This post contributed Vivianne Naigeborin

One of the greatest challenges for entrepreneurs developing social businesses is to define their enterprise’s governance model - that is, the processes, agreements, policies, and laws that will regulate the way in which the enterprise (whether a business or a social sector organization) will be managed, the relationship with fellow shareholders, and the division of power among its various stakeholders.

This is why the Latin American entrepreneurs who participated in the 2009 Ashoka-Lemelson-Artemisia gathering in Sao Paulo chose governance as one of the topics to address. During the morning of September 16th, a group of around 12 entrepreneurs shared experiences and insights in a debate that generated reflections which may serve as inspiration to those who work in this field. Among the tenets shared by the group, I would highlight:

• Governance is the cornerstone of a social business and a critical factor for the effective transformation of society. This means that it is not enough to simply include underprivileged people in the value chain or to provide access to products and services for low-income individuals. Just as important is the creation of innovative governance models that guarantee an equitable distribution of power and resources throughout the chain.

• Social businesses should provide enhanced quality-of-life to stakeholder communities based on these communities’ self-determined aspirations. In order for this to happen, it is important to create spaces for formal decision-making that connect and integrate, in a virtuous manner, all those involved in the business.  El Arca, www.elarcamendoza.com.ar, created by the Argentinean Ashoka entrepreneur Pablo Ordóñez, has very successfully created a community of "prosumers" (producer-consumers) that, together, define products’ and services’ specs, distribution strategy and pricing, with an emphasis on fairness to all. In addition to guaranteeing that the needs and interests of both sides are understood and met, this model also stimulates the search for solutions of collective interest, contributing to local development.

• Existing legal models often restrict the creation of more inclusive governance models. Tiago Dalvi, a member of Artemisia's network and the entrepreneur behind Solidarium, a fair trade social business, talked about the challenge of formally including small producers as co-owners at the moment of creating the business, structured as a Limited Liability Company (LLC). In order to do so, he would have to opt for the Corporation legal structure (S.A), which would imply significantly higher taxes that would in turn make the business economically unviable. The choice in this situation was to develop a plan for increasing total sales as well as sales volume per customer and to look for a financial model that would allow a quick migration to the SA model, thus opening the possibility of turning producers into partners in the medium term.

• When developing a social business, working across various sectors is vital.  One of the secrets of success of a cross-sector partnership is to allow each institution to contribute what they are best at, starting from a business model that is designed and defined with the participation of all stakeholders. In this way, businesses can, for instance, be in charge of commercializing products, while social sector organizations can be responsible for providing assistance to the producers and supporting community development. Even so, partnering with traditional companies to create a social business has been an incredible challenge for social entrepreneurs. Colombian Ashoka Fellow Sergio Arango, developed Naidí S.A., a business that produces and commercializes frozen açaí fruit pulp for export, whose shareholders include a non-profit organization, açaí pickers, and a private company. Sergio highlights the importance of continuously working to overcome prejudices between the factions, and to prepare the community for an open dialogue with the company to ensure that power is truly shared.  He also notes that the main challenge is the need to accommodate dramatically different work styles, logics and interests.

• It is crucial to include clients and other representatives from the target groups in the social business' leadership team. Beatriz Pellizari, Argentinean Ashoka Fellow and founder of Ama-gi, an organization that designs and commercializes appropriate clothing for people with limited motor skills at accessible prices, opted to develop a board that, in addition to including people with business experience, also includes an individual with disabilities. The presence of a potential customer at the leadership level helped sensitize the rest of the board members regarding the cause and ensured that discussions were not limited to business profitability. The result is a business design that may achieve a balance between profit seeking and social impact. Beatriz states the importance of consistently emphasizing to the leadership team that the primary goal of the business is social impact. This diminishes the risk that the business, which has high potential for significant profit, will gradually become distanced from its original principles and values.

• While challenging, it is fundamental to transfer leadership to the beneficiaries. Brazilian Ashoka Fellow Raquel Barros, founder Associação Lua Nova, was planning to transfer ownership responsibilities of the small businesses that she helped create (doll production, bakeries, etc.) to the organization’s beneficiaries, young mothers who were already working in the businesses.  However, Raquel realized that many of them, despite having experience with the production process as well as with distribution and sales, did not want to or did not feel capable of managing the businesses. This experience made Raquel realize that the women need to be prepared not only for basic business implementation, but also for strategic management. Because of this, Lua Nova is involved in creating a social business school for people with little formal education.

• Hiring young people, along with investing in their personal and professional training, can be an efficient solution for entrepreneurs developing succession plans. Rebeca Villalobos, founder of ASEMBIS - red de Clínicas de Especialidades Médicas en Costa Rica and an Ashoka Fellow, opted for hiring talented and capable youth, who did not have a lot of professional experience, and betting on the strategy of training and developing them - "taking them by the hand" -, as she says. The goal is to ensure that the institution, leader in the Costa Rican market, remains a model for national health provision by international standards, whereby all populations, especially those in poverty, have access to high quality medical services. In 2009, Rebeca is finally testing the transition: she has selected one of the hired young people as her successor and is involving two others in the coordination of strategic areas.

• To succeed, a social business must foster entrepreneurship and leadership development at the local level. While the founding entrepreneur is usually at the helm of a social business during its initial stages, the business model should incorporate a vision and strategy for developing new entrepreneurs and local leaders as soon as possible. Greg van Kirk, Ashoka Fellow and founder of Community Enterprise Solutions - CES, in Guatemala, states that “development”, above all, means making people grow. That is why his model identifies and develops local leaders who take on different decision-making responsibilities in the business, guaranteeing decentralized governance. He highlights the importance of delegating power to create an efficient business.

• Finally, the entrepreneurs concluded that a social business can truly be considered a successful model when, in addition to achieving relevant social, environmental and economic results, the business’ credibility no longer depends upon the founding entrepreneur, but rather upon governance and the concretization of its specific vision of social development.  This sounds like an audacious and inspiring goal for which all should aim.

Vivianne Naigeborin is Brazilian working as a consultant on strategies and projects for national and international citizen sector organizations, among others, Artemisia International and  Museu da Pessoa. Between 2000 and 2007, she was Strategic Partnerships and Integration International Director in Ashoka. She leaded the Prêmio Empreendedor Social Ashoka-McKinsey, a business plan competition for citizen sector organizations, and its replication to 7 countries; and coordinated the elaboration of publications for the citizen sector, such as Empreendimentos Sociais Sustentáveis - Como elaborar planos de negócios para organizações sociais, and Negócios Sociais Sustentáveis. She is board member of Instituto Fonte, Instituto Elos, NAPS and Tekoha. Before ashoka, she worked in Fundação Gol de Letra, Fundação Fé e Alegria, Centro de Voluntariado de São Paulo and Lar do Caminho.