How a Social Bank in a Brazilian Favela Spun Off a Stock Exchange - And Why Should We Care

• In Event: Hybrid Organization and (Non-)Digital Practices

Abstract

Hybrid organizations strive to balance a social mission of positive social outcomes for marginalized communities with a market-driven mission of profit through traditional business practices (Battilana, Besharov, & Mitzinneck, 2017). However, these organizations are often haunted by tensions arising from the clash between supporters of each mission (Ebrahim, Battilana, & Mair, 2014).
This case study investigates a social bank from a Brazilian favela, which realized its business model could no longer guarantee organizational survival. To avoid deviating from their social mission, their decision-makers established a for-profit stock exchange which would be not only self-sustaining but responsible for generating new funding for the bank. It would function as a purely for-profit organization.
The primary objective of this study is to examine the influence of spin-offs on the ability of hybrid organizations to effectively manage dual missions. Drawing from a dataset of thirty-two semi-structured interviews and meeting observations involving over thirty stakeholders, the paper aims to address the following research question: How does the creation of spin-offs impact the capacity of hybrid organizations to navigate the tensions between institutional logics?
The findings of this study reveal that the social bank spun off a stock exchange to segregate opposing institutional logics. This transformed them from an integrated hybrid organization (IHO) into a dyad that operated as a differentiated hybrid organization (DHO). IHOs have the customers and beneficiaries as a sole group, while DHOs have separate customers and beneficiaries, with the former group generating the profit used to cause social impact for the latter (Ebrahim, Battilana, & Mair, 2014). Each organization became dependent on the other, as the bank needed the money generated by the exchange, while the latter relied on the former for infrastructure, credibility, and validation purposes.
The phenomenon of spinning off organizations with a different set of institutional logics is not new, but it is historically restricted to for-profit companies spinning off for-profit companies (Corley & Gioia, 2004), an internal spin-off project (Michelini & Fiorentino, 2012), or a foundation (Seitz & Martens, 2017). Scholars also cover non-profits that transition to for-profits, to reduce donor dependence and focus on social impact (Battilana et al., 2012). However, hybrid organizations spinning off a for-profit enterprise to help deal with conflicts between institutional logics are not explained. We need to identify ways that hybrid organizations can deal with these conflicts, as pairing different institutional logics can foster innovation in ways that organizations relying on a single logic are not able to achieve (Smith & Besharov, 2019), and dyads with hybrid organizations from the same value constellation can improve the health of the original organization (Lyon & Fernandez, 2012).
This research contributes to the discussion of conflicts between institutional logics in hybrid organizations by proposing spin-offs as a strategy of differentiation (Pache & Santos, 2013) not explored in the literature of hybrid organizations. It also enriches knowledge on how social organizations increase legitimacy and impact through spinning off for-profit organizations when their business models are mutually reinforcing.

References

Battilana, J., Besharov, M., & Mitzinneck, B. (2017). On Hybrids and Hybrid Organizing: A Review and Roadmap for Future Research. Dans R. Greenwood, The SAGE Handbook of Organizational Institutionalism (Vol. 2, pp. 128-162).
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Corley, K. G., & Gioia, D. A. (2004). Identity Ambiguity and Change in the Wake of a Corporate Spin-Off. Administrative Science Quarterly, 49(2), 173-208.
Ebrahim, A., Battilana, J., & Mair, J. (2014). The governance of social enterprises: Mission drift and accountability challenges in hybrid organizations. Research in Organizational Behavior, 34, 81-100.
Lyon, F., & Fernandez, H. (2012). Strategies for scaling up social enterprise: lessons from early years providers. Social Enterprise Journal, 8(1), 63-77.
Michelini, L., & Fiorentino, D. (2012). New business models for creating shared value. Social Responsibility Journal, 8(4), 561-577.
Pache, A.-C., & Santos, F. (2013). Inside the Hybrid Organization: Selective Coupling as a Response to Competing Institutional Logics. Academy of Management Journal, 56(4), 972-1001.
Seitz, K., & Martens, J. (2017). Philanthrolateralism: Private Funding and Corporate Influence in the United Nations. Global Policy, 8(S5), 46- 50.
Smith, W. K., & Besharov, M. L. (2019). Bowing before Dual Gods: How Structured Flexibility Sustains Organizational Hybridity. Administrative Science Quarterly, 64(1), 1-44.
Yunus, M., Moingeon, B., & Lehmann-Ortega, L. (2010). Building Social Business Models: Lessons from the Grameen Experience. Long Range Planning, 43, 308-325.

Author

• Joao Miguel Peixoto Guimaraes Milanez