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[4] Civil Society-Market

At the civil society-market interface, we find private, non-governmental organizations that are non-profit oriented and aimed at providing private goods. Most cooperatives and most social enterprises fit this category. Both types of organizations are impact driven and have been founded in response to a societal problem (poor working and income conditions of farmers, for instance). Cooperatives tend to have members rather than customers; many social enterprises are based on crowd-funding or other forms of blended finance.

Agency Challenges

Members (e.g. in a cooperative) may play different roles simultaneously (owners, buyers and sellers, controllers, and beneficiaries) and thus may have very diverse objectives;
Multiplicity of objectives (e.g. social mission, financial stability, growth, flexibility, time horizon) means the objectives of the organization are not well defined, increasing managers’ discretion;
Multiplicity of objectives makes it more difficult to establish incentives, performance metrics, and control mechanisms that minimize conflicts between members and managers;
Power of the (cooperative) managers, combined with the fact that property rights are not properly defined;
Boundaries between governance, management and operational matters can be very blurred.

Typical Strengths

Active economic participation by members;
Solidarity /cooperation in meeting common economic, social, and cultural needs and aspirations;
Joining of forces (against market dominance;
Economic resilience by risk and profit-sharing, and by investing part of profits back into the community;
Voluntary, open membership;
Democratic member control and decision-making;
Autonomy and independence;
Education, training, information sharing;
Concern for community / values orientation (openness, social responsibility, caring, tradition);
The competitive advantage of mutuals.

Typical Weaknesses

Democratic decision-making (one man one vote, majority rule);
Accountability/ responsibility towards whole membership group hampers initiative and flexibility;
Less agile and thus less competitive;
Portfolio risk problem: different risk aversion levels and time horizons of members;
Shares not transferable, no or very restricted individual spread of risk possible;
Professionalism (hiring and retaining specialized staff, e.g. administrative capacity);
Tradition, conservatism;
Free-rider conflicts.