Chapter 5

The economic sustainability of

organisations

institutional equilibrium
Institutional Equilibrium is achieved when core
stakeholders:
o Share values and goals that shape the
mission, structures, governance...of the
organisation
o Receive rewards they consider fair with
respect to their contributions

institutional equilibrium
Institutional Equilibrium is characterised by:
o Durability = organisations are built to last
o Autonomy = free to choose goals and
governance structures without dictates
from other organisations
long-term balance

economic equilibrium
Vital condition to guarantee durability & autonomy
= Economic Equilibrium (Economic
Sustainability)
o Ability of an organisation to operate without
accumulating losses
o Requirement for long-term survival of
organisations

The two equilibria are interrelated, but not

synchronised!

economic equilibrium
Two aspects of economic equilibrium:
o Pursuit of economic institutional goals
(primary economic goals)
o Conditions for conducting economic activity
Income equilibrium (Profitability)
Efficiency & Flexibility
Fairness in remunerations
Ability to accumulate savings
Cash equilibrium (Solvency)

economic equilibrium in firms

Income equilibrium (Profitability)
Ability to compensate all production factors (incl. D
and E) with revenues at market conditions
Value (revenues) > Value (costs)
Efficiency & Flexibility
Correlation between results (outputs) and means
(inputs) minimise waste of resources
Speed of adaptation to
changes in the environment

economic equilibrium in firms

Fairness in Remunerations
Offer sufficient and adequate compensation
to essential production factors (K and L)
- opportunity cost of capital?
- labour costs & environmental conditions

Cash equilibrium (Solvency)

Ability to cover debts (cash inflows
vs. cash outflows)

equilibrium?
stakeholders vs. shareholders
What is the business objective about?
Shareholder view vs. Stakeholder view
Who is the most important?
Whose interests should
be served first?

industry leaders in sustainability

industry leaders in sustainability

economic equilibrium in families

Income from employment and investments

sufficient for consumption

Expenses not exceeding

disposable income

Adequate level of savings

Solvency liquid asset fund

Families on welfare and subsidies

economic equilibrium in the State

Satisfactory production of public goods
Adequate remuneration to collaborators, loan
capital providers, public employees (solvency!)
Efficiency in managing public funds and
resources
Tax collection according to
criteria of fairness
Accumulation of savings
or limited deficit

economic equilibrium in non-profits

Small portion of costs covered by
revenues from selling goods
Income equilibrium attained by relying on
donations, volunteer work, memberships fees...
o Key challenges: constant flow of contributions
solvency!
o Cost coverage: donations
+ cross subsidies
Performance measure:
max profits or max...?