the general assembly of worker-owners decides how to distribute 70 per cent of profits after tax. An illustration of the effect of the structure came with the collapse of the white-goods manufacturer and one of Mondragon’s largest cooperatives, Fagor. With 1,800 jobs at risk, Mondragon invested in cross-training employees to take on different roles at other cooperatives, transferred capital from stable to vulnerable cooperatives and placed 1,500 people in other cooperatives in the group.

Mahindra First Choice

Mahindra Firstchoice illustrates the process of ecosystem orchestration in the context of the second-hand car market in India. It describes how Mahindra Firstchoice mapped the ecosystem in relation to six key parties—consumers who were buyers, consumers who were sellers, car manufacturers, independent used-car dealers, independent car service workshops, and banks. It then identified the bottlenecks and ‘pain points’ that afflicted the six parties. The used-car market did not function properly because of lack of trust, information, and transparency and Mahindra Firstchoice worked with the parties to identify solutions to the market failures. These involved, amongst other things, the creation of third-party car inspection services, the establishment of a multi-brand car-dealer franchise, a warranty system, a bluebook of second-hand prices and transactions, and a car diagnosis and repair system.

JD.com

JD.com is one of China’s largest e-commerce companies, capturing more than a quarter of the country’s $600 billion B2C market in 2017. It is seeking to become one of the world’s most trusted companies and is working with local farmers’ cooperatives, the Chinese, and a local internet business owner to create a programme called Running Chicken to source free-range chickens at scale from low-income farmers in Wuyi County in northern Hebei Province. JD buys chickens at three times the average market price provided that strict standards are adhered to and monitored. The result has been increased farmer incomes that have raised hundreds of families out of poverty and removed Wuyi County from the national poverty list. Pilots are underway to replicate the programme in other poverty-stricken counties of China.

The Influence of Large Investment Funds

The adoption of the Economics of Mutuality will depend on institutional investors promoting it through active engaged investing. Chapter 18 describes how some investment funds are taking an active role in managing the companies in which they are invested. It involves them acquiring significant blocks of shares that are held for extended periods of time and managed directly by asset owners themselves instead of by intermediary asset managers. Critical to this is the way in which the performance of their investments is monitored and measured. Alongside measuring financial performance over longer periods of time than is conventionally the case, performance needs to be assessed in relation to other indicators of performance related to human, social, and natural capital.

Mutuality and the Potential of Microequity

Chapter 16 describes an experiment that is in progress in Kenya to encourage entrepreneurial activity through financing investment by micro-equity rather than micro-debt. The experiment involves individuals distributing Wrigley chewing gum products alongside other goods in Kenya, in particular in areas of the country which were previously impenetrable by existing distribution mechanisms. To assist with their activities, funding arrangements were put in place to allow the distributors to purchase bicycles. The study investigates what happens when the distributors were offered alternative forms of finance ranging from traditional debt instruments to more equity forms of risk (revenue) sharing.

Mutuality and Concepts of Responsible Business

Chapter 6 places Economics of Mutuality in the context of a wider set of responsible business concepts, such as stakeholder theory. It considers whether these ideas represent fundamental ‘paradigm’ shifts in business or whether they are essentially modifications of existing theories It concludes that stakeholder theory was a significant shift away from shareholder-centric views of the firm, and, in line with stakeholder theory, Economics of Mutuality places corporate purposes other than shareholder value at the heart of the firm and derives business practices on the basis of that. But it differs from stakeholder theories in emphasizing the importance of relations with stakeholders in delivering corporate purposes not the interests of stakeholders themselves. It also differs from existing models in looking at the boundaries of the firm beyond traditional ownership rights and contractual arrangements. It is therefore a problem-solving view of the firm as against a financially or stakeholder-driven concept that embraces shareholders and stakeholders but does not put corporate purpose at the heart of either of them.

Introduction

This book is about putting purpose into practice through a new definition of the boundaries of the business ecosystem of the firm, a more complete definition of performance, a more comprehensive process of value creation and profit construction that go beyond financial profit alone; inspiring corporations with a tested means to access untapped resources to improve business performance in a holistic manner for people, planet, and profit; identifying how business and finance can restore their roles in society and the planet. The chapter describes the background to the volume based on the erosion of trust in business, the reasons for this, including the failings of the conventional business paradigm, the nature of the new paradigm based on the economics of mutuality, and its different components.

Building Social Capital

Chapter 11 notes that social capital can be detrimental as well as beneficial to firm performance if it encourages allegiances outside the firm, for example, in the form of corruption and nepotism. Avoiding this requires creating a sense of common purpose and values that embrace partners rather than either exploiting them or pandering to particular interest groups. Three indicators of social capital appear to be particularly important: (a) inclusion and cohesion; (b) trust, solidarity, and reciprocity, and (c) collective action and cooperation. They account for a high proportion of social capital in vulnerable farming communities around the world and they are associated with the productivity of these communities. There is also evidence of a relationship between these measures of social capital, exchange of information and learning, and adoption of new agricultural practices.