by Alistair, Posted Sep-21-2010 in designs, investment & return EDITOR’S NOTE: I originally wrote this for Equal Exchange’s 2008 Annual Report (where it appears on page 12.)
 Close to the center of Equal Exchange’s business model there are two gates. One is open, one is closed, and therein lies a great strength and a secret of our success. Most businesses are designed to deliver two financial results: to make profits and to grow in value. They then distribute those gains back to the business’ owners; profits can be returned through dividends and growth in value through increasing share prices, through capital gain.
For over two decades, Equal Exchange has chosen just one means: we welcome profit and decline capital gain. The chart below is the result; it shows our fixed share price and annual dividend (typically five percent), which are reinvested in more shares. It looks pretty good, so let’s dig a little deeper. The Freedom of No Capital Gain. The answer to “How much is a company worth?” can change every few minutes. We’ve all seen the stock market graphs. The answer goes up and  down and huge wealth is won or lost on that guesswork and speculation. At Equal Exchange we have closed that gate. Buy a share in our co-op, and its price is fixed. There is no capital gain, no hope of windfall riches, no ticker symbol to obsess over, no precipitous decline. You can’t trade that share in the stock market for a
variable price, you trade it back to Equal Exchange for the price you paid. With no way to get rich, the need to control is also weakened.
In most business models, control allows owners to maximize their return and get the biggest piece of the pie. But if your pie slice is fixed what are you trying to control? That allows us to sell non-voting shares, and keep control with the worker-owners who are both the biggest investors and are closest to the mission. But wait, if all our pie slices are fixed, yet Equal Exchange is growing, who does the rest of the pie belong to? It belongs to the community. That’s what our bylaws say. If the co-op is ever sold, any extra money and capital gain goes to further Fair Trade. That is freedom; freedom from having to, or the temptation to, turn our co-op into cash. It’s freedom to deliver on our mission. The Character of Profits. Profits, that’s different We like profits. We are traders, and sustainable trade involves profit. Profits give us the means to invest in new ideas, to cover occasional failure, and to reward the worker-owners and investors for their labor and money. Profits, unlike share prices, are measured by auditable standards. They reflect what we did. Profits demonstrate to others that Fair Trade can thrive.
So while non-profits avoid both gates, and corporations embrace both, Equal Exchange has chosen a singular path – yes to profit, no to capital gain – and we’ve grown steadily for over 20 years. We hope you’ll continue to travel this path with us. As more people seek economic alternatives, we are expecting company.
| ORGANIZATION |
PROFIT |
CAPITAL GAIN |
| Typical Corporation |
YES |
YES |
| Equal Exchange |
YES |
NO |
| Typical Non-Profit |
NO |
NO |
A table showing the beauty of one. I guess if we wanted to be complete we could add “speculators” who seek only capital gain and not profit.
by Alistair, Posted Sep-17-2010 in designs, principles Sometimes it’s hard to see how things change, everything seems so entrnched. Or it’s hard to see whty things should chancew, everything seems so settled. Here’s a true story
EDITOR’S NOTE: I originally wrote this for Equal Exchange’s 2006 Annual Report (where it appears on page 12.)
Back in the 70’s almost every bicycle in the U.S. was a form of road bike, often a racing bike with curved down handlebars. For over a century this form of bike had evolved for one primary purpose, to travel down roads, usually fast. And that they did. Similarly today’s corporations are built for one primary purpose – to make shareholders money fast. And that they do.
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 a new type of bike (image from the mountainbike hall of fame)
Then some wild-eyed folks in California noticed that most of the world didn’t consist of smoothly paved roads or roads at all. They wanted to cycle through forests, up hills, and across streams; to go places that road bikes couldn’t take them. While everyone else thought they knew what a good bike looked like, they set that aside and built a different kind of bike—one with fat tires for better grip, low gears for the long climb, and strong brakes for the hairy descent. The result was a more versatile, rugged, durable bike. You probably own one: it’s called a mountain bike.
Just as most of the land area in the world doesn’t consist of roads, so most of the good in the world isn’t just about money. Conventional corporations are designed to make money, but poorly suited to pursue a larger social mission. This takes an entirely different kind of business. So what are the gears and brakes, the tires and suspension of our new corporation? What makes Equal Exchange more versatile, rugged, and durable? Below are features that constitute the frame of our organization, built with the explicit purpose of pursuing social justice and fairness over profits.
It only took a few years for the advances of the mountain bike to be embraced by the mainstream. Now more than half of all the new bikes sold in the U.S. are mountains bikes. Perhaps in 20 years from now half of the new companies started in the U.S. will be purpose built to pursue the greater good.
by Alistair, Posted Aug-24-2010 in designs, principles These principles come from Corporation 20/20 and initiative of the Tellus Institute in Boston. What do you think? What in fact are the old principles?
New Principles for Corporate Design
- The purpose of the corporation is to harness private interests to serve the public interest.
- Corporations shall accrue fair returns for shareholders, but not at the expense of the legitimate interests of other stakeholders.
- Corporations shall operate sustainably, meeting the needs of the present generation without compromising the ability of future generations to meet their needs.
- Corporations shall distribute their wealth equitably among those who contribute to wealth creation.
- Corporations shall be governed in a manner that is participatory, transparent, ethical, and accountable.
- Corporations shall not infringe on the right of natural persons to govern themselves, nor infringe on other universal human rights.
by Alistair, Posted Aug-17-2010 in better companies, designs, principles EDITOR’S NOTE: I originally wrote this for Equal Exchange’s 2009 Annual Report (where a shorter version appears on page 14.)
You might be familiar with the oft expressed sentiment, “It’s nothing personal, it’s just business.” We at Equal Exhange beg to differ. Our business is formed of persons and financed by persons, it buys from persons and sells to persons, it benifits persons though the efforts of persons. Our business is wholey and fundamentally personal and we work hard to keep it that way. Below are five vital elements to our business model, each of which helps bind us to this principle.
1 – 100% Fair Trade
Every product we sell has been sourced according to fair tradepriciples. We don’t seek to do deals that maximize our advantage by useing whatever leverage we have. We seek to build relationships with our producer partners that are transpartent, equitable and respectful.
2 – Worker-Ownership
Equal Exchange is a worker co-operative; a one-person, one-vote economic democracy. Every worker-owner invests thousands of dollars in the co-op and shares in our profits and losses. Because our worker-owners are closer to the mission than anyone, putting voting control in their hands keeps us on track.
3 – Fixed Price Shares
We need outside capital to grow, but we don’t want capital growth to be our only goal. So our shares are a fixed price. These shares earn dividends, typically 5%, and can be sold back to the company. No one is getting rich here, but our outside investors have allowed us to grow the co-op and change the world – and we’ve paid them dividends for 18 straight years.
4 – Extreme Community
Many talk a good line on community, but we like to crank it up and practice what you might call “Extreme Community.” Every Equal Exchange worker-owner spends a week meeting and working with farmers. The salary range at our worker co-operative is limited to four to one. We also donate and reinvest 10% of earnings in the co-op and non-profit communities.
5 – No Selling Out
Companies sometimes set out to do good, but then comes an offer that’s hard to refuse and they sell to a large conventional corporation. Equal Exchange’s bylaws are different; they require that if the co-op is sold, all proceeds after investors are paid back are then distributed to other Fair Trade organizations. There is no possibility of windfall riches, so there’s no motivation to sell out. As a result, our energies focus on advancing our mission, and we attract employees, supporters and investors with similar goals.
Yes, it is business and absolutely, it is personal.
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COMPANY and CONSEQUENCE is a blog for exploring new and better designs for companies. Why? Because corporate behaviors powerfully shape our society and planet, and most company designs promote destructive behaviors.
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