need help with a strategic management Case Analysis. would like answers to be very detailed and in depth.
Name of case is
Equal Exchange: Doing Well by Doing Good©1 Rev. Dr. Benita W. Harris
Asbury United Methodist Church Frank Shipper, PhD
Perdue School of Business, Salisbury University Karen P. Manz
Author and Researcher Charles C. Manz, PhD
Isenberg School of Management, University of Massachusetts © Vividfour / Shutterstock.com Introduction
In 1983, Rink Dickinson, Jonathan Rosenthal, and
Michael Rozyne were all recent college graduates and
working for a food co-op warehouse in the Boston area.
They began to question the system, asking questions such
as, ?What if food could be traded in a way that is honest
and fair, a way that empowers both farmers and consumers? What if trade supported family farms? use of organic
methods rather than methods that harm the environment?? Almost simultaneously, they started to hear about
groups in Europe engaged in a concept called fair trade.
The advocates of fair trade wanted to ensure that the
producers of products such as coffee, tea, and chocolate
would receive a better price for their crops while also providing support for improvements to their environmental,
social, and political conditions. Dickinson, Rosenthal,
and Rozyne liked the idea. According to Dickinson, they
??were basically food co-op people, interested in connecting small, local farmers with consumers to change
the marketplace,? however, it was not their intention to
found a company. Instead, they took the idea to the board
of directors of the co-op warehouse. Half the board supported the idea and half voted against it. It became apparent to them that if they were going to pursue their vision,
they were going to have to do it themselves. Over the next three years, they met once a month to
develop their plan and raise the capital to establish their
own organization. The three young entrepreneurs quickly
learned that no institution ? including organizations that
specialized in high-impact social justice ventures ? would
lend them money. Thus, fundraising focused on family,
friends, and their contacts. According to Dickinson, the
general pitch was, ?We want you to invest in this project
and it is almost guaranteed to lose all of your money.?
On those terms, they were able to raise $100,000. While
raising money, Dickinson said they used their jobs to
learn about cooperatives, small farmers, entrepreneurship, marketing, and ?making mistakes, right and left.?
The food co-op gave them ?a great environment to learn
some skills.? In 1986, Dickinson, Rosenthal, and Rozyne
were ready to launch Equal Exchange (EE). By that time,
their ambition was ??to change the way food is grown,
bought, and sold around the world.?
EE embarked on its pioneering efforts to sell fair trade
products in the U.S. with coffee from Nicaragua. From the
beginning, EE has paid its producers, typically small farmers indigenous to their region, an above market price for
their products out of a desire to help provide a better, more
stable income and to more equitably distribute the proceeds
of the final sales. EE prominently displays the company
slogan on each product ? ?Small Farmers, Big Change.?
119 CHE-HITT11E-13-0403-CaseStudy11.indd 119 22/10/13 2:47 PM 120 Part 4: Cases Not content to just ??change the way food is grown,
bought, and sold around the world,? the founders of EE
formally adopted a hybrid worker-owner co-op structure in
1990. They believed this ownership structure would make
its employees feel valued and, in turn, they would invest
their whole being in the organization. Key to this new
structure was shared employee ownership. Each workerowner buys one share of Class A voting stock; no one did,
could, or can own more than one share of voting stock.
Worker-owners can also buy unlimited shares of Class B,
non-voting stock. This structure distributes power, and
potentially leadership, equally across all worker-owners on
a democratic one-person/one-share/one-vote basis. 2012
Twenty-seven years later not only is EE doing good ? it
is doing well (see Exhibits 1 and 2). EE sales have grown
from zero in 1986 to $1 million in 1991 to $42.8 million
in 2010.2 In 2011, sales increased another 9 percent to
$46.8 million and EE projected that sales would exceed
$50 million in 2012. All EE products (coffee, tea, chocolate bars, cocoa, sugar, bananas, almonds, and olive oil)
are fair trade and most products are organic as well.
Co-Executive Directors, Rink Dickinson and Rob
Everts and the worker-owners of EE are still interested
in changing the world through socially responsible business. Its mission statement reveals the heart of EE:
? to build long-term trade partnerships that are economically just and environmentally sound, to foster mutually beneficial relationships between farmers and consumers
and to demonstrate, through our success, the contribution
of worker co-operatives and fair trade to a more equitable,
democratic, and sustainable world.
In 2006, EE announced, ?Our Vision in 20 Years? [To
build] a vibrant, mutually cooperative community of two
million committed participants trading fairly one billion
dollars a year in a way that transforms the world.? Functional Areas at EE
To fulfill its mission and vision, the founders developed
a hybrid model that combined worker-ownership with
a cooperative model to coordinate the functions. EE
is a relatively small company. With approximately 100
worker-owners and geographically dispersed operations,
worker-owners may fulfill multiple functions. EE Governance Model EE has a board of directors that is elected by the workerowners. The worker-owners nominate candidates for the
six inside board member positions and a joint, three-
person committee ? comprised of a worker-owner, a board
member, and a member of the management c ommittee ?
nominates candidates for the three outside seats. The
worker-owners elect all nine seats, three each year.
In turn, the board of directors hires EE?s Executive
Director/s. Currently, the position is called ?The Office
of Executive Directors? as it is shared by Dickinson and
Everts. They are mutually responsible for hiring employees Exhibit 1? Sales Growth
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 $0 Source: This graph was constructed from financial data published by EE on the Web at http://www.equalexchange.coop/investing. CHE-HITT11E-13-0403-CaseStudy11.indd 120 22/10/13 2:47 PM 121 Case 11: Equal Exchange: Doing Well by Doing Good© Exhibit 2? Profit/Loss (pre-tax)
$160,000 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 ?$40,000 Source: This graph was constructed from financial data published by EE on the Web at http://www.equalexchange.coop/investing. who, after significant input from the other worker-owners,
may later become worker-owners themselves.
It is important to note that the Executive Directors
are not board members. According to Lynsey Miller,
Market Development Leader and a former board member, ?They?re at the board table, but they don?t have votes.
They are very active in that discussion and agenda setting.? Thus, ultimately, the worker-owners who elect the
board and hold two-thirds of the seats are responsible for
hiring the Executive Directors.
All members of the board serve three-year terms.
Instead of electing a new board every year and to promote board continuity, two inside directors and one outside director are elected each year.
This circular structure reinforces the following four
concepts at the heart of the EE governance model:
1. the right to vote (one vote per worker-owner, not per
2. the right to serve as leader (e.g., board director, or
other elected office);
3. the right to information;
4. the right to speak your mind.
EE provides the following elaboration of this model on
its Web site:
A worker cooperative is an alternative for-profit structure based upon standard democratic principles. It is not
designed to maximize profits, nor returns to investors,
but rather to bring to the workplace many of the rights CHE-HITT11E-13-0403-CaseStudy11.indd 121 and responsibilities that we hold as citizens in our communities. These principles include one-person/one-vote
equality; open access to information (i.e., open-book management); free speech; and the equitable distribution of
resources (such as income) ?
The delegation of responsibilities is very much like that of
conventional firms ? which allows for efficiency ? except
that at EE those at the ?bottom? of the organizational
chart are, as owners, also at the ?top? of the same chart.3
Everts describes the genesis of this governance model as
From the beginning, it has been a culture in a context of participation and shared ownership of strong management. The
founders were quite clear that ownership would be shared
and that ultimately, accountability for the highest level decisions would be shared and that we would attempt to build
a strong cultural of internal participation and democracy.
There was no interest in having it be a collective.
One important position in this governance model is
the Worker-Owner Coordinator. The worker-owners elect
this individual, but this person is not a board member. The
Worker-Owner Coordinator has many duties, the most
public and demanding of which is facilitating the cooperative meetings that are held at least quarterly. Overall, the
Coordinator is often akin to a police officer directing traffic; he or she does not make the rules of the cooperative,
but is empowered by the cooperative to keep the system 22/10/13 2:47 PM 122 moving smoothly so necessary work may be completed. To
do this, the Coordinator directs the jostling interests, opinions, and emotions of the members as best he or she can.
One goal is to strike a balance between members? rights to
ask questions, be heard, and press for changes with maintaining a safe, respectful, and constructive environment.
The Coordinator is automatically the representative
of the worker-owners on certain ?tripartite? committees,
representing the board and management second. One
example is the committee that nominates outside board
members. The Coordinator also leads the 10-member
worker-owner cabinet. The cabinet is a group of volunteers, accountable to the Coordinator. They carry out
essential cooperative functions such as maintaining the
internal education program and conducting the complex, multi-ballot, multi-site elections.
A secondary function for the Coordinator is to give
the ?State of the Cooperative? presentation at the annual
meeting in May. This presentation provides an assessment
of how well EE is functioning as a cooperative, not as a
business per se. The worker-owners can call a meeting of
the cooperative by presenting signatures of 10 percent of
the worker-owners to the Coordinator. If a worker-owner
wants to bring something to an upcoming meeting and has
either the Coordinator?s consent or the required number
of signatures, the Coordinator is responsible for putting
the individual on the agenda and working with that person
so that her/his idea is well thought out and presented.
As can be seen by this description of the governance
model, to be successful, EE must negotiate complex communication and coordination processes. Thus, recruiting, selecting, hiring, developing, and retaining employees who can operate within this governance model and
flex with the needs of the organization is critical. Human Resource Management
The worker-owners focus considerable attention on
human resource management because, with the ownership culture that exists on a daily basis, worker-owners
must be a good fit. Recruitment is probably EE?s area of
least worry. Whenever it does advertise an open position, it has multiple applicants. Because of its reputation,
primarily spread by word of mouth, EE has no problem
obtaining a significant and qualified applicant pool. The
hiring process, outlined in Exhibit 3, is quite extensive
and considered critical to the success of EE. Two unusual
aspects of the hiring process include a three-stage interview and the fact that the hiring process is not considered complete until after the review process and after the
new hire has been on the job for three months. CHE-HITT11E-13-0403-CaseStudy11.indd 122 Part 4: Cases Once hired, new employees are matched with a mentor and put on probation for one year. New employee
turnover during the first year is approximately 5 to
10 percent. After the first year, all worker-owners vote on
whether to offer worker-ownership status to the employee
(i.e., the opportunity to join the cooperative). Before the
vote, the employee?s mentor and the employee?s supervisor circulate written statements on behalf of the candidate. With rare exceptions, only new employees who
have fared well reach this point; new hires that have been
poor employees or seem ill-suited for the co-op are generally weeded out by this time. Almost all worker-owner
candidacy votes are taken online, but current workerowners may also request an in-person meeting for a discussion and vote. In such a case, all worker-owners are
free to discuss the individual?s fit with EE before taking
the vote. Worker-owners can vote ?yes,? ?no,? or ?abstain.?
Unless 20 percent or more worker-owners vote ?no,? the
candidate is welcomed into the co-op. Over 95 percent of
employees who make it to the one-year point are accepted
as worker-owners. Because of its infrequency, when one
is not accepted, it can be a traumatic event for all.
During the probation period (first year of employment) the employee is expected to participate in a curriculum designed to teach about the mission and vision of
EE, how they work, and to prepare the candidate for the
responsibilities of worker-ownership and governance.
The worker-owners feel it is very important to develop
Exhibit 3? Outline of Hiring Process
I. Executive Director Determines Need for Position
II. Executive Director and Chair of Hiring Committee
Agree on Process
III. Hiring Committee Develops Tactics
IV. 100 Point Rating System (20 points for each category)
a. Fit (mandatory)
b. Team (mandatory)
c. Communication (mandatory)
d. Option 1 (e.g. skills, aptitudes)
e. Option 2
a. Defining Target Applicants
b. Internal Posting
d. Previous Applicants
e. External Advertising
VI. Essay Questions
VII. First Round Interviews ? Conference Calls with Committee
VIII. Second Round Interview ? In Person, or by Phone
IX. Third Round Interview ? In-person Interview
X. Reference Checks
XI. Offer Letter ? Delivered by Mail for Signature
XII. Three Month Review
Source: Condensed from company documents, 2005. 22/10/13 2:47 PM 123 Case 11: Equal Exchange: Doing Well by Doing Good© and strengthen its worker-ownership culture. To support the development of the culture, EE has developed
an Owners? Manual that is over two hundred pages in
length. To both support this effort for new employees
and to reinforce the worker-ownership culture for all,
?Exchange Time? is held every Thursday morning for
one and a half hours. Exchange Time lectures and discussions cover topics such as fair trade, co-op history,
and issues affecting EE?s farmer partners, among others. New employees are essentially required to attend
while all other employees are encouraged to participate.
The discussions are recorded and shared with remote
employees and regional offices via EE?s intranet. Cody
Squire, who joined EE right out of college a few years
ago, enthusiastically described Exchange Time as:
It?s one structured thing that you can depend on having
every week just to learn about something new, to look
deeper into something you already know about, or to hear
from somebody who has just returned from working with
farmer co-ops in Peru.
In addition to Exchange Time, EE has ?10 percent
time. Employees can use 10 percent of their work time for
purposes unrelated to their core functions. This time can
be used to cross-train, work on governance committees,
or learn more about EE?s products. For example, Miller
used her 10 percent time to serve on the board of directors, where she helped create the 20-year vision for EE.
Mike and his colleague in Quality Control, Danielle, led a
program called ?The Brew Crew,? a year-long curriculum
on coffee. People from other departments participate in
coffee quality trainings every two weeks for a year.
To develop future leaders, EE uses an unusual 360
degree peer evaluation process in which peer, subordinate,
superior, and self-evaluations are performed. The unusual
aspect of EE?s process is that all who provide feedback
must sign their forms. In other words, the feedback is not
anonymous. Alison Booth, Manager of EE?s espresso bar
in Seattle, Washington, described how it worked for her:
If I?m being evaluated, my supervisor and I will have access
to them? Sometimes they are just nice to hear, but not terribly helpful; sometimes they?re a little hard to hear. Most
of the time, people are really careful to give constructive
criticism, to give specific examples of things we could do
better or things we did well.
Then, I do a self-evaluation and my boss does a supervisor?s evaluation. He combines his thoughts with my evaluation and the peer evaluations and pulls them all together.
We talk about what?s working, areas for improvement, and
what to focus on in the next year. CHE-HITT11E-13-0403-CaseStudy11.indd 123 To further increase intellectual capital, EE maintains a
library to which all employees have access. Mike described
the library as, ?Awesome ? it?s full of DVDs and books
on anything from economics to feminism to fair trade
to.?? The worker-owners also have responsibility for
the education committee, originally a board committee.
EE identifies education as a ?? vital function. In shifting accountability for this committee, Worker-Owners
became more accountable for their own education and
the orientation of new employees to our co-operative.?4
The worker-owners staff many roles in this model
and share in both profits and losses. Because EE operates as a worker cooperative, profit sharing is referred to
as ?patronage.? ?Patronage? is a common term used in
cooperatives where co-op members receive a share of the
profits, or bear a portion of losses, based on the extent
they have participated in the co-op. At EE, all workerowners who have worked a full year receive the same
amount without regard to rank or seniority as all contributed the same amount of labor time. The total potential patronage distribution consists of 40 percent of net
income after state taxes and preferred dividends are paid.
Half of this distribution is reinvested in EE, and half is
paid in cash. In years of losses, the Patronage rebates are
charges against the retained distributions.
In terms of benefits, EE ?is generous? according to
Brian Albert, EE?s Chief Financial Officer who joined EE
after approximately thirty years with some well-known
international firms. For example, it offers all employees twelve sick days each year. A worker-owner can
use them for him/herself, to take care of a sick child, to
attend a doctor appointment, or to spend time with a
sick parent. Additionally, all worker-owners receive two
weeks of vacation for the first two years. After that, they
receive four weeks. After their eighth year, they receive
five weeks. In addition, employees receive the standard
holidays including the Friday after Thanksgiving.
EE is also generous in the area of pay, paying above
average for novice level jobs, but below average for
senior level management positions. It maintains a topto-bottom pay ratio of four-to-one. It clearly states on
its Web site that EE adopted this ratio to reflect the fair
trade ethic inside the corporation. Production
EE has not been content to be a single-product company.
Its four major products and their percentage of sales
are coffee (80.1 percent), chocolate (16.1 percent), tea
(2.7 percent), and snacks (1.1 percent). Snacks include
products such as Organic Tamari Roasted Almonds. 22/10/13 2:47 PM 124 Part 4: Cases In 2010, EE increased its stake in Oke USA, an importer
and seller of organic bananas, to 90 percent. Oke USA
sales were $4.4 million in 2010. In 2011, EE introduced
organic olive oil. Ninety percent of EE?s coffees are certified organic and 100 percent of its tea, cocoa, chocolate,
sugar, and bananas are certified organic.
To produce organic coffee, chocolate, tea, and its
other products for sale to others, EE first secures the
raw materials. The producers of these products come
from around the world. EE buys raw product from four
continents ? North and South America, Africa, and
Asia ? and almost exclusively from developing countries
(see Exhibit 4).
For example, coffee is grown largely in developing
countries and is often the second most valuable commodity (after oil) exported by them, according to John
M. Talbot, a sociology professor at the University of the
West Indies in Jamaica.i The large multinationals typically buy their raw materials from either large plantations or large sellers of coffee. The large sellers depend on
middlemen, often referred to as ?coyotes,? to buy coffee
from small growers. According to an article in the April
25, 2011 issue of Time magazine, Ugandan coffee farmers
receive 0.66 percent of the retail value of their product. In
contrast, the U.S. Department of Agriculture estimated
that U.S. farmers receive 12 percent of the retail value.
EE buys directly from cooperatives that represent small producers, thereby helping these co-ops to
internalize the activity and profits formerly captured
by the middlemen (see comparison of supply chains
in Exhibit 5). EE buys raw materials from over forty
small farmer cooperatives in twenty-five countries at
prices higher than typical. In its 2009 annual report,
EE defined it sourcing standards as: ?? Quality - Find the best beans.
?? Flavor - Select sweet beans with unique flavor characteristics.
?? Farmer Partners - Trade with small farmer cooperatives that share our vision of community
?? Direct Relationships - Import directly from farmer
?? Fair Price - Pay above the market price, often above
fair trade prices.
?? Environment - Support sustainable agriculture, the
preservation of sensitive areas, and reforestation of
?? Commitment - Source all our coffee according to
the quality of the beans and the quality of the source.
EE supports the cooperatives with both financial and
technical assistance. In its 2008 Disclosure Document to
Sell Class B Preferred Stock, the relationship with small
farmers was described as follows, ?Our Commitment:
we pay a fair price to the farmer, trade directly with
democratic co-ops, supply advanced credit, and support sustainable agriculture.? In other words, EE goes
beyond just paying a fair price; it pre-pays on its contracts with the cooperatives. It also provides assistance
to the cooperatives to ensure they can provide a high
Mike Mowry, a quality control specialist, described
what he did on a trip to Nicaragua as follows:
We do a lot of work going down and actually training
about quality. Even with their quality departments, we do
extensive training on how to roast samples and how to cup
coffee.5 The whole idea is collaborating with their tasters
and our tasters. Exhibit 4? Where EE Buys from Small Farmers by Country, 2010
Paraguay EL Salvador
Colombia Ethiopia Uganda
Sumatra South Africa Source: Information taken from EE Web site at http://www.equalexchange.coop/farmer-partners. i. Cacao, the key ingredient for chocolate, is also only exported by developing countries. CHE-HITT11E-13-0403-CaseStudy11.indd 124 22/10/13 2:47 PM 125 Case 11: Equal Exchange: Doing Well by Doing Good© Exhibit 5? EE versus Conventional Supply Chain EQUAL EXCHANGE COFFEE CHAIN
SMALL FARMER EQUAL EXCHANGE FARMER CO-OP CONSUMER STORE OR CAFE CONVENTIONAL COFFEE CHAIN
OR CAFÉ FOOD
DISTRIBUTOR CONSUMER Source: EE pamphlet. EE maintains that ?great? coffee can be obtained
from many sources. What sets it apart is that it buys
?great? coffee from ?great? sources.
EE also provides assistance to the small farmer coops beyond food products. For example, it has provided assistance for training programs for women in
Guatemala, an ecotourism project in Nicaragua, and new
classrooms in El Salvador.
When all of the sourcing standards work well, quality product is shipped to EE for further processing.
However, sometimes EE has to break off a relationship
with a co-op for either quali...
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