Beyond shareholder theory: exploring effective business models balancing profits and purpose

van de Velde, Melanie (2018) Beyond shareholder theory: exploring effective business models balancing profits and purpose. PhD thesis, University of Glasgow.

Abstract

There is increased recognition that an economy based on a ‘shareholder paradigm’ has led to detrimental outcomes for society and the environment based on the assumption that profit maximisation should occur even at the expense of silent or weak stakeholders. Theories such as corporate social responsibility (CSR), shared value and stakeholder theory have added an element of purpose to the role of business next to a profit motive. However, they focus on ‘low hanging fruits’, and fail to clarify how value creation for society is effectively integrated into strategic decisions such as “how to justify fair prices to producers in developing countries instead of minimising costs to maximise profits and shareholder return?”

This study explores how to combine the best of both social and commercial logics to effectively achieve ‘profits and purpose’. In total 93 interviews were conducted across ten case studies and sector expert interviews. First, key concepts were derived from a cross-case comparison and data analysis in the context of training and employment social enterprises in the UK. To increase robustness the proposed concepts were studied in a wider context developed from: The Netherlands, India, Ecuador, US, Bangladesh, Ivory Coast, and Ghana.
Contrary to the predominant focus in the literature warning of ‘mission drift’ suggesting to prioritise ‘purpose’, this study shows that ‘leading with the business’ leads to better outcomes. By developing a business model around market demand instead of social need a stronger financial platform is created to pursue social aims, and clients can develop their potential more in line with market demand. Key factors are proposed that contribute to better outcomes including: ‘avoiding the pity purchase’ by positioning the enterprise around the value proposition; selecting markets based on commercial potential; managing a ‘blended income stream’; and providing a ‘balanced work environment’. The findings highlight that both commercial and social logics have a role to play, contrary to studies suggesting that one logic should supersede the other, but require different emphasis in each business model area.

By adopting a macro-perspective the study gained further insights into incorporating ‘purpose’ as part of mainstream business. A ‘profits for purpose theory’ is proposed as alternative to CSR, shared value and stakeholder theory to legitimately allocate resources to create value for society beyond the limited scope of ‘low hanging fruits’. By integrating principles of justice at the core of the business model, businesses can empower individuals and communities to contribute their potential in return for fair rewards. As Adam Smith proposed by using the profit motive with strong principles of justice major issues in society can be prevented and addressed to create a better world for current and future generations.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Keywords: Social enterprise, profits and purpose, business model.
• Subjects: H Social Sciences > H Social Sciences (General); H Social Sciences > HB Economic Theory
• Colleges/Schools: College of Social Sciences > Adam Smith Business School > Management
• Supervisor's Name: Mason, Professor Colin and Gordon, Dr. Jillian
• Date of Award: 2018
• Depositing User: Dr Melanie van de Velde
• Unique ID: glathesis:2018-30692
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 20 Sep 2018 08:08
• Last Modified: 26 Oct 2018 08:57
• URI: https://theses.gla.ac.uk/id/eprint/30692

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