by Brad Brown, Professor at the U.Va. McIntire School of Commerce and Olsson Center Senior Fellow
Professor Brad Brown
Microcredit and microfinance have captured the imagination of the world by providing what appears to be a successful model of economic development in which poor people lift themselves out of poverty by starting small businesses with the help of very small loans. The popular image of microcredit is that of poor villagers, mostly women, organized in five or six person support groups, borrowing small amounts of money to start “cottage” businesses to earn a little money to help their families.
However, as the microfinance industry has grown and spread around the world, almost all of the stereotypes about microfinance have been challenged. Allegations that microfinance institutions charge usurious interests rate and pressure the poor to take on excessive risk and debt have become well known. So many institutions claim to provide “microcredit” that the term has become meaningless except that loans are generally small and not regulated by any government.
We suggest a new future for microfinance institutions (MFIs). In order to better serve the needs of the poor, we propose government regulation, improved organizational governance and business models for MFIs. With a strict definition of “microfinance” true microfinance can be properly distinguished from other forms of financial activities. With adequate regulation and supervision, MFIs can take deposits from the poor thus providing a valuable service while obtaining money to lend. We propose that MFIs meet a strict definition and then be regulated and monitored to protect borrowers, which will also help to legitimize the microfinance industry.
The complete article, “Is It Time to Regulate Microfinance?” can be viewed online at Progress in Development Studies. My co-authors were Fahkruddin Ahmed and Susan Perry Williams.
At a recent public forum for local business owners, Olsson Center Senior Fellow Jared Harris asked, “what is the purpose of business?” The audience, made up of sustainable business owners responded with answers about passion, purpose and a need to fulfill in the community. However, one owner remarked “what about making money?” Harris, who teaches strategy and business ethics, opened the conversation more to talk about the tension between making money and filling a need. Ultimately Harris believes the purpose of business is to create value, and profits are outcomes.
Photo by Abena Foreman-Trice
The talk, “Lessons from Businesses That Have Weathered the Storm,” is part of the Charlottesville-area Better Business Challenge, a competition among local businesses to incorporate sustainable practices into day-to-day operations. In its second year, the competition also aims to promote companies that have green business models in the community.
Harris offered insights from his research on resiliency in small companies in Virginia. According to Sutcliffe and Vogus, resiliency is “the capacity to rebound from adversity strengthened and more resourceful.”
In his research, Harris and his co-author identified three ways that businesses achieve resiliency:
- Psychological strategy, i.e. having a positive attitude to cope
- Operational strategy, i.e. what can be changed
- Stakeholder strategy, i.e. engagement and cooperation with stakeholders
After analyzing responses from 150 small businesses, he found that there was a positive relationship between a stakeholder approach and profitable growth. “Engaging with external stakeholders pays off,” said Harris.
Olsson Center Senior Fellow Shawn Berman, Professor of Business & Society at the University of New Mexico Anderson School of Management, recently gave a talk on the “employer-employee relationship in the 21st century.” Berman was speaking to the Business Ethics Society, an undergraduate club at the University of Virginia.
He discussed how frontline employees are overworked and stressed in the U.S. and how they are often seen as simply “resources.” After presenting statistics on the present-day workforce, Berman noted that corporate CEO pay is 380 times that of the average worker. He asked the students if the rising inequality in society should be of concern. Using stakeholder management, he encouraged the students to think about the employer-employee relationship and its consequences for society.
Early in her talk at the University of Virginia, Professor Jennifer Griffin elicited a telling remark from a student: technology has expanded the number of stakeholders
Griffin, Professor of Strategic Management & Public Policy at the George Washington University School of Business, said that today’s technology makes communication in the business world easier and faster than in the past. In relation to stakeholders, another student said that this also presents the opportunity for more misinformation. Griffin spoke with undergraduate students in the Business Ethics Society to convey the complexities of modern business management in a world of fast-moving technology.
She says today’s multinational corporations must operate in an environment similar to “a 3-D chess game” because networks and technology are making the world that much more complex. No longer do companies have to deal with just individual stakeholders, but they must work with sets of stakeholders. She challenged the students to think about these stakeholders’ impacts on the firm.
She stated that we’re now in an information market or marketplace of ideas, especially with the media, internet, governments. “How does that change your world? How does that change your business?” Griffin noted that it is “not just having relationships, but it’s the information with technology that changes the game.”
Griffin urged the future business managers to ask, “What business are you in? How do you co-create value?” and finally, “Why should you tend to stakeholders?” She concluded with “If you don’t do it, someone else will for you.”
Recently the Academy of Management Social Issues in Management division hosted a panel discussion called, “Capitalism in Question: Towards an Economics of Justice, Sustainability, and Economic Thrivability.” Professor R. Edward Freeman participated in the discussion, where he humorously remarked that he felt like a clown attending a funeral.
Many of the speakers discussed capitalism’s unsustainable growth, environmental neglect and unsavory scandals. However, Freeman saw a bright future of innovation and hope. He believes that we live in a time where business has the potential to solve real problems. According to Freeman, business adds real value to our lives, and capitalism is the greatest system of cooperation created.
Freeman noted that the old story of business has run its course. That’s why he is actively talking about “New Models of Business in Society” to get people thinking about what is possible.
Dr. Sybille Sachs, Institute for Strategic Management: Stakeholder View
Guest blog post by Dr. Sybille Sachs
This weekend I was visiting my father who is spending four weeks in a little village in the Swiss mountains for recovery. When I entered the hotel I was pleased with the warmth of the receptionist. She gave me the feeling that I was really welcome and that she cares for me. It was not the usual customer orientation we experience in many hotels from employees who are trained to be customer oriented. It was an encounter between human beings. During the entire stay in this hotel I met various people who love their work because they like caring for others.
The hotel belongs to a foundation, which aims at providing services to human beings in all phases of life. Besides hotels they are engaged in child and elderly care.
In doing business we often have a weak connection to why we are doing this work. Rendering a good service is much easier when we know why we are doing it and what we stand for when providing these services.
This hotel stands for doing good to people. Whether we base this on Christian values or on a humanistic commitment in a philosophical sense does not matter that much. What matters is that we know with which purpose we are serving whom. Customer orientation in this perspective is not a mere technical term but a humanistic commitment in the broader sense.
Used with permission from the People for People blog.
Olsson Center Senior Fellow Bidhan Parmar has studied organizational interventions at companies and has some useful tips for business leaders implementing change. In a new video, he explains the importance of organizational context and the “ecosystem” in which these changes might take place.
VIDEO: Bidhan Parmar on the Importance of Organizational Context
TECHNICAL NOTE: Framework for Improving Organizational Interventions
by Jeffrey Harrison and Andrew Wicks
Firm performance is a fundamental issue for scholars and practitioners alike. We need a way of understanding what it means to do well, and what indicates sub-standard performance or failure. Existing financial performance metrics used to determine performance are important, but they are often incomplete and oversimplify the value stakeholders receive.1 Financial measures can be especially problematic when management makes efforts to meet short-term financial goals that reduce the desire of key stakeholders to support the firm and may simultaneously decrease the firms’ ability to create new value for stakeholders.
Instead of focusing primarily on economic performance measures, a stakeholder-based performance measure challenges managers to examine the broad array of ways their firms create value. Managers need to understand the stakeholder goals and aspirations, both as a way of attracting them to the firm, keeping them engaged and performing at a high-level.
Read the full article in Ethical Performance
by Olsson Center staff
A major U.S. bank announces new fees for checking accounts and customers revolt. Many opt to close their accounts and take their business to competitors. A popular mail movie rental service changes its strategy much to its faithful customers’ chagrin. In both instances, social media and traditional media provide a forum for customers to express their discontent. Each company decides to back down, at least in part due to the protests.
As consumers are becoming more educated they are engaging more with the companies with which they do business. This is especially true with educated millennial generation who choose to support more socially conscious companies. Consumers expect products to be tailored to their tastes and expecting companies to be accountable.
There are other places where we see changing stakeholder expectations impact how business gets done. Customers were used to the same 500 products in grocery stores for decades. With the advent of mass-produced organic foods, many consumers demanded more selection from their grocery stores. We now have more choices for food than we ever had in the past. Customers have made it clear that they do not always take what is given to them, especially if someone else is willing to provide what they want.
We are also starting to see signs of a major shift in the wireless carrier market. Consumers have grown tired of the inflexible two-year contract plans, and some companies are changing their strategy to capitalize on this discontent.
Growing stakeholder demands and technology changes appear to be driving an increase in business accountability. Review websites like Angie’s List and Yelp give consumers a voice they never had before. Transparency, driven by the Internet, is changing how businesses operate. These changes add fuel to the idea that Stakeholder Theory has come into fruition, particularly for customers.