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India: The good capitalist

Fabindia's William Bissell plans to reinvent India's companies.

Bissell's community-owned companies represent a marked change from the rural cooperative. Currently, Fabindia still owns about half the stock of the SRCs. But within five to seven years Bissell plans to reduce that to about a fourth, as artisans, employees and outside investors pick up more stock.

Unlike in traditional cooperatives, however, where members have equal voting rights regardless of their investment or productivity, SRCs will reward the artisans who hold larger stakes in the units with a larger say in how they are run. Shareholders also reap rewards from the company's growth in direct proportion to how much — and how early — they invested. That means that, like cooperatives, the SRCs provide a vehicle for small, cash-starved rural artisans to pool their money to expand and modernize their operations. But unlike cooperatives, they give the savviest and most successful of the bunch a very strong motive to invest.

“The person who uses the cooperative most benefits the most as well — not the person who started the cooperative and took the risk. So that basically means that nobody individually will take the risk,” said Vineet Rai, the founder of Aavishkaar. Unlike cooperatives, which also prohibit outside investors, the shareholder system of Fabindia's community-owned companies encourages entrepreneurial investment by promising a larger payoff to the early movers when the firm grows.

And that could mean rapid growth for rural India, too.

http://www.globalpost.com/dispatch/india/100329/india-economy-companies-fabindia