FairShares

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= FairShares is a new brand and model for self-governing social enterprises operating under either Company or Co‑operative Law. [1]

URL = http://www.fairshares-association.com/

Note this is different from: http://en.wikipedia.org/wiki/FairShare

Description

"Imagine an enterprise where the knowledge creation model of Wikipedia is combined with the governance model of the John Lewis Partnership and the values and principles of the Co‑operative Group? This is the FairShares Model. It is an approach that contributes to a society in which every adult can become a member-owner of the organisation(s) for which they work, from which they regularly buy goods, and from which they receive social services. In short, it envisages a society in which every adult becomes a co-owner of the organisations on which they, their family and their community depend." (http://www.fairshares-association.com/)

Discussion

Dr Rory Ridley-Duff:

"In the previous epoch of co-operativism (from 1844 to 1978), the notion of a common bond was framed through the needs of a single stakeholder. As Edgar Parnell explains: “Members of the common bond group are those the enterprise was established to serve…for example: in a consumer co-operative, the common bond will be that they are all consumers; in an agricultural co-operative, all are farmers; in a credit union or building society, all savers and borrowers; and in a tenants’ housing co-operative, all are tenants.”

The problem with this arrangement is that ‘other’ groups are then treated as subservient to the needs of those with a pre-defined common bond, producing destructive side-effects. For example, recognising that consumer co-operatives could treat labour in much the same way as other private sector employers, Peter Davies wrote a book on human resource management to help improve their labour relations. Similarly, before crowd-funding and community share issues, co-operatives were frequently hostile to ‘outside’ investors. Co-operation might —as Parnell claims— be a beautiful idea but it becomes ugly when it institutionalises a system of mutual distrust and ignores the common bond that is forged through joint action and shared experiences.

The limitations of old co-operativism, therefore, stem from an ongoing insistence that non-members must behave as philanthropists. The logic goes something like this, “Yes, you can work here so long as you accept that consumers come first” (i.e. that workers must be tacit philanthropists). Alternatively, “Yes, you buy from us so long as you accept that profits go to producers” (i.e. consumers must be tacit philanthropists). More recently, I’ve encountered the following attitude, “Yes, you can invest in us so long as you do not expect a return any time soon, if ever” (i.e. that community capital is seen as a quasi-donation rather than an investment choice).


...


The FairShares Model suggests integrating (social) entrepreneurs, producers, consumers and (social and community) investors. With these changes, the common bond is understood and experienced differently.

Whilst it may pre-exist in a situation or shared characteristic, it also exists in the shared experience of creating alternatives to neo-liberalism. It is based on common bonds that emerge from the application of a multistakeholder ownership, governance and management system to social enterprise development. The benefits sought and interests protected are different rather than the same, but the spirit of co-operation remains the same — to create an economy based on mutual aid rather than market competition." (http://shura.shu.ac.uk/8856/1/FairShares_and_New_Co-operativism_(Final).pdf)


Typology

Rory Ridley-Duff:

"The key issue is that while we have developed systems for recognising the contribution of financial capital, we do not have adequate arrangements for recognising contributions of intellectual, human, social and natural capital.


To understand why, we have to review the way social norms for constituting joint-stock companies and non-share companies have developed.

Private Sector (For-Profit) Norms – Companies Limited by Shares (CLS)

There is a connection between business ideology and the arrangements in law by which entrepreneurs acquire share capital (ordinary shares). They register as directors, then recruit employees to operationalize their ideas. New capital is issued when morefinancial capital is needed, but not when more intellectual, human, social or natural capital are needed. In an unadapted CLS, employees and customers are subordinated to the interests of shareholders. They are not invited to be full members or to contribute towards decisions outside their specialist area of expertise [12]. If employees areoffered share capital, voting rights are often limited or controlled by trustees who – in many cases – are under no legal obligation to vote in accordance with the wishes of their beneficiaries [13].

The intellectual property created by the workforce is acquired by the Company and controlled by executive managers and directors. In effect, majority shareholders treat intellectual, human, social and natural capital investments by others as if they were additional financial investments by themselves. They continue to acquire rights to all the property created by the interactions between employees, customers and the natural environment. This system of enterprise widens the wealth gap between those who own and govern the enterprise, and those who sell their labour to it, or buy goods from it. Even in the richest countries, wealth inequalities grow wider (unless the state intervenes) [14] and the natural environment is degraded [15].

Voluntary Sector (Non-Profit) Norms – Companies Limited by Guarantee (CLG)

A typical response to the social problems created by privately owned economies is to create (private) charities and ‘non-profit’ companies using a Company Limited by Guarantee (CLG). This form of incorporation usually involves specifying charitable or social objects that define the purpose(s) of the enterprise. Founders reframe themselves as trustee-directors responsible for allocating resources in pursuit of social goals.

Charitable CLGs do not issue share capital so trustee-directors give up personal rights to the surplus wealth created by the enterprise. Their role (in law) is one of stewardship, ensuring that funds raised are used to further charitable (or social) objectives defined in the Articles of Association. As in a CLS, they employ staff to pursue social goals. Employees are still not (usually) legal members. They continue to be subordinate to the trustee-directors and give up the (intellectual) property they create.

Social Economy Norms – The Co-operative Society / Mutual Company

Do we have to choose between these two models? Three bodies of knowledge suggest we do not. Firstly, there is a global movement backed by the UN to increase responsible use of corporate assets [16]. Secondly, the UN’s International Year of Co-operativeshighlighted the global growth of the social economy [17]. Particularly important is the way that the internet has reduced the costs associated with co-operative working. The upsides of co-operation (intellectual exchange and collaborative decision-making) no longer come with the downsides of democracy (hefty co-ordination costs) [18]. Lastly, more enterprises identify themselves as social, deploying business models that improve human well-being through innovative trading strategies [19].

Creating non-shareholding companies enables the wealthier sections of society to address some symptoms of poverty and exclusion that private enterprises create, but it cannot address the root causes because it changes neither the ownership structure nor governance processes that creates and sustains them. Traditional private / non-profit models continue to institutionalise a division between producers and consumers on the one hand, and entrepreneurs and (social) investors on the other.

The FairShares Model

For this reason, Level 1 of the FairShares Model asks important questions about representation in ownership, governance and management.

The FairShares Model is based on an approach to social economy defined by Social Enterprise Europe. It operates from the assumption that the exclusion of primary stakeholders from member-ownership (i.e. employees, producers, customers and service users) is a cause of contemporary poverty. At Level 2, the answer to each FairShares question suggests the set of corporate arrangements that is most favourable: entrepreneurs get Founder Shares; workforce members get Labour Shares; trading commitments are rewarded with User Shares; and financial capital creation is rewarded with Investor Shares.

This represents a new approach to valuing investments. When there are surpluses(profits), not only do the providers of financial capital get a return, but also the contributors of other types of capital. In a FairShares Company, half the capital gain is issued to Labour and User Shareholders as new Investor Shares, while the other half increases the value of existing Investor Shares. In a FairShares Co-operative, surpluses can be allocated to restricted funds controlled by Labour and User member-owners, who then use their chosen approach to direct democracy to allocate surpluses to social investment projects. None of this means that the conventional mechanism for allocating shares to external financial investors has to stop. In a FairShares Company / Co-operative, Investor Shares can be issued to external investors if debt finance is hard to secure. But, even with this, at least 70% of the wealth accumulated will find its way into the hands (and bank balances) of producers and consumers. It enriches the ‘bottom’ 90% as much as the ‘top’ 10%. And if this is not sufficient, FairShares Articles of Association (at Level 3) includes community dividends that act as an asset lock for philanthropic capital if the enterprise is dissolved.

The Articles of Association provided by the FairShares Association are not the only model rules that support FairShares brand principles [20]. But they do represent an ambitious attempt to bring together the most enduring developments in multi‑stakeholder ownership, governance and management so that we change the way investments are recognised and valued [21] [22]. The FairShares Model offers a system for ensuring that capital is allocated to different types of contribution so that wealth and power can be more fairly shared." (http://www.fairshares-association.com/)

Example

Mass Mosaic

The interview of Operations Chief Eric Doriean was conducted by Anna Bergren Miller:

* ABM: Let's talk about the transition to FairShares. First, why shift to a different ownership model?

ED: Many years ago, I read a book called When Corporations Rule the World by David Korten. It opened my eyes to the devastating effects the corporations of today have on people, the communities we live in, and the world at large.

Having a corporate background myself and [having had] my ignorance of the real effects of current corporations shattered, [I was] in a unique position to think of solutions to these problems. It was clear to me that decision-making and profits needed to be shared more equitably in the companies of the future.

It’s also extremely important that as Mass Mosaic grows and the number of stakeholders grow, we always stay true to our values and mission. That's something that couldn’t be guaranteed with an existing corporate structure.

By doing it, we're drawing a line in the sand that means we're probably never going to get VC funding. We have to be really happy with that, and it changes the way we look at things. But what we're creating is just too important to let other people with less altruistic values and mission take over.


* ABM: Did you always plan to transition Mass Mosaic to a multi-stakeholder structure? Or did this evolve more recently?

ED: It's evolved more recently. I've thought these sorts of things were necessary in the past. But it was a process to—I guess you could say that I was the champion within Mass Mosaic. I pushed very hard over a couple of different times.

Before we came across FairShares I was suggesting something similar. It definitely wasn't accepted at that stage. But once I came across FairShares I put it to the [team] again. I think with a little bit of time, and actually having an independent body with this structure instead of it just [being] something coming out of my head, helped. I mean, the others were never against it, but they knew the implications it would have, especially around funding. We had to, as a team, really believe in it together. And that started earlier this year.


* ABM: It sounds like part of the attraction of the FairShares model was that it's not strictly do-it-yourself. You wouldn't be on your own. Was there anything else about FairShares in particular that made you say, "Yes, this is it"?

ED: Yes. To me, it combined all the principles of the kind of structure that I had envisioned for so long. The co-­founders of FairShares have themselves all worked on multi-­stakeholder structures for around about 20 years. They brought their knowledge and experience together to create a structure that is flexible, whilst adhering to fundamental principles that we believe the companies of tomorrow should have.

So it was not just the fact that it was an independent body. It was the experience of people doing it for a long period of time. That was a really big thing.

In particular, I really liked that FairShares gives rights and power to four stakeholder groups: founders, investors, employees, and customers. All of those groups are responsible for creating an organization. But it's the founders and investors that get to reap the benefits, usually. Sometimes—through employee share plans or bonuses—the employees do, but hardly ever the customers.

It makes a lot of sense as far as a solution for corporations in the future. If all the corporations of today had this sort of structure, it would be an absolute game-changer. Between Google, Apple, and Microsoft, we've got half a trillion dollars sitting in cash on these balance sheets. If that was distributed out to customers, employees, and different people around the world, who knows what would happen?


* ABM: Where are you in the process? Or is that privileged information?

ED: Oh, no. We really want to be transparent with what we're doing. It's a people-powered movement. So we definitely want to be transparent.

We have gone through a process with FairShares to come up with with a model that suited a technology business, whilst still adhering to the FairShares principles.

With that in place, we launched a website (peoplepower.massmosaic.com) with all the details that came out of that process. The website provided a way for people to send us feedback and to refine the model, if needed. It's really important that we get that feedback before we move forward with implementing. You get one chance to put this out there. And though things can go through, like at the general meeting, to change things, it's important to get that base there. We're not kidding ourselves. We want to make sure that everybody's really into this.

That's still ongoing. We've had a bunch of feedback and interest. There's a time and a place—and we're not quite there yet—when we've had enough feedback, and we've had enough interest. We're going to be launching a crowdfunding campaign. The crowd fund will not only provide the fund required for Mass Mosaic to take this step, but will also allow us to document a how-to guide for anybody to transition to FairShares in the future.


* ABM: Have you encountered obstacles in the shift to FairShares thus far?

ED: FairShares hasn’t been implemented in the US yet, nor has any other global technology company become a FairShares enterprise. There’s no set path for us to take on our transition, so we are breaking new ground. With that comes challenges, but all the advice we have received to date has shown there is path forward for us to do it.

FairShares has a default articles of association. That changes depending on the model that is decided in the end. That articles of association is a Creative Commons document, so any changes to that would be released to the public for anyone to use. But beyond that, as I said, we really want to document how we did this, put it all out there, so that other people coming after us don't have to go through all that themselves." (http://www.shareable.net/blog/interviewed-mass-mosaics-eric-doriean-on-the-fairshares-alternative?)

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