Can Social Enterprises Scale While Remaining Sustainable? The Mondragon Cooperatives

Case Solution

Francisco Szekely, Zahir Dossa
IMD ()

Can social enterprises scale and remain sustainable? Many social enterprises, or businesses in general, struggle to scale because of two competing goals: social mission and profitability. Mondragon Corporation is one of the main challenges to this status quo. Founded in 1956, Mondragon Corporation is currently the 10th largest company in Spain, employs 83,000 people and has consolidated assets of almost 36,000 million euros. Its growth strategy has been to develop cooperative groups to achieve economies of scale and create supporting cooperatives to finance growth and provide technical assistance. Its diverse set of cooperatives spans a significant array of product and services, from supermarkets to appliance manufacturers to a polytechnic university to a cooperative bank. However, the Mondragon Corporation is not immune to gravity and the difficult tradeoffs that occur in the social enterprise space. The financial insolvency of Fagor Electrodomésticos (Fagor), its oldest cooperative member, presents the most challenging dilemma in Mondragon’s long history. Since 2008, the Mondragon Corporation (through its cooperative members) has injected 300million euros of debt financing to assist Fagor. However, Fagor has made another financial request for 180million euros. Txema Gisasola, president of Corporación Mondragón, must decide whether to recommend financing Fagor’s debt or reject the cooperative’s request for help. While the majority of Mondragon cooperatives have made the voluntary decision in the past to declare bankruptcy and reassign workers, it is a more difficult scenario for Fagor, which currently employs 5,600 people.

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