8. A survey found that 69 percent of MBA students view maximizing shareholder value as the primary respon-sibility of a company. How would that philosophy fit into a hybrid organization?

7.1 Designing the Dual-Purpose Organization

Social enterprises are typically founded with the purpose of addressing a societal problem while at the same time succeeding as a business in order to finance the social mission. The term hybrid organization means to pursue both profit and social missions within a single organization.4 A hybrid tries to be financially self-sufficient like a business, while at the same time spending its profits to create a positive impact on a social or environmental problem. Serving two major and competing purposes presents a serious challenge for organization designers. It is much easier to establish an organization to seek profits or as a nonprofit serving a social good. Doing both presents a challenge because one goal may take priority over the other, which will likely trigger the organizations demise.

Although hybrid social enterprises are initiated for the creation of both social and commercial outcomes, they face the risk of mission drift, which means giving less importance to their social mission and more importance to generating revenue and profit. Mission drift in hybrids arises when people in the hybrid become more concerned with creating value for their paying customers, to the detriment of providing value to their nonpaying social beneficiaries (such as poor children who receive schooling or the long term unemployed). The risk of mission drift in hybrids is high. Managers and employees depend on commercially-generated revenue to sustain their operations and their jobs. It is natural to gradually give priority to the commercial activities that mean survival, to the detriment of the social benefit activities. The consequence of mission drift for social enterprises is severe because it threatens their reason for existence. When a hybrid loses sight of its social mission, it will fail to achieve the goal of delivering social value that resolves a social or environmental problem. Managers in hybrid organizations thus have to learn how to give equal balance to the organizations social and commercial activities, which means generating sufficient revenues without losing sight of their social purpose.

At one time, business organizations were completely separate from the nonprofits and philanthropic organizations that addressed social problems. The nonprofit organizations gained resources via fundraising, and businesses earned profits for shareholders. In recent years, many nonprofits have wanted to become self-sustaining rather than depending on outside donors for survival. Business organizations have felt the need to do more for society. Thus, the pressure for organizations to be both financially viable and socially responsible has pushed both for-profit companies and nonprofit organizations into a hybrid zone in which creating both social and financial value are part of the core business.

A corporation validly incorporated for social benefit can be formed in two ways: through direct incorporation in states that recognize benefit corporations as legal entities, or through certification by B Lab, a nonprofit organization that specializes in external social impact auditing. In addition, a company doesnt need a specific legal status in order to work toward both financial goals and positive social contributions. As the CEO of Unilever put it, I dont believe you have to be a B Corp to behave like one.6 The movement toward a more hybrid-like approach has taken different names, such as dual-purpose, shared value, conscious capitalism, social entrepreneurship, benefit corporations, and B corporation certification, as defined in Exhibit 7.1. Although specific aspects of each type do vary, each organization form and philosophy is intended to create something of financial value that also has positive social impact.

As an organization manager, keep these guidelines in mind: Guard against mission drift. Give equal attention to the hybrid organizations social and commercial activities so that the enterprise can generate sufficient revenues without losing sight of its social purpose

7.1a Facing the Challenge

The sports shoe company AND1 was founded with the dual goals of serving people and planet along with making a profit. Charitable activities and sustainability were absolutely core to the companys business. The company provided generous employee benefits, including parental leave, a basketball court, and yoga classes. Five percent of its profit (about $2 million) was donated to local charities that focused on urban education and youth leadership development. Company managers worked closely with suppliers overseas to ensure high health and safety standards and fair wages. AND1 became number two in basketball shoes in the early 2000s. Competition was also stiffening in the retail shoe industry, so the company faced employee layoffs. When AND1 was acquired by another company, the new owners did not embrace its social goals. Many of the social and environmental programs were dismantled as the company began to focus almost solely on profit-driven goals and activities.

The AND1 example shows how fragile a social mission can be in a profit-seeking business. The profit mission obliterated the social mission. Why do these two missions so often produce internal company strife and conflict? Below the surface of the companys twin missions are employees personal beliefs, values, and preferences, which are call logics. A logic means a persons basic assumptions, values, and beliefs that he or she thinks should guide an organizations behavior. These values

and beliefs give meaning to peoples daily lives. Moreover, people usually believe their logic is correct and should take precedence over other logics. The notion of a deeper logic explains why deeply embedded conflicts arise in a hybrid organization. Peoples logics reflect beliefs and values that they want to see in their work practices and organizational purposes. These logics often put some people on one side and some on the other side of the divide between social versus profit outcomes, creating conflict within a hybrid organization. Logics are not about job satisfaction; they are deeper and typically are brought to work as part of ones life values.

In the case of hybrid organizations, two main logics are typically at playthe commercial logic and the social welfare logic. These logics function with very different assumptions as illustrated in Exhibit 7.2. The commercial logic focuses on selling products and services for economic gain or profit. In this perspective, the obvious primary goal is profit, while a social mission would be considered only a secondary means to achieve profit. The structure of control is hierarchical, with major decisions around goals and operations made to serve shareholders. In the logic of commerce, the legitimacy of a company is based on technical and managerial expertise to beat the competition. The commercial logic is taught in business schools and has a strong presence in the business community. A vivid example of commercial logic occurred when pharmaceutical firms in the United States were criticized for charging high prices. A spokesperson for one firm defended the price increases by saying: Our duty is to our shareholders and to maximize the value of products we sell.

On the other hand, the social welfare logic sees the selling of company products and services as merely a mechanism for responding to societal needs. Products, services, and profit are by no means primary. They are a means to achieve a higher social goal and are not a goal in themselves. The social welfare logic involves the inclusive participation of local stakeholders inside and outside the organization. Governance in the social welfare logic is democratic. Legitimacy is achieved through contribution and commitment to the social mission. The social logic is partly captured by John Mackey of Whole Foods, who said, Just as people cannot live with-out eating, so a business cannot live without profits. But most people dont live to eat, and neither must businesses live just to make profits.

Dealing with these opposing logics within the same organization and keeping

them evenly balanced is a major challenge in a hybrid organization. These logics, both commercial and social, can clash on a daily basis. Employees on both sides have their assumptions and principles, both believe their mission is a priority over the other, and yet they need each other to survive. A recent study looked at how the 2,000 or so members and employees of a natural foods co-op manage their duality of values: (1) idealistic values with primary focus on social justice and ethical products, and (2) pragmatic values with primary focus on growth, product demand, and profit. Two cliques began to form around the two basic values, and defensiveness arose between the groups. Some members aligned with economic efficiency, and others aligned with quality for people. The members found that getting to a work-able compromise was difficult because it meant compromising ones own deeply held life beliefs and values. The respective values were so deeply ingrained that com-promising with the other side was almost like negating ones own life purpose and values.

EXHIBIT 7.1 Organizational Approaches for Societal Benefit Organization Dynamics 45 (2016), 283-290. EXHIBIT 7.2 The Two Opposing Logics Embedded Within a Hybrid Organization Source: Based on Solange Hai and Richard L. Daft, "When Missions Collide: Lessons from Hytrid Organizations for Sustaining a Strong Social Mission," Organization Dynamics 45 (2016), 283-290