Global Obligations: The Business Model

This page outlines a "business model" for establishing a new institution such as Global Obligations Organisation, using the language more like business and government executives.

If the anti globalization forces have a point, what would be the basic business drivers of an institution to address the adverse effects of globalization?

Political and business leaders on the global stage, in wealthy countries as well as developing nations, increasingly are advocating a stronger role for "civil society" - the non-government organisations (NGOs) - to mitigate the adverse effects of globalization. The concerns are highlighted by international protests against global bodies such as the World Economic Forum (WEF), the International Monetary Fund (IMF), the World Trade Organisation (WTO) and the World Bank (WB) and global corporations such as Microsoft, McDonalds, Coca Cola, Nike and Nestle.

Can or should this mooted expanded role be adequately taken up by existing NGOs, or for a long term cost effective solution would some new institution, or set of institutions, be preferable? The consortium of the WEF, IMF, WTO and WB, have obviously not attained widespread support, and in fact suffer from almost universal disdain and contempt from all except economists, big business, and conservative politicians (Labour, these days, is conservative!).

Although Claude Smadge, then the Managing Director of the WEF, suggests national governments should control the multinationals, after many decades of opportunity they have failed, for a variety of reasons, to do so, and it seems like a vain hope to expect them to take up the cudgel now. National governments vary in worth from the genocidal, to the mildly corrupt, to the populist: it is difficult for a politician to take a lead role when one is at the whim of an indiscriminate electorate.

Many NGOs are essentially single issue organisations, or are seen as biased, undemocratic, not transparent or even corrupt.. A new institution must be balanced, open, structured, comprehensive and reliable.

What would the business model of a new organisation designed to humanize globalization look like?
The key principles of the business model must address, to the degree practical, the real and perceived inadequacies of the major available institutions - the NGOs, national and state governments, global corporations and international organisations such as those listed above. The business model must address corporate governance, products and services, income streams, participation rates, pricing structures, risk management and financial controls.

1. The new institution must be democratic. Claude Smadge criticized the NGOs because they are not democratic. The WEF, IMF, WTO, WB and UN are not democratic either.

To be effective, and avoid replicating the existing international bodies, the new institution must not be a United Nations subsidiary or a collection of national governments, subject to the vested interests of particular nations, especially the wealthy countries.

The new institution must avoid being 'captured' by representatives elected by minorities or from particular localities, or as a result of vote buying or rigging.

The new institution must be acceptable to the reasonable people who express concerns regarding globalization. It must be a non-profit organisation and must not be controlled by business.

In countries with a vigorous body politic and a free press there is almost a regime of continuous disclosure. Just as a business can be taken over, or undergo a board coup at any time, so the new institution's policy makers must be subject to continuous scrutiny - and not just stand for election every 3 or 4 years.

And just as shareholders, the members of a company, need not all reside in the same neighbourhood, so to, to reduce parochialism, electoral processes should not be founded on geographic boundaries.

And just as a business can start up without a majority of local citizens supporting the proposal, so this new institution must start up without waiting for majority support in any particular neighbourhood, state or country. The new institution must be able to run with only a small percentage of the population involved.

So our new organisation must be run democratically by elected leaders who continuously represent their whole electorate, who may be geographically diverse, and may not be a majority in any neighbourhood. The elected representatives must determine policy, which is carried out by a professional executive subject to open scrutiny.

2. Services to be offered by the new institution must be clearly understood to address the acknowledged problems with globalization, inequality, poverty, ignorance and being disenfranchised. The services offered must cover comprehensive human rights support - civil, political, economic and cultural.

To obtain some economies of scale, the services should not be fragmented - with civil rights being offered by one organisation and political rights by another, but all human rights services that matter globally should be covered in the same package.

At the same time it must remain focused on its core business, omitting other very important issues such as peace and the environment that would be better addressed on a geographical basis.

We are not trying to replicate a sovereign state, with theoretically unlimited authority and scope of action (within their borders). The new institution must have a constitution, or articles of association, which force it to focus on a defined and consistent set of issues, leaving the rest to others.

3. Existing NGOs do not provide services to their beneficiaries on a reciprocal contractual basis.

Would you insure your house without a binding contractual arrangement, leaving it up to the service provider to determine whether they can afford to honour your policy, or whether their focus is on a different area this year, or whether you are deserving of their support? Of course not. To attract the punters, the new institution must be committed to deliver.

Why couldn't human rights services be offered on a similar contractual basis - guaranteed, in writing, expressed like a kind of Service Level Agreement with levels of effort and response times. Unless the new institution had such a commitment, we might as well remain with the existing NGOs where service delivery is optional and funding is voluntary.

4. On the other hand, services must be paid for. The new institution must be financially viable, with a reliable income stream, backed up by sound risk management policies and financials on expenditure and liabilities.

Income can come from two streams: dividends from capital investments, based on donations from individuals, corporations, NGOs and governments, and regular subscriptions from members. How can a new organisation encourage a wide participation in these two aspects? We particularly need to target the affluent as well as the committed.

Depending solely on the altruism of the affluent, as do most NGOs such as Amnesty, Greenpeace and World Vision, limits their membership. To have a wider participation rate, contributors must get a payback other than just a warm fuzzy glow. The new institution must also avoid the perception that some receive benefits which others are not entitled to, which leads to dissatisfaction and lower participation. For instance, it must not provide benefits to an indigenous person that would not be provided to a non-indigenous person. The service coverage must apply to all members, even to the very rich, so all members are entitled to the payback. This means the services must cover not only subsistence level support for the desperately poor, but also services which ordinary prudent people from the middle classes in developed countries need. How can this be done?

The core services which must be offered to the poor are in part risk management - covering for loss of income, sickness, legal representation and personal security.

If a member is a poor Bangladeshi farmer whose house and farm are flooded, then looted, we should reinstate or replace the house and farm facilities, provide income maintenance while the farm recovers, and if necessary assist local authorities to provide security services to discourage looting.

In the same way, a member who is a marketing manager in an affluent area of mid-western America who loses their job because the company has moved to Bangladesh, whose house is burnt down by gang members, is entitled to reinstatement of the house and income maintenance while obtaining a new job, perhaps after retraining or changing career.

Both members are entitled to similar benefits, the payback, even though their contributions differ.

It is also essential for a wide participation rate that benefits are not seen to be given to the undeserving. How can we tell without being parochial or too moralistic who is deserving? One criterion acceptable to most people is that the recipients must be willing to do the same thing for someone else, if they were able. One who is ready to accept help but not willing to give it is undeserving.

Another criterion for being deserving is that the recipient is willing to return the favour, to pay back the debt, if and when they are able. These criteria mean that all members should contribute something, even if it is a small amount, and those who receive net benefits should accrue a debt, which is repayable on demand if and when they have the means to do so.

Another driver for wider participation is being perceived to be well managed, with low overheads and a high proportion of donated income actually being dedicated to service delivery. This requirement simply means that the organisation, like many others, must be professionally managed, externally audited, transparent, and open to external and internal scrutiny.

The defined, contractual nature of the services offered, and focussing on core issues, helps to limit the liability, but further constraints would be required on the people the coverage applies to, even if they are deserving. The new institution must only grant coverage to those it can adequately service and admit needy members according to an explicit policy that contains the risks. It cannot offer a universal service and be swamped by demand, but like all aid organisations must find a way to control demand.

5. These approaches will encourage wider regular participation amongst the affluent. The new institution must conduct fund raising activities and seek donations from philanthropists, both wealthy and modest, but rather than allocate these gifts to ongoing operating expenses they should be invested in income producing assets which are applied thereafter to human rights support services.

This provides greater stability to the new institution and greater satisfaction to the donors, because the benefit of their gifts will be felt for generations rather than spent in a few years.

Profits from income producing assets correspond to voluntary consumption taxes: a proportion of the discretionary expenditure of corporations and their customers is thereby appropriated for globally beneficial purposes.

The new institution, other global corporations and individuals should lobby governments to allow donations to this capital investment fund to be tax deductible and for the income to be exempt from income taxes, because it is applied for the alleviation of poverty.

6. The income stream then can be used to cover part of the subscriptions of the more needy members - to give them a discount on their premiums. The regular contributions from the more affluent members must include a "commission" component which is applied for the benefit of the poor. This addresses another major issue of perception: the new institution will actually effect a net transfer to poor individuals - whereas many policies of the existing semi-government institutions (WTO, IMF) are seen to provide net benefits to the wealthy nations.

Income from capital investments allows the transfer to occur without having to beg for ongoing support from benefactors just to support the existing client base. To be prudent, people in need should be admitted as members only while the institution's investment income can cover the any discount on their subscription and provisions can be made in the accounts for the expected future liabilities.

7. All successful organisations must exploit their own strengths and capitalize on the opportunities available. Many companies leverage their capital by borrowing to provide more investment funds, which they use to generate income that exceeds the cost of the loan. Others capitalize on their knowledge base, to produce high value added products or services.

A major strength of the new institution would be its members self-selected for their commitment to humanity or their desire to improve their lot. Service delivery must be structured to empower the members, with skill development, formal education and training, seed funding for small enterprises, and to utilize voluntary labour to support local communities.

Service delivery must also leverage against compatible services delivered by local state and national governments and other aid organisations. This approach will reduce costs as well as result in customized services to suit the local environment.

8. The new institution must avoid parochialism in all its forms, including nationalism and protectionism. Criticism of many international bodies surrounds the observation that they focus on the needs of the affluent countries, particularly the USA and Europe. Trade rules especially focus on protections for intellectual copyright and free trade in manufactured goods, while allowing the developed countries to impose trade barriers against primary products and clothing, footwear and textiles which are the staples of developing countries. The new institution must not protect workers in one country at the expense of workers in another, but must advocate fair trade, decent employment practices, and appropriate relocation or redundancy allowances when companies move.

9. These key principles of a business model must be developed into a detailed, pragmatic set of policies and procedures. This exercise would be a challenge for the leading international consulting firms, but is quite feasible. There is no major philosophical or ideological impediment that would prevent such an institution being established.

There is no rocket science involved in the principles of board elections by members of a company, risk management services, contractual service level agreements, non-discriminatory service delivery, targeting services for a wide participation rate, fund raising, capital investments, member's discounts and exploitation of your human capital to leverage your impact. These are all standard commercial issues faced by business entrepreneurs every day.

The key areas of uncertainty would be the support of government, the support of major corporations and major philanthropic organisations and mostly the level of support in the general public. These concerns can be addressed by appropriate marketing, taking as the starting point the current widespread opposition to globalization and the base level of support for charitable institutions.

Governments of the home countries of global corporations should support measures that minimize the likelihood of protectionism in client countries and maximize the flexibility of their own business class.

Major corporations should support measures that will be seen to genuinely address the adverse effect of globalization, to counter the negative perceptions of their own behaviour. Just as McDonalds emphasizes its green credentials and Nike contracts with its suppliers to have reasonable employment practices, so other major corporations will support this new institution and accept any flack they receive from it in order to promote their own worth to a more activist and globally aware public.

Some global companies, in consulting, insurance, finance, security, and law, may see potential commercial advantage in being preferred suppliers for some of the services to be provided, and hence be willing to invest some of their capital to developing the policies, procedures and infrastructure of the new institution. It would be essential that such developments are done in partnerships, where the business is not, and is seen to not, be in control, otherwise the credibility of the exercise would be lost. But outsourcing of many services would be essential and there are ample opportunities for commercial development in this context.

Affluent individuals, especially the more educated, politically aware and technically savvy, have most of their core material needs satisfied, and are more willing to link their discretionary expenditure with personal fulfilment. With the added benefits of insurance coverage that many prudent individuals would take anyway, membership of the new institution should seem financially and ethically attractive, to a small percentage at least. The new organisation would initially only require a limited participation rate to test the viability of the concept.

Whether this would really work can only be determined by testing the idea in the marketplace. To provide a realistic offering we need to define the relevant policies, establish the appropriate commercial and financial controls, set up the infrastructure, and market!

The definition of an appropriate institution is being explored at the web site www.GlobalObligations.com. The site explains the motivation for the new institution from an individual's perspective as well as in business terminology. The Global Obligations Establishment Association is seeking support from ordinary individuals, professionals, business and government executives and politicians to provide funds, expertise and support.

Many multinational corporations appeal to local nationalism and local charities to minimise antagonism to them being foreign. The American multinational McDonalds supports Aussie Rules football, and the Royal Melbourne Hospital. This strategy may diminish in effectiveness, or become only part of a wider marketing strategy. The corporate communication and marketing departments of some major corporations may be looking for something more ambitions and more comprehensive to soften the perception that they are an uncaring exploiter of the local people and environment.

Rather than expressing bewilderment at the opposition to globalization, or despair at the apparent lack of solutions to the perceived problems, perhaps business should get behind this idea, before fear, anger, uncertainty and hesitancy kill the chance.

Copyright 2000 Trevor J Rogers, Melbourne Australia. Version 2.1 October 2000

To contact send email to: Info@GlobalObligations.com. Home Page:www.GlobalObligations.com

Address: Global Obligations Establishment Trust, G.P.O. Box 2004, Melbourne, 3001 Australia