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Manufacturing parts at a village shop in Nepal for locally-sold treadle pumps that can dramatically increase farmers’ income.
By Mal Warwick
Business as usual won’t cut it. Nor will a traditional company reformed by adopting CSR as a guide to its business policies and practices. Private sector enterprises can’t succeed in ending poverty unless they recognize vision, leadership, and management, no matter how brilliant, won’t do the trick. It’s not even enough for a company to practice zero-based design (as described in last week’s post). These are all necessary elements, but they’re insufficient. At a minimum, two additional conditions are needed for a business to succeed quickly in numerous countries on a truly big scale—and thrive into the future. One is an organizing principle. The other is a commitment to stakeholder-centered management.

An organizing principle for serving poor people worldwide

Most businesses grow organically, if they grow at all: new markets open up, middle managers demonstrate exceptional talent, a traditional product shows great promise for line extension, a newly acquired company brings with it a potential market-leading product: through these and other numerous circumstances, a company sprouts new divisions or subsidiaries and its organizational chart begins to resemble a bowl of spaghetti. That’s no way to build from a standing start the sort of $10-billion-a-year company that Paul Polak and I envision within a single decade—especially not if you want the business to survive the slings and arrows of competition for many years to come. There needs to be method to the madness: decentralization.

Five characteristics of decentralized design
  • An autonomous entity established within each country where the company does business, thus allowing the business to adjust nimbly to differences in culture, economic realities and competitive circumstances.
  • A holding company with a tiny central staff that maintains a controlling position in every national business and provides a conduit for investment funds and a clearinghouse for investor relations.
  • A decentralized (or distributed) management model, with responsibility devolved to the lowest feasible level, so local initiative can be maximized.
  • An emphasis on hiring locally, not just at the village level but at the national level—with help from outsiders at the outset but phased out as quickly as possible—to advance the company’s vision in the most direct way possible.
  • Staff organized into specialized teams at every level, with a single chief executive officer in each country who answers to the holding company.

The_Business_Solution_to_PovertyOf course, there are lots of different ways to build a business. In The Business Solution to Poverty, Paul Polak and I recommend this five-pronged approach because we believe it’s best calculated to advance a company’s mission, minimize the risk of local opposition, conform to local cultural and economic realities in the Global South, and provide a template for the business to be quickly scaled up in the wake of a successful pilot test.

Stakeholder-centered management

A great deal of jargon has emerged to describe companies that operate in a socially and environmentally responsible manner: corporate social responsibility, or CSR; corporate responsibility; corporate citizenship; responsible capitalism; humane capitalism; creative capitalism; socially responsible business; the double bottom line; the triple bottom line; benefit corporation; community benefit company; B Corporation; firm of endearment; humanistic corporation; corporation for the common good; and more. These terms differ in meaning, sometimes in nuances, sometimes in more significant ways, but they all represent attempts to describe businesses that can do well by doing good. Instead, I prefer a term that’s both more descriptive and more precise: stakeholder-centered management. In a company governed by this principle, managers and the board seek to balance the interests of all the company’s stakeholders, including employees, customers, suppliers, owners and the communities where the firm does business, as well as the environment.

Stakeholder-centered management is good business

CSR-scalePerhaps I’m preaching to the choir: stakeholder-centered management is not do-goodism. It’s good business. There are essentially six reasons why: 1. Companies that practice stakeholder-centered management can recruit and retain great employees more easily. 2. Companies that practice stakeholder-centered management make more money. 3. Investments in reducing a company’s environmental impact are often profitable. 4. Customers seek out brands that represent fair treatment of employees, engagement in their communities and respect for the environment. 5. Innovation flourishes in companies where employees are empowered – and inspired – to develop their full potential. 6. Risk-averse investment funds and insurance companies are increasingly turning to companies that cater to all their stakeholders as the safest bet in a perilous and fast-changing world (as illustrated by the rapid growth of GIIRS). So, if you agree with most or all of these statements, if you perceive the large-scale business opportunities I’ve outlined, if you share Paul Polak’s and my passion to end poverty, if you can see the logic of the zero-based design approach we recommend, and if you or your business want to make a truly historic contribution to humanity, what’s stopping you? Nearly three billion people are waiting for you to step up and offer them the products and services they so urgently need to help lift themselves out of poverty.

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