Can the Mozilla Foundation’s mission and principles guide and motivate it into a new generation of products beyond its Firefox browser?
The Mozilla Foundation is a non-profit organisation that originated in the late 1990s from the old web-browser company Netscape. Mozilla’s best known product is the Firefox open source web-browser, pro-duced largely for free by a community of volunteer software developers. In 2012, Firefox had about 25 per cent share of the world’s browser market, recently over taken by Google’s Chrome. About 85 per cent of Mozilla’s revenue is a contract with Google, renewed for three years in 2011, which pays the Foundation in return for using Google as Firefox’s default search engine.
Mozilla says the following about itself:
‘Mozilla’s mission is to promote openness, innova-tion and opportunity on the web.
What we do
We do this by creating great software, like the Firefox browser, and building movements, like Drumbeat [the community of software developers], that give people tools to take control of their online lives.
What we strive for
As a non-profit organisation, we define success in terms of building communities and enriching people’s lives instead of benefiting shareholders.
We believe in the power and potential of the Internet and want to see it thrive for everyone, everywhere.’
Mozilla also publishes what it calls a ‘Manifesto’, containing a set of principles intended ‘to make Mozilla contributors proud of what we’re doing and motivate us to continue’. Principles of the Manifesto include:
● The internet is a global public resource that must remain open and accessible.
● The internet should enrich the lives of individual human beings.
● Individuals’ security on the internet is fundamental and cannot be treated as optional.
● Individuals must have the ability to shape their own experiences on the internet.
● Free and open-source software promotes the devel-opment of the internet as a public resource.
In 2012, Mozilla was developing a range of new initiatives. The most notable is ‘Pancake’, a cloud-based framework that allows users to carry and manage their personal data wherever they go. One objective of Pancake is to counter the way mobile apps are fragmenting the internet. Mozilla’s President, Mitchell Baker, explained to the BBC: ‘The internet was meant to be connected – not siloed. We really do want to encourage developers to develop across devices, using the same kind of power and explosive innovation and freedoms that the web has given us over the last 15 years.’
For Mitchell Baker, ‘the reason for [these] initi-atives is not driven by revenue. It is driven because we cannot fulfil the Mozilla mission unless we have a presence in these other spaces.’ She continued, referring particularly to Mozilla’s users and developers:
‘Our stakeholders – we don’t have shareholders – are not looking for a financial return on investment.
The return on their time and energy and goodwill that they’re looking for is the product that they like, and an internet that has a layer of user sovereignty in it.’
Sources : Mozilla website, 2012; and www.bbc.co.uk , ‘Life after Firefox’, 10 April 2012.
Questions
1 Mozilla does not produce a formal vision statement. Based on the materials here, what do you think Mozilla’s vision would be?
2 How do Mozilla’s mission and principles influence its approach to new initiatives?
Is there any danger in its apparent priorities?
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Whatever statements of mission, vision and values are employed, or whatever the objectives which are set, it is important to understand who infl uences what they are. The following sec-tions examine key infl uencers.
4.3 OWNERS AND MANAGERS
Purpose is typically set by the organisation’s owners and managers. Owners and managers are not always the same and their interests can diverge. This section explores different kinds of ownership models and the governance issues involved in reconciling owners and managers.
4.3.1
Ownership models
There are many types of ownership, and the boundaries between them often blur. 7 However, it is useful to distinguish four main ownership models, each with different implications for strategic purpose. Figure 4.2 ranges these four models along two axes. The horizontal axis describes the dominant modes of management, ranging from wholly professional (with man-agers employed for their professional expertise) to wholly personal (with management determined by personal connections to ownership). The vertical axis describes the extent to which purpose is focused on profi t as an exclusive goal or on profi t as just one of a mix of motives. In each case, there is a range along the axes: organisations vary in their relative positioning and sometimes organisations do not conform to the typical behaviour of their ownership model. None the less organisations with different ownership models do tend to bunch together in distinctive ways.
Figure 4.2 Ownership, management and purpose
The four main ownership models are as follows:
● Public companies (often called publicly traded companies or public limited companies) are the most important ownership model in economies such as these of the USA, northern Europe, Japan and many others. These companies sell their shares to the public, with own-ership typically in the hands of individual investors or, frequently, institutions such as pension funds, banks or insurance companies. 8 Usually owners do not manage public companies themselves, but delegate that function to professional managers. In principle, company managers work to make a fi nancial return for their owners – that is why the pub-lic usually buy the shares in the fi rst place. If shareholders are not satisfi ed fi nancially, they can either sell the shares or seek the removal of the managers. In terms of Figure 4.2 there-fore, most public companies focus strongly on profi t. However, profi t maximisation is rarely a simple goal for companies. There is often a delicate balance to be struck between the short-run profi ts and long-term survival, for example. Short-term profi ts might be improved by cutting research budgets or taking advantage of loyal customers, but such action may well be at the expense of the long run. In relation to the vertical axis in Figure 4.2 , public com-panies may therefore vary in how extremely they focus on profi t objectives.
● State-owned enterprises are wholly or majority owned by national or sometimes regional governments. They are very important in many developing economies: about 80 per cent of stock market value is accounted for by state-owned companies in China, 60 per cent in Russia and 40 per cent in Brazil. 9 Privatisation has reduced the role of state-owned enter-prises in many developed economies, but quasi-privatised agencies such as hospital trusts and school academies in the United Kingdom operate in a similar way. In state-owned enterprises, politicians typically delegate day-to-day control to professional managers, though they may intervene on major strategic issues. State-owned enterprises usually have to earn some kind of profi t or surplus in order to fund investment and build fi nancial reserves, but they are also likely to pursue a range of other objectives that are in keeping with government policy. For Chinese state-owned enterprises, for example, securing access to overseas resources such as minerals and energy is an important objective.
● Entrepreneurial businesses are businesses that are substantially owned and controlled by their founders. Lakshmi Mittal remains chairman and chief executive of his creation, Arcelor Mittal, the largest steel company in the world. Sir Richard Branson is chairman of the Virgin Group, founded as a record store in 1972 and now including airline, train and sports businesses. None the less, as they grow, entrepreneurial businesses are likely both to rely more on professional managers to cope with increasing complexity and to draw in external investors in order to fund new opportunities. Typically entrepreneurial companies need to focus heavily on profi t in order to survive and grow, and the presence of external investors is likely to increase the pressure for fi nancial performance. However, entrepre-neurial businesses may also be partly directed by personal missions, for instance developing a particular technology to its full potential. 10
● Family businesses are typically businesses where ownership by the founding entrepreneur has passed on to his or her family, on account of the founder’s death or retirement for instance. Typically family businesses are small to medium-sized enterprises, but can be very big: Ford, Fiat, Samsung and Walmart, the largest retailer in the world, are all under family ownership and retain signifi cant family involvement in top management roles. Quite often the family retains a majority of the voting shares, while releasing the remainder to the pub-lic on the stock market: thus half of stock market-listed companies in the 10 largest Asian
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markets are effectively family-controlled. 11 Also, management may be partly profession-alised, even though top management remains ultimately under family control: thus the Chief Executive of Ford is a non-family member, but the Executive Chairman is still William Ford Jr. For family businesses, retaining control over the company, passing on management to the next generation and ensuring the company’s long-term survival are often very important objectives, and these might rule out profi t-maximising strategies that involve high risk or require external fi nance. Thus a family business might diversify into lots of small businesses rather than engage in one large one, because that would minimise risk and give a chance to younger family members to work in distinct areas of activity. 12
As well as these four main types of ownership model, there are several other variants which play smaller but still signifi cant roles in the economy. 13 Not-for-profi t organisations, such as Mozilla ( Illustration 4.1 ), are typically owned by a charitable foundation: they may need to make some kind of surplus to fund investment and protect against hard times, but they fundamentally exist to pursue social missions. The partnership model, in which the organisation is owned and controlled by senior employees (its partners), is important in many professional services such as law and accounting. There are also employee-owned fi rms, which spread ownership among employees as a whole. The most famous example of this in the United Kingdom is the retailer John Lewis, but this model is also being promoted for hospitals in the British National Health Service. Typically these not-for-profi ts, partnerships and employee-owned fi rms are restricted in their ability to raise external fi nance, making them more conservative in their strategies.
Clearly everybody should know how the ownership of their own organisation relates to its strategic purpose: as above, strategy for a state-owned business is likely to be very different to that of a public company. However, it is also important for managers to understand the owner-ship of other organisations with which they engage, for example competitors and partners.
Different ownership models will shape their purpose and drive their strategic decisions as well.
Without understanding the relationship between ownership and purpose, it is easy to be sur-prised by competitors and partners with different priorities to your own. For example, Western public mining companies have often found themselves outbid for overseas mining opportuni-ties by Chinese state-owned companies keen to secure supplies.
4.3.2
Corporate governance
The varying roles of owners and professional managers raise issues of corporate govern ance. 14
Corporate governance is concerned with the structures and systems of control by which man-agers are held accountable to those who have a legitimate stake in an organisation. 15 Key stakeholders in corporate governance are typically the owners, but may include other groups such as employee representatives. Connecting stakeholder interests with management action is a vital part of strategy. Failures in corporate governance have contributed to calamitous strategic choices in many leading companies, even resulting in the complete destruction of global companies such as the energy giant Enron in 2001 and the leading investment bank Lehman Brothers in 2008. With the survival of whole organsations at stake, governance is increasingly recognised as a key strategic issue.
Managers and stakeholders are linked together via the governance chain. The governance chain shows the roles and relationships of different groups involved in the governance of an organisation. In a small family business, the governance chain is simple: there are family share-holders, a board with some family members and there are managers, some of whom may be family too. Here there are just three layers in the chain. In large public corporations, however,
infl uences on governance can be complex. Figure 4.3 shows a governance chain for a typical large, public corporation. Here the size of the organisation means there are extra layers of management internally, while being publicly quoted introduces more investor layers too.
Individual investors (the ultimate benefi ciaries) often invest in public corporations through investment funds, i.e. institutional investors such as unit trusts or pension funds, which then invest in a range of companies on their behalf. Funds are typically controlled by trustees, with daytoday investment activity undertaken by investment managers. So the ultimate benefi -ciaries may not even know in which companies they have a fi nancial stake and have little power to infl uence the companies’ boards directly.
Economists analyse the relationships in such governance chains in terms of the principal–
agent model . 16 Here ‘principals’ pay ‘agents’ to act on their behalf, just as homeowners employ estate agents to sell their homes. Classically, the principal is simply the owner and the agent is the manager. However, the reality for large public corporations is usually more complex, with principals and agents at every level. In Figure 4.3 , the benefi ciaries are the ultimate principals
Figure 4.3 The chain of corporate governance: typical reporting structures
Source : Adapted from David Pitt-Watson, Hermes Fund Management.
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and fund trustees and investment managers are their immediate agents in terms of achieving good returns on their investments. Further down the chain, company boards can be considered as principals too, with senior executives their agents in managing the company. Thus there are many layers of agents between ultimate principals and the managers at the bottom, with the reporting mechanisms between each layer liable to be imperfect. Weak links in the governance chain at several levels is what led to the scandals at News Corporation for example (see Illustration 4.2 ).
The governance issues in principal–agent theory arise from three problems:
● Knowledge imbalances : agents typically know more than principals about what can and should be done. After all, it is they who are actually doing the job and they have presumably been hired for their expertise.
● Monitoring limits : it is very diffi cult for principals to monitor closely the performance of their agents. This limit is made worse because principals usually have many investments, so their attention is likely to be split several ways.
● Misaligned incentives : unless their incentives are closely aligned to principals’ interests, agents are liable to pursue other objectives that reward them better. Principals might intro-duce bonus schemes in order to incentivise desired performance, but then agents may game the system: for example, they might use their superior knowledge to negotiate bonus targets that are in reality easy to meet.
Principal–agent theory therefore stresses the importance of knowledgeable principals, effective monitoring systems and well-designed incentives in order to make sure that large organisa-tions actually pursue the purposes that their owners set for them.
4.3.3
Different governance models
The governing body of an organisation is typically a board of directors. Although the legal requirements vary in detail around the world, the primary responsibility of a board is typically to ensure that an organisation fulfi ls the wishes and purposes of those whom it represents.
However, who the board represents varies. In the private sector in some parts of the world it is primarily shareholders, but in other parts of the world it is a broader or different stakeholder base. In the public sector, the governing body is accountable to the political arm of government – possibly through some intermediary such as a funding body. These differences have implica-tions for organisational purpose and strategy as well as the role and composition of boards.
At the most general level there are two governance models: the shareholder model, priori-tising shareholder interests; and the stakeholder model, recognising the wider set of interests that have a stake in an organisation’s success. 17 These two models are pure types, and there are many variants on each. The question for managers, therefore, is where their organisation is positioned on the range between the pure shareholder and pure stakeholder models of governance.