Overview
The toolkit modules on this webpage were developed by Vern Bachiu, Murray Fulton, and Kristy Jackson as part of the Indigenous Leadership: Governance and Development Project. The Principal Investigator for the project is Murray Fulton, JSGS Professor Emeritus. Funding for the project is provided by the Saskatchewan Ministry of Trade and Export Development.
Indigenous economic development takes many forms – everything from the establishment of economic development corporations to investment in businesses owned by community members. Regardless of the form, economic development creates wealth, builds careers, and serves as a foundation for nation building.
The Indigenous Economic Development Toolkit has been developed to provide Indigenous communities and individuals with the practical tools they and their advisors can use to undertake successful economic development. The Toolkit will be of interest and value to everyone from community leaders to students to those involved directly in economic development. Please feel free to download the modules and to share them with others. If you use the modules, we would appreciate a reference.
Purpose, Philosophy and Nation-Building
Indigenous Economic Development: The Philosophy
The purpose of this module is to examine the purpose of Indigenous economic development and how it should best be done. The key elements of the philosophy are: Sovereignty; Nation Building; Own-source Revenue; Focus on Internal Factors; The Time is Now; The Path to Success is Difficult; and The Need for Partners.
Nation Building
Nation building is the process by which Indigenous nations strengthen their “capacity for effective and culturally relevant self-government and for self-determined and sustainable community development.” Nation building is a necessary condition for strong economic development – without nation building, attempts at economic development are unlikely to be successful.
Separation of Politics and Business
The separation of business and politics allows leaders to focus on what they do best and generates trust in the ability of Indigenous communities to carry out their many tasks. While the separation of business and politics is critical, it is also important to recognize that Indigenous businesses are creations of the community and have been given access to community assets. There is thus an expectation that Indigenous businesses are accountable to their community. The community must also understand the financial needs of their business and ensure these are provided.
Business Purpose and Structure
Economic Development Corporations
EDCs are used extensively by Indigenous communities to manage their economic activities. There are, in general, three types of activities that can be pursued by EDCs: (1) community services; (2) community benefits; and (3) wealth creation. No single activity is the best – each one involves trade-offs. These trade-offs generally revolve around a desire by community members for immediate services and benefits versus a desire to create long-term wealth by earning and re-investing profits.
Indigenous and Non-Indigenous Businesses: Similarities and Differences
All businesses have employees, customers, and financial resources and must maintain some minimum level of profitability to be sustainable. Beyond that, however, businesses differ in numerous ways. Indigenous businesses have some unique characteristics compared to their non-Indigenous counterparts, including the nature of ownership and management, the products or services that are provided, the customer base being served, and the values that underpin the business.
Legal Structures
There are four primary legal business structures: (1) Sole Proprietorships; (2) Partnerships; (3) Corporations; and (4) Co-operatives. Choosing the right legal structure is crucial when starting a business, since each structure contributes in different ways to help the business achieve its goals and objectives. It is essential to understand and weigh the advantages and disadvantages of each business structure to determine which best aligns with the businesses’ goals. As the business interests of Indigenous nations become larger and more complex, it is increasingly important to choose the right business structure.
Limited Partnerships
Limited partnerships are widely used by First Nations and by a few northern municipalities to structure their businesses. Limited partnerships are used because they achieve three key goals: they allow Indigenous communities to operate businesses outside their boundaries; they allow Indigenous businesses to earn income that is exempt from taxation; and they limit the liabilities of the owners.
Business Operations
Business Charters
A business charter is a document used by an Indigenous community to delegate business authority to its business interests (typically through an Economic Development Corporation (EDC)). Although it is written in legal language, a business charter is largely a political document that outlines the relationship between a community and its business interest. A business charter is effectively a business constitution – an agreement the political leadership has with itself and the EDC on how both will act.
Role of the Board of Directors
The purpose of a company’s board of directors is to oversee and advise a company so it meets its objectives. Directors are fiduciaries – they have the legal duty to act in the best interests of the company and can suffer legal consequences (e.g., be sued) if they do not do so. The board carries out this duty through the decisions it makes – e.g., establishing a strategy to achieve the business’s goals, setting appropriate policies to carry out this strategy, and making decisions on important things such as investments, hiring the CEO, monitoring the CEO’s activities, and reporting to shareholders. The most effective boards – the ones that make good decisions – have members with diverse skill sets and different points of view. Effective boards also have disciplined board processes that allow members to interact in a productive fashion and to deal with the inherent uncertainty present in business.
Building a Board of Directors
The selection of the directors for a company is the shareholder’s job. Creating a strong board of directors does not just happen on its own. Having a well-thought-out plan for choosing the best people to be directors makes it more likely that the board works well, and the business is successful. This module sets out a six-step process for building a high-performance board of directors. The key elements of this process include understanding the needs of the business, actively searching for high-quality candidates, and effectively integrating new directors by giving them significant and meaningful roles on the board.
Conducting Effective Board of Director Meetings
Meetings, meetings, meetings! Love them or hate them, meetings are required in all organizations. They play a vital role in creating and supporting communication, collaboration, and motivation in a company. High quality meetings lead to higher quality decisions, while ineffective meetings often lead to poor decisions. In addition, while they can be challenging, good meetings are typically more satisfying. Effective board meetings operate with structure and discipline. A well-thought-out agenda, good minutes, clearly identified action items, properly scheduled meetings, well-understood roles, and the use of board decision items, in-camera sessions, and board committees are all part of effective board meetings.
Board Decision Items
The board of directors makes key decisions for its organization. These decisions are typically based on recommendations provided by management. It is important that the board be provided with the information it requires to make an informed and unbiased decision. The tool used to achieve these objectives is the board decision item (BDI). BDIs have six elements: Issue; Background and Rationale; Options, Analysis of Options; Recommendation; and Next Actions.
Interest-Based Negotiations
Negotiations are a key part of business. The need for negotiations can arise because of conflicts between two or more parties – the classic case is the determination of the sale price of an asset (e.g., a machine or a company) that is being bought/sold. In other cases, negotiations are required to obtain agreement on how collaborations will take place. Negotiations also include: discussions with shareholders on the payment of dividends, deliberations with a prospective business partner, bargaining with a major customer or input supplier, and discussions over board and management decisions. While many people approach negotiations using a position-based approach because of its intuitive appeal to the need to win, the use of an interest-based approach provides a tried-and-true way to reach an outcome that is mutually acceptable for all the parties. These win-win outcomes reduce resentment, create trust, foster collaboration and co-operation, and ensure long-term business viability.
Investment Decision Process
This module lays out a step-by-step process for evaluating potential business opportunities. The process includes the following steps: criteria development (e.g., financial viability, management, growth potential, strategic fit, and community benefits); opportunity identification; quick screening; preparation of an Investment Highlight Memo; preparation of a Term Sheet or LOI; due diligence; preparation of an Investment Decision Memo; and the formulation of definitive legal agreements.
Basics of Valuing a Business
Business valuation is a critical step in the evaluation of an existing business, whether it is being sold or purchased. The goal of this module is to provide people with sufficient information on business valuation so they can be intelligent consumers of the business valuation information presented to them by others (e.g., management or consultants). There are three primary valuation methods: Asset Value, or the value of assets minus liabilities; Discounted Cash Flow (DCF), which calculates the present value of future cash flows; and the EBITDA Multiple method, which determines a business’s value by applying an industry- and company-specific multiple to a company’s earnings.
Dividend/Distribution Policy
Dividend/distribution policies are necessary because businesses almost always earn profits. Once profits are earned, a decision must be made as to how much is retained in the business and how much is paid to the shareholders. In the case of Indigenous businesses, the shareholders are often Indigenous communities. Paying a dividend or making a distribution invariably has trade-offs. To strike the right balance and to ensure that shareholders and the business retain each other’s trust, it is important to acknowledge and understood these trade-offs.
The Basics of Communications for Indigenous Businesses
Business communication plays a vital role in facilitating coordination, collaboration, decision-making, and innovation within a business. Done properly, business communication helps businesses to be successful. The two biggest goals of communications are to build trust and to tell your story. The guiding principles to follow to achieve these goals are rooted in Cree words:
- Tâpwêwin. Speak with precision and accuracy. Be authentic. Always tell the truth!
- Miyo-wîcêhtowin. Get along with others. Be respectful and courteous.
To achieve these goals, communications should be clear and precise, be directed at a specific audience, have a specific purpose, and be professional. It is also important that communication encourage two-way dialogue and be adaptive and flexible.
Communication Tools
Business communication plays a vital role in facilitating coordination, collaboration, decision-making, and innovation within a business. The two biggest goals of communications are to build trust and to tell your story. The guiding principles to follow to achieve these goals are rooted in Cree words:
- Tâpwêwin. Speak with precision and accuracy. Be authentic. Always tell the truth!
- Miyo-wîcêhtowin. Get along with others. Be respectful and courteous.
To achieve these goals, spend a day or so every year planning your communications activities and be realistic about what you can do consistently. It might take you a few years to build your communications to the point where you want them to be, and that’s okay. There will always be a big wish list. First, do the things you are legally obligated to do, then start working on the rest.