1. Oliver Laasch, Roger N. Conaway, by
Center for Responsible Management Education (CRME)
and
Roger N. Conaway,
Tecnológico de Monterrey (ITESM)

3. After reading this chapter…

5. Participatory Democracy in the Mondragon Corporation
Social Innovation
“One of the design criteria for developing the Mondragon inventions was based on Catholic social doctrine, which believed in the “priority of labor over capital.”1 People, rather than money, became the fundamental unit of concern. This approach … is at variance with the Coasian/Williamson theory of the firm, which is based on transactions.”
Turnbull, S. (1994).
Social Purposes
Mondragon’s “Corporate Management Model“ seeks: social transformation of the whole community through inter-co-operation (between co-operatives).
Implemented using seven management principles: Education; sovereignty of labour; instrumental and subordinated nature of capital; democratic organization; open admission, participation in management and wage solidarity.
Socialization of Ownership and Control
Each co-operative in the Mondragon Co-operative Corporation is member-owned.
Approximately 1,000 sub-boards control the businesses that make up the corporation. Governing / social councils are elected from the workforce / members (Turnbull, 2002).

6. Figure 7.1 The Social Entrepreneurship Process

7. Understanding Social Entrepreneurship and Social Innovation
Phase 1
Understanding Social Entrepreneurship and Social Innovation

8. Food for Thought

9. Central Terms in Social Entrepreneurship
Social entrepreneurship describes the discovery and sustainable exploitation of opportunities to create social and environmental benefits.
The value-added venture at the same time “socializes” the organization to the inside and creates social value systemically to the outside.
Social innovation is innovation of structures, processes, or products that leads to social value creation.
The social mission is a value proposition guiding strategy and actions of a social enterprise.
Socialized ownership and control refers to democratic decisionmaking models based on a membership model for stakeholders.

10. Social Value Added: Three Schools of Social Entrepreneurship
Social Innovation
Redesigning organization structures, products or processes to create social value.
Includes the way technology is used to improve social and environmental outcomes, but not the technology itself.
Example: a technical innovation in inexpensive house building (e.g. pre-fabrication) becomes a social innovation when it is used to house more people at a lower cost rather than increase profit margins for private investors.
Social Purposes (leading to impact and transformation)
The pursuit of a mission, which – when fulfilled – benefits society, by transforming the society and its systems.
This creates social value for wider society.
Socialization of Ownership and Control
More democratic structures in which primary stakeholders are integrated into ownership, management and governance.
The creates social value for the stakeholders involved in decision-making.

11. Polanyi’s Three Systems
Reciprocity (‘Third System’) - Oldest
‘Householding’ – production for use (and exchange if surplus to requirements); production for family / community need; some provision for inter-community trading/support; little need for written records of market exchange.
Redistribution (‘Second System’)
Central taxation / philanthropic giving; spending according to political priorities; local, regional, national and international associations and governments; tax / donor contributions recorded, spending / receipts recorded.
Market Exchange (‘First System’) - Youngest
Production entirely for market exchange/profit; newest approach, previously peripheral, now dominant; all transaction costs and market prices recorded for decision-making and control.

12. Figure 7.2: Three Systems of Economy

13. Figure 7.3 Social Enterprise at the Crossroads of Economic Systems

14. Figure 7.4 Social Enterprise as Multistakeholder Enterprise Development

15. ‘Real’ and ‘Fictitious Goods’
Production for household consumption
Real goods – produced for survival and to improve quality of family/community life. No financial trading: person-to-person exchange. No commodity production.
Production for market
Real goods – human endeavour to produce goods exclusively for others, traded through market exchange for mutual benefit. Commodity production.
Money, Labour and Land
Fictitious goods – represent economic, natural and human capital, but are not ‘products’ in the sense of being the outputs of human activity.
Polanyi argued that trading fictitious goods as commodities devalues (or destroys) them.

16. Figure 7.5: Four Approaches to Social Entrepreneurship

17. Hybridization across Sectors
Hybridization refers to the creation of structures that share characteristics of more than one sector.
The private sector is composed of privately owned organizations and businesses that act based on market principles.
The public sector consists of organizations providing goods and services for governments or their citizens, based on the redistribution principle.
The third sector, or third system, consists of organizations that undertake social activity without profit purpose, which is typically based on reciprocity.

18. Table 7.1: Types of Hybridization

19. Phase 2
Envision your pathway

20. From Third Sector to Social Economy
Scenario 1
From Third Sector to Social Economy

21. Food for Thought

22. Figure 7.6 From Third Sector to Social Economy
Scenario 1: From voluntary association to contracts or joint ventures in public service delivery.
(Type A – Non-Profit)
Scenario 2 (ideal): Voluntary association organised as a mutual or co-operative society
(Type D – Multi-stakeholder)
Scenario 3: From voluntary association to social business for public or community benefit.
(Type C – More-than-Profit)

23. How do you know you are Third Sector?
More references to ‘stakeholders’ than ‘shareholders’ and/or ‘customers’.
More ‘multi-bottom’ line accounting (double or triple) rather than ‘financial accounting’.
More focus on ‘internal activities’ than ‘business processes’
More discussion of ‘expenses’, ‘receipts’ and ‘surplus’ instead of ‘profit and loss’.
(Bull and Compton, 2006; Bull, 2007)

24. Table 7.2: Cultural Influences on Income Streams

25. Figure 7.7 Classifying Activities
Disposable: Activities that are loss-making or generate a small surplus and do not advance social objectives.
Supplementary: Projects that advance social objects, but which are not sustainable (and may need cross-subsidy)
Sustaining: Activities that generate a surplus, but make only a small contribution to advancing social objectives.
Integral (ideal): Activities that create surpluses and advance social objectives.

26. Table 7.3: Steps changes from Third Sector to Social Economy

27. From Private to Social Economy
Scenario 2
From Private to Social Economy

28. Food for Thought

29. Figure 7.8 From Private to Social Economy
Scenario 1: From private business to public-private partnership or joint venture with a state authority or charity.
(Type B – CSR)
Scenario 2 (ideal): From private business to fair trade producer/retailer, employee- owned mutual or co-operative society
(Type D – Multi-stakeholder)
Scenario 3: From private to social business organised for public or community benefit.
(Type C – More-than-Profit)

30. The Market Mindset
All goods and services are commodities traded for profit.
Production for exchange, not for use.
Exclusion of producers from ownership, governance and management (to avoid distorting ‘labour markets’)
Trading not just goods and services (‘real goods’) but also ‘fictitious goods’
Stock markets (trading future profits in the form of ‘shares’)
Currency speculation (trading the projected value of money)
Carbon trading / airspace (trading natural capital).

31. Limitations of the Market Mindset
Polanyi distinguished:
‘Householding’ – production primarily for use by family or community with surplus traded in markets.
‘Production for Market’ – production wholly for market exchange (producers prevented from acquiring produce outside the market).
Question: Does the extension of a market mindset into all areas of work organisation and wider society lead to economic inefficiencies and the loss of social capital?

32. Table 7.4 Comparing the Systems of Barcelona FC and Arsenal FC*
At Barcelona, a 1 million euro bond and 5,000 member signatures are needed to stand for the board. At Arsenal, appointment is the decision of the key shareholder.
At Barcelona, board can be sacked by a 2,000 strong (randomly selected) General Assembly of members. At Arsenal, the board can be sacked by one shareholder.

33. Challenges and Opportunities
Is the culture in a society conducive to power sharing and democratic control?
Will government and/or capital markets oppose member-owned businesses?
Will enterprise managers share power with representatives of the workforce and/or customers?

34. From Employee to Co-operative Ownership

35. Figure 7.9 Laws Passed in Europe to Support Social Enterprise Development

36. Table 7.5 Steps to Achieve Socioentrepreneurial Outcomes in the Private Sector (1/2)

37. Table 7.5 Steps to Achieve Socioentrepreneurial Outcomes in the Private Sector (2/2)

38. From Public Service to Social Entrepreneurship
Scenario 3
From Public Service to Social Entrepreneurship

39. Food for Thought

40. Figure 7.10 From Public Service to Social Entrepreneurship
Scenario 1: From state enterprise to public-private partnership or joint venture with a private company.
(Type B – CSR)
Scenario 2 (ideal): From state enterprise to public sector ‘spin out’ as an employee mutual or co-operative society
(Type D – Multi-stakeholder)
Scenario 3: From state enterprise to a social business organised for public or community benefit.
(Type C – More-than-Profit)

41. New Public Management (NPM)
New public management (NPM) aims to modernize public administration to make it more efficient
Marketization doctrine for public sector transformation.
Relies less on reciprocity between professionals and more on market relations between managers and employees.
Examples: UK ‘right to request’ (health sector spin-outs), ‘right to provide’ (local authority spin-outs).
Question: are these attempts to privatize or localize delivery of public services?

42. Table 7.6 The Seven Doctrines of “New Public Management” (1/2)

43. Table 7.6 The Seven Doctrines of “New Public Management” (2/2)

44. Contrasting Cases: UK and Italy
Eaga plc
Fuel poverty service
Spun out by 5 staff as a CLG
Created Eaga Partnership Charitable Trust to fund research.
Secured contracts, grew to 1000 staff.
converted to employee ownership using John Lewis model (in 2000).
2006 – Eaga plc floated on stock exchange to expand overseas (51% employee owned)
acquired by Carrillion plc. Now trades as Carrillion Energy Services
£100m Eaga Trust created during sale of Eaga plc: now provides seed finance (up to £500,000) to former Eaga staff to start employee-owned businesses.
Italian Social Co-operatives
Political campaigns in 1970s.
City of Bologna grants contract to provide social care to a worker co-operative.
New co-0ps and contracts created throughout 1980s / 1990s.
1991 – legislation passed to create ‘social cooperatives’ as a distinct legal entity
Type A - provide health, social or educational services (Type A) – 80% are of this type.
Type B - assist reintegration of marginalised workers (Type B) – 20% are of this type.
By 2010, 87% of Bologna’s social services delivered by over 8,000 social co-operatives.
Parents / carers acquire voice through own capital contributions and representation.
Ownership shared: worker and consumer members, regulated by state.

45. Step Changes from Public Service to Social Entrepreneurship

46. Step Changes from Public Service to Social Entrepreneurship

47. Principles of Entrepreneurship: Value Added Ventures
Social entrepreneurship describes the discovery and sustainable exploitation of opportunities to create social and environmental benefits.
The goal of the social entrepreneurship process is to create a value-added venture that at the same time “socializes” the organization internally and creates social value systemically externally.
The market is only one type of economic system. There are alternatives.
The non-profit model of social entrepreneurship emphasizes reciprocity and redistribution facilitated by voluntary and political action.
The corporate social responsibility model of social entrepreneurship emphasizes redistribution through new types of market exchange.
The more-than-profit model of social entrepreneurship emphasizes market exchanges that encourage reciprocity.
The social economy model of social entrepreneurship emphasizes the hybridization of reciprocity, redistribution, and market exchange to maximize human well-being.

48. Checklist: Social Entrepreneurship and Responsible Management

49. Social Entrepreneurship Checklist

50. People in Social Entrepreneurship