FORDHAM UNIVERSITY SCHOOLS OF BUSINESS

Social Entrepreneurs as the Paragons of Shared Value Creation? A Critical Perspective

Michael Pirson

Working Paper
2011-001

Copyright 2011 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=1753908

Social Entrepreneurs as the paragons of Shared Value creation? A critical perspective

Abstract The financial crisis of 2007/08 has caused many to question the basic premises of the current business system (Kaletsky, 2010). Porter and Kramer (2011) suggest that the purpose of the corporation needs to be redefined. They posit that the corporation, rather than merely pursuing financial value creation set out to pursue shared value creation. They further declare Social Entrepreneurs the paragons of said shared value creation. In this paper I critically analyze the pathway of shared value creation in three leading social enterprises. Employing a genealogical perspective I highlight that very innovative shared value creating ventures ended up opting out of shared value creation strategies and embraced either financial or social value primacy strategies. As such I question the power of the shared value creation notion.

Keywords: Social Entrepreneurship, Social Enterprise, Shared Value Creation, Social Value creation, Shareholder, Stakeholder

Electronic copy available at: http://ssrn.com/abstract=1753908

The financial crisis of 2007/08 has caused many to question the basic premises of the current business system (Kaletsky, 2010). The productive sectors of the worlds 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 worlds 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). Books and articles on how to rethink the current business system abound. From notions of capitalism 3.0 (Barnes, 2006), to moral capitalism (Young, 2003) or humanistic management (Pirson & Lawrence, 2009) many authors are suggesting that business needs to reinvent itself to meet the challenges of the 21st century. Even a recent issue of Harvard Business Review is dedicated to rethinking capitalism. In the title story, none other than Michael Porter, together with Mark Kramer suggest that the purpose of the corporation needs to be redefined (Porter & Kramer, 2011). They posit that the corporation, rather than merely pursuing financial value creation set out to pursue shared value creation. In order to remain competitive and secure organizational longevity, Porter and Kramer (2011) suggest that managers should view the corporation as socially embedded and actively uncover potential for value creation for all

Electronic copy available at: http://ssrn.com/abstract=1753908

stakeholders. In essence, Porter and Kramer refurbish the older stakeholder management argument, by stating that economic value can only be created in a sustainable fashion when all stakeholders including society can appreciate the value created. In a certain new twist to the argument, Porter and Kramer (2011) highlight the example of social entrepreneurs for corporations to learn from. Accordingly, Social Entrepreneurs are often ahead of established corporations in discovering shared value opportunities because they are not locked into the narrow traditional business thinking (Elkington & Hartigan, 2008). In a manner unsettling to traditional theory of strategy and economics, these social entrepreneurs often try to create shared value by pursuing dual objectives (Alter, 2006; Pirson, 2008b; Rangan, Quelch, Herrero, & Barton, 2007).

This seemingly simple assumption of shared value creation questions longstanding economic research, and probes some of the basic foundations of organizational research. Scholars in strategic management, for example, have long made the case that organizational survival depends on a clear mission and therefore focus on one goal, not on several goals (Sundaram & Inkpen, 2004). Furthermore economists have consistently argued 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. Further research on multiple objectives suggest that job related tensions of managers increase and overall performance decreases when pursuing multiple goals (Emsley, 2003). In that line of thought organizations would necessarily undermine their impact were they now to focus on a balance of different goals, rather than maximize one.

While scholars also suggest that social enterprise is rewriting the rules of traditional business conduct (Dacin, Dacin, & Matear, 2010; Elkington & Hartigan, 2008; Porter & Kramer, 2011), I will examine in this paper 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 specifically on the notion of a dual purpose or shared value creation that many social enterprises pursue (Alter, 2006; Drayton, 2006). I am also interested whether and how a balance is struck and when and why a primacy of social or financial objectives crystallizes. After a short introduction to the general arguments for shared value creation (balance orientation) and single value creation (maximization orientation) I will outline the respective positions within social entrepreneurship research. I will further present three cases of prominent social enterprises, which are linked in a genealogical manner. I will analyze the evolution of the two generations of spin-off social enterprises with a specific focus on mutations in strategy and structure. I will thus be able to trace the problems of shared value creation and present the conditions in which shared value creation can be managed and elaborate on the circumstances in which maximization strategies prove superior.

Shared value creation and balance orientation As suggested by Porter and Kramer a renewed balance of financial and social value creation could help corporations to rebuild trust, allow them to stay competitive and increase their legitimacy. The idea of balanced goals is not new and has been voiced in different terms by stakeholder management scholars for several decades (Freeman, 1984). The stakeholder management perspective at its core suggests that managers need to balance a multitude of interests (Donaldson & Preston, 1995). These interests are voiced by their stakeholders, who are crucial for the organizations survival (e.g. employees, customer, suppliers, investors, or society at large). Practitioners have widely accepted tools that allow to measure and balance stakeholder 4

concerns, such as the balanced scorecard (Kaplan & Norton, 1996). There are other conceptualizations of balance orientation that aim to counterweigh the dominant financial value creation focus. The Corporate Social Responsibility movement, for example, pushed for the development of multiple bottom lines. The most prominent ideas was the triple-bottom line developed by Elkington (1998), who proposed environmental, social and financial bottom lines as a way to create sustainable value. Various other forms of multiple goal orientation have been suggested, including ethical and governance concerns (Freshfields, Bruckhaus, & Deringer, 2006). Despite scholarly criticism of such operationalizations (Norman & MacDonald, 2004), the general idea has influenced the expectations towards corporations significantly and have led to a wide adoption of such practices. In the latest move financial market information providers such as Thomson Reuters or Bloomberg have been adopting double or triple bottom line measures in their evaluation of investments (Marquis, Beunza, Ferraro, & Thomason, 2010).

Single value creation and maximization orientation Many scholars have repudiated the claims of stakeholder theorists and argue decidedly against the notion of shared value creation ( for an overview see Sundaram & Inkpen, 2004). While they do not dispute the general notion of shared value creation (after all a profitable company creates jobs, sells products to customers that need them, and pays taxes), they dispute that the strategic focus should entail a balance orientation. Jensen (2002) as well as Inkpen and Sundaram (2004) classify the balance orientation of management as a governance and accountability risk. Similarly, the court system in the Anglo-Saxon world has established a tradition that views the owner as a residual claimant, who needs specific protection (Fligstein & Shin, 2007; Keay, 2007). Therefore single value creation geared towards the shareholder is the dominant logic that

managers legally needed to adhere to in public corporations(Dimma, 2004). Even management scholars are wary of hybrid or balance-oriented organizations, because they assume the risk of mission drift (Battilana & Dorado, 2010). In addition, management scholars consider balance oriented organizations much less stable and question the longevity of hybrid models (Battilana & Dorado, 2010; Glynn & Abzug, 2002). They basically fear a clash of organizational logics in hybrid organizations which can be very difficult to resolve. From a psychological perspective, the single value creation focus is supported, because it relieves decision makers from complexity risks. Emsley (2003) and Weissenstein (1998) find that when multiple goals such as in a balanced scorecard situation are pursued, the amount of conflict rises, creativity is hampered and performance negatively affected. Furthermore from a cybernetic view it is argued that humans have limited processing capabilities and that managing multiple objectives increases the risk of information overload and affects decision making negatively (Beer, 1967; Turnbull, 2002). While some scholars agree with the notion that shared value creation can be an enlightened approach to value creation, they argue that there needs to be one score by which to judge performance and accountability (Jensen, 2002). Otherwise, managers, especially the ones driven by self-interest tend to subvert organizational goals to the benefit of personal goals (Keay, 2007; Sundaram & Inkpen, 2004).

Social Entrepreneurship as a blueprint for shared value creation strategies Social Entrepreneurship has moved from being a niche concept three decades ago to become heralded as a blueprint for corporate development today (Pirson, 2008b; Porter & Kramer, 2011). As Social Entrepreneurship crosses academic disciplines it challenges traditional assumptions of economic and business development (Dacin et al., 2010; Dart, 2004). The question here is how

much it actually challenges the assumptions of primacy versus balance of value creation. Much of the existing academic literature of Social Entrepreneurship centers on the definition of social entrepreneurship and despite the increased interest, Dacin et al. (2004) argue that there is no agreement on the domain, boundaries, forms and meanings of social entrepreneurship. For this paper I will briefly outline the perspectives presented that argue for a balance,- or a maximization orientation of social entrepreneurship. This will serve as a basis to evaluate the claim of Porter and Kramer that we can learn from social entrepreneurs on how to create shared value.

Social Entrepreneurship as a balance oriented concept of value creation Much of the debate on social entrepreneurship is a recycled version of the discussion about the purpose of business famously represented by Friedman (1970) and Davis (1973). Mirroring the old debate about the social goals of business, Dees and Elias (1998) suggest that social ventures can oscillate between purely charitable (social mission) and purely commercial (financial mission), depending on the entrepreneurial mission. Tan, Williams, and Tan (2005) similarly suggest that social enterprises can take form on a continuum of descending degrees of altruism that profits society. According to Alter (2006) the hallmark of social entrepreneurship lies in its ability to combine social interests with business practices to effect social change. Hence, 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. Simms and Robinson (2009) propose that social entrepreneurs may be involved in both activities for profit and not for profit and specifically mention that social enterprises are those that pursue dual or triple bottom line objectives. A similarly perspective is taken by Hockerts (2006) and Lasprogata

and Cotton (2003) who classify social enterprises as hybrid enterprises pursuing dual objectives. With a slightly different twist, Austin, Stevenson and Wei-Skillern (2006) understand Social Entrepreneurship as any innovative, social value creating activity within or across sectors. How that social value is created and whether there is a primacy of social over financial value creation is irrelevant. Similarly Mair und Marti (2006) focus on the process of innovative use of resources to catalyze social change. As such a business creating employment in areas of high unemployment could well be considered a social enterprise if resources are used in innovative ways. Elkington and Hartigan (2008) similarly suggest that Google is an example of a social enterprise, since its mission is a social mission (to make the worlds information accessible).

Social entrepreneurship within the single value creation notion The inclusivity of above mentioned definitions of social entrepreneurship highlights the question of boundaries of social and traditional entrepreneurship. While some definitions include the notion of shared value creation specifically, most scholars would argue that a maximization of social value creation represents the definitional difference of social and traditional entrepreneurship (Dacin et al., 2010). Implicit in many definitions of social entrepreneurship rests the notion of the primacy of social value creation over any kind of financial value creation. Despite the more inclusive perspectives presented above, some scholars as Thompson and Doherty (2006) even argue that social entrepreneurship is to be understood as a social value creation concept only and posit that organizational forms should remain in the non-profit domain. They further suggest that any shared value creation ambition would endanger the legitimacy of the social cause promoted. Foster and Bradach (2005) even consider profit seeking entirely inappropriate as it distracts managers from their social mission. Boschee and McClurg

(2003) argue that the difference of the social and the traditional entrepreneur lies precisely within the primacy of performance measures. Dees (2001) specifies that the social mission is the key differentiator.

Models of Social Entrepreneurship As Dacin et al. (2010, p.45) state, the dual mission of social entrepreneurial ventures provides both interesting opportunities and constraints. 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). 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 organizations social operations and programs. Businesses can partner with Not-forprofit 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 organizations 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. 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 microloans 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

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profit maximization strategies (Rennison, 2008). This discussion highlights the tension a sharedvalue creation approach can entail. A genealogical perspective of embedded Social Enterprises Since embedded social enterprises engage most closely with what Porter and Kramer (2011) call shared value creation, I will analyze examples of embedded social enterprises. To do that I will employ a genealogical approach used by organizational researchers to examine the role of interorganizational transfer of strategy and structure for success of the new organization (Phillips, 2002). For this research the genealogical perspective is particularly useful because the parent-progeny transfers point to mutations that are helpful in understanding the stability of shared value creation processes. Such a genealogical approach would further allow examining the conditions under which a balance orientation can function because of evolutionary adaptation processes. I will focus on three parent-progeny transfers and examine mutations in strategy and structure related to the shared value creation process of GrameenPhone, bracNet, and GrameenDanone.

Parent- Progeny Transfer 1st Generation- Grameen Phone GrameenPhone was the brainchild of Iqbal Quadir, an investment banker of Bengali origin. In 1993, he identified an opportunity to cover his native Bangladesh with telecommunication services using the recent mobile telephony technologies (Isenberg, Knoop, & Lane, 2007). To finance his idea, Quadir with the support of private equity supporters founded a separate venture called Gonophone (Isenberg et al., 2007). For the venture to work two partner organizations were considered crucial: a partner with the requisite technical and operational knowledge and a local partner of size and credibility to support the implementation. While many telecom companies 11

had signaled initial interest, only Telenor, the state-owned Norwegian telecommunication provider stepped up. Telenor had been a state owned telecommunication company for a long time and had become a public corporation in 1994. Ever since, the state successively privatized Telenor, remaining a major shareholder though. In addition to Telenor, Quadir was also able to enlist a local partner that would help with much needed visibility, outreach and branding: Grameen Bank. Grameen Banks founder Muhamad Yunus was supportive of Quadirs idea, because a main goal of the project was social: 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 reducing poverty because cell-phones allowed people, especially farmers, to access relevant information much more quickly. The increased information access would ultimately empower farmers as market participants and help them combat poverty. A significant social benefit would also be derived because many migrant workers would be able to stay in touch with family abroad or at home (Bhatnagar & Dewan, 2003).

Mutations of Strategy The main parent organizations, Grameen Bank and Telenor, were pursuing distinctly different strategies. Telenor had moved from being a publicly owned corporation to a partly privatized corporation which was focused more and more on financial value creation. While parts of Telenors legacy remained within the public purpose of providing telecommunication access to everyone, the overall mission had clearly shifted towards creating financial benefits for shareholders. Grameen Bank, however, was following a social strategy in that its main focus was geared towards poverty reduction. The founder, Muhmamd Yunus was also very clear about his

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personal mission which included the prevention of profiteering. This aspect has become even more pronounced in recent years, when for-profit entities have tried to adopt the microloans model Yunus has created to prevent loan sharks from enslaving the poor. Grameenphone, however, became a venture that was fusing social and financial value creation strategies to pursue shared value creation. Grameenphone declared its vision as: 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 aim to reduce the existing disparity in telecom services between urban and rural areas (Zerogravity & Shahed, 2009, p. 8). Grameenphone has been very clear about the dual purpose in that it states a dual purpose as: 1) To receive an 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).

Mutations of Structure After the partnership was offered a cellular license in Bangladesh in March, 1997, GrameenPhone was officially launched. 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 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). Grameen Telecom was given 35% of the shares. During prior negotiations, Grameen wished to have other partners included to buffer against the potential

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imbalance of power. Marubeni, a Japanese industrial conglomerate, joined the consortium following the pressure of Grameen to offset Telenors influence. Gonofone, the initiators venture also joined (Isenberg et al., 2007; Malaviya et al., 2004). Marubeni was alloted 9.5%, and Gonophone 4.5% of the shares. Over time Marubeni reduced its engagement and since 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). Ever since its launch, Grameenphone has been a financial and social success. 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). However, with increasing success, growth became a major objective (Malaviya et al., 2004). To fund the necessary growth more capital was needed, which came mainly from Telenor. That also meant a further shift in structural power to the for-profit parent organization. This structural imbalance became a strategic problem, since Grameen wished to prevent any type of strategy to shift towards increased financial value creation. The conflicts within the partnership regarding the balance of social and financial value creation increased and openly culminated, when Muhammad Yunus, before accepting the Nobel Peace Prize, asked the people of Norway to put pressure on Telenor (at that time 54 percent state owned). He was specifically asking Telenor to honor the initial agreement to reduce its stake to 36 percent after six years (Berglund, 2006).

From primacy orientation to balance orientation and back Grameenphone was the attempt by single-value creation oriented parent organizations to spin-off

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a hybrid progeny. As can be observed this attempt was structurally and strategically supported, at least initially. The proposed structure would have given the financial value and social value creating entities parity. However, due to the necessity of growth capital the structure increasingly favored Telenor, the party mainly interested in financial value creation. In addition, with increased signals of financial attractiveness, shareholders of Telenor wished to participate in the commercial success of Grameenphone. As Telenor states, it was time that the shareholders see some return on their investment (Malaviya et al., 2004). Plans to take Grameenphone public were pushed in a concerted manner. The shift of structural power was accompanied by a shift of personnel. A second generation of managers entered the venture, which was largely oblivious to the initial spirit and terms of Grameenphone as a shared value creating entity. Grameen Telecom felt that old agreements were not honored and a shareholder maximization approach took hold (Berglund, 2006). Observers attributed ensuing ethical scandals to that strategic shift (Rahman, 2008). In 2008, for example, Grameenphone was found to use unacceptable working conditions, including incidents of child labor to reduce costs (Telenor, 2008). Similarly, Grameenphone had been found guilty of violating state law with regard to the usage of VOIP (Voice over Internet Protocol) to increase revenue and was fined USD 55 million (Rahman, 2008; Telenor, 2008) . The shift towards the primacy of financial value creation might have been spurred by increased competition. These competitors entered the market, largely pursuing a traditional shareholder value maximization strategy. To ensure Grameenphones lasting success the rules of the competitors affected its strategy and forced it further into a more traditional approach. The latest manifestation of such a strategic shift can be witnessed in the initial public offering (IPO) of 10% of Grameenphone stock by Telenor to fund further growth.

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Parent- Progeny Transfer 2nd Generation- BracNet 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 Quadirs brother, founded the venture as a for-profit business venture aiming to create shared value by providing equitable access to information (Ebrahim, Pirson, & Mangas, 2009). Mutations of Strategy Khalid Quadir had been actively involved in the launch of Grameenphone and had learned several lessons he wanted to apply going forward. While Grameenphone started as a sharedvalue creating endeavor, bracNet was more direct about the financial primacy of its goals. Quadir 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. Quadir saw his task as economic and social development work, but he wanted to demonstrate a new model for development, one 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, 2008a)

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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). 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. To do that, he had to be able to fund growth easily. While all partners initially agreed that a social mission can lead to financial value creation, a shared value strategy was developed, but this time the venture adopted a definite forprofit approach (Ebrahim et al., 2009). Despite some early successes, the rural roll out was moving far more slowly than expected mainly because of a government collapse in 2007. bracNets leadership and its investors had to drastically reconsider their business plan and focus on growing in the existing urban areas (Ebrahim et al., 2009). After the political turmoil had settled a rural roll out could again be considered, but it became clear that a new partner with financial and operational prowess had to be found. With KDDI, a Japanese telecommunication operator, as the new partner bracNet now was able to continue its expansion. As a result of the partnership the strategy of bracNet changed considerably. The mission of bracNet became much wider in its scope aiming to create a knowledge based society in Bangladesh (BracNet, 2010). This meant that in addition to offering 17

broadband, bracNet would sell computing devices, provide financing for the masses, provide affordable and renewable energy , as well as offer local language content provision and teachers training (BracNet, 2010). This shift does not necessarily reveal any change in the ambition to create shared value, however management scholars would argue that the risk of mission drift becomes ever more prevalent with such a wide mission scope.

Mutations of Structure To realize his idea, Khalid Quadir was looking to partner with another large NGO in Bangladesh called BRAC. BRACs executive director Abdul-Muyeed Chowdhury, championed a collaboration with Quadir, partly because of the success that Grameenphone had enjoyed. BRAC joined the venture mostly to support its social mission: connecting the rural population. As financial partners, Quadir was able to bring DEFTA partners, an international Venture Capital on board as lead investor. Marubeni Corporation, the Japanese trading conglomerate, which had already invested in Grameenphone 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). In contrast to Grameenphone, the ownership was rather dispersed at bracNet. As a consequence, it would be more difficult for the for-profit partners to collude and pursue interest that would counter the social value creation aspect of the venture (Ebrahim et al., 2009). In addition, the majority owner was the non-profit organization BRAC itself. Mindful of the frictions occuring at Grameenphone, Khalid Quadir and BRAC made sure that the social goal of bridging the digital 18

divide was structurally supported by the governance and ownership structure. However, similar to the development at Grameenphone, the rural roll out required growth capital and technological know-how. The existing partners were not able to go it alone and decided to look for another partner. After a long search BRAC and the other investors brought on the Japanese telecommunication giant KDDI in 2009 (Quadir, 2009). As a result, KDDI now owns 50% of the company, while the existing shareholder rights were diluted accordingly. BRAC now only owns 20 % of the shares, becoming a minority shareholder (Quadir, 2009). Consequently, the balance of social and financial value creating partners has been tilted.

From shared value creation with financial primacy to In many ways the story of bracNet is a sequel of GrameenPhone. One important difference initially was reflected in the ownership structure. Other than at Grameenphone, there were several partners with different motives and BRAC, the NGO concerned with the social mission, was the majority owner. Despite the shared value orientation, bracNet gave primacy to financial value creation from the onset. The initial strategy was clearly focused on investors and envisioned an initial public offering at the Dhaka Stock Exchange (Quadir, 2009). The difficulties with the rural roll out, the need for further technical expertise and financial capital could have similar consequences to those at GrameenPhone. However, the clarity of financial primacy could help manage tensions of the partners involved. It remains to be seen, how bracNet will evolve. Similarly to Grameenphone, the original founders of the deal have largely handed off 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

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creation strategy was in danger. As KDDI mentions in its press releases, the reasons for entering the partnership are mainly financial not social. In KDDI perspective new markets need to be developed to ensure further economic growth, and the digital divide presents a huge opportunity where financial and social value creation seem to go hand. KDDI is clear in its objective to replicate the Bangladeshi model in other parts of the world and embraces this strategy as its growth strategy. As much as shareholders have a say in this strategy, it is quite possible that bracNet will veer even further towards financial value creation models.

Parent- Progeny Transfer 2nd Generation- GrameenDanone A decidedly different way was pursued by the next generation of social enterprises in which Muhamad Yunus was involved. Based on his experiences with Grameenphone he had developed a model which would place social value creation before financial value creation. While he still believed in shared value creating strategies, he had seen how unstable such strategies can be when there was an imbalance of power.

Mutations of Strategy 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

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and call it GrameenDanone. 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 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).

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. As Emmanuel Faber, the chief of Danone's operation in Asia, who had been assigned to oversee operations of Grameen Danone, said: 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, (John, 2010; Schneider, 2008).

To avoid past mistakes, Yunus drafted a constitution for GrameenDanone, based on his conception of Social Business. The mission of GrameenDanone therein is stated to reduce poverty by a unique proximity business model that will provide daily healthy nutrition to the poor. The specific objectives are stated as: developing a product that has high nutritional value and is affordable for the poorest

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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).

Mutations of Structure Again learning from past mistakes, GrameenDanone was setup as a parity venture, owned 50% by Grameen and 50% by Danone. Mohammad Yunus also structured the organization of GrameenDanone around his idea of a social business to enshrine social value primacy (John, 2010). 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 GrameenDanone will be to operate without incurring losses while serving the people, particularly disadvantaged people, in the best possible manner. GrameenDanone is structured to 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 lowincome people, particularly women, children, and disadvantaged communities, undertake research and experimentation, to improve and diversify products and services. GrameenDanone

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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, GrameenDanone will pay a 1 percent dividend annually to the shareholders (John, 2010; Yunus, 2008). If an investor wants to withdraw his investment 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 the social business.

From shared value creation towards social value primacy 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 GrameenDanone 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.

Shared value creation- a real possibility?

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Depending on the notion of what shared value creation is, and here I have focused on the balance of social and financial value creation, 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. In many observers perspective the 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 nonprofit partner 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 evident at Grameenphone surfaced as major partners needed to step up funding. As a consequence the ownership structure was 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; especially when the plan for an initial public offering is further pursued. It seems, though, that through the culture, the partnership with BRAC, and the founding story, social value creation will always play a role. That does not mean that the social

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value creation aspect could easily take a back seat ( e.g. by effectively delaying the rural roll out). The case of Grameen Danone highlights the many problems that shared value creation oriented strategies induce. Having learned 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 outlast its founders, and that the institution as such will serve primarily a social cause, and not a financial cause. In that perspective a social business views the financial value generation as a mere necessity to creating social value; the inverse of traditional economic theory in which social value is an externality of financial value creation.

Conclusion All three parent-progeny studies can be viewed as testimony to Michael Jensens admonition that only one goal can be meaningfully managed. While at GrameenPhone and bracNet the financial goal superseded the social goals, GrameenDanone took the opposite route and established a novel form of business in which the social goals would be maximized rather than the financial goals. In a sense, these findings undermine the claims of Porter and Kramer (2011) that Social Entrepreneurs are paragons of shared value creation (at least when viewed as balance orientation). While Porter and Kramer (2011) might simply invoke an enlightened version of financial value creation, it is questionable how much such an incremental shift will create the solutions needed to deal with the current crises. It seems that institutional logics are reigning supreme, because

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even leading social entrepreneurial organizations are pushed into the traditional structures. If we are serious about rethinking the current business system and finding ways to solve the massive problems of the 21st century, maybe we not only need new strategies but new organizational forms and a different institutional support system, such as a vibrant social stock market.

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