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Profit-with-Purpose - Social entrepreneurship is a distraction

In 2012 with her book on The Shareholder Value Myth, it was Cornell law professor Lynne Stout who argued that there was no law which made it a duty of corporations to maximise profits.

She goes on to say that the corporations that fail to address the needs of other stakeholders are doomed to extinction,

It’s a theme picked up by McKinsey, servant to the world’s oligarchs, who begin to use the term profit-with-purpose about a year ago, making the same points about corporate survival. Their arguments however, focus on sustainablity not people.

B Corporations are feted as profit-with-purpose businesses and today we learn that the Charity Bank has become one. Rather than definitiions they apply a conformance list to “business for good”.

To my knowledge, none of the above have developed their own business model or used it to create social benefit.

Yesterday we learn from Duncan Greeen's Oxfam blog that Pamela Hartigan of Said business school now says “social entreprenueurship is a distraction.It’s mainstream capitalism that needs to change”. Hartigan is a partner of Volans, another B Corporation.

"As the first Managing Director of the Schwab Foundation for Social Entrepreneurship, an entity supported by World Economic Forum’s founder Klaus Schwab and his wife, Hilde, I spent eight years identifying, celebrating and supporting such individuals, providing them with opportunities to enter the coveted corporate enclave that is the annual meeting of the WEF at Davos – which in turn gave them access to networks of power they had never been able to tap. Many of these social entrepreneurs formed strong and lasting relationships with members of the corporate C suite, heads of philanthropic foundations and the media leaders that attend Davos.  It was difficult not to become infected with the bug of “social entrepreneurship”. 

That takes us full circle, back two decade to the argument for an alternative to capitalism and a business model which uses all its resources to create community benefit, described as a 'profit-for-purpose' business. 

"If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object.  But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of corporate employees and community leaders.”

In 2013, it was McKinsey who provided the Mixmarket plaform which gave me opportunity to share progress with the business community. 

Re-inagining capitalism for people and planet

Re-imagining capitalism - the new bottom line

Every Child Deserves a Loving Family.

In his notes on the issue of corruption in Ukraine's childrcare system my late colleague remarks:

"As the 60th anniversary of the Marshall Plan came around in June 2007, noise was emerging within Ukraine of a certain political boss preparing a Marshall Plan for Ukraine.  This person was a reputed mob boss -- exactly the sort of entity that the original Marshall Plan meant to oppose.  It seemed most likely that whatever he came up with would be self-serving, hijacking the label 'Marshall Plan' and turning the whole notion on its head.  I reviewed the original Marshall Plan and realized that what I had written was, in fact, the definition and spirit of the original Marshall Plan.  Thus, in June 2007, I appended the original title with "A Marshall Plan for Ukraine."  After some discussion among trusted colleagues over timing, I published an abbreviated version of the paper in two parts in August 2007 in the 'analytics' section of the Ukrainian news journal"

Thanks to an article from Bloomberg on the eve of Ukraine's uprising, I discovered that McKinsey had a role in this too.

"Election spending in Ukraine is opaque, but both Akhmetov and Firtash are widely thought to have sponsored Yanukovych’s campaigns. Even as they have supported an increasingly authoritarian Yanukovych at home, however, Akhmetov and Firtash have invested heavily in building their reputations in the West.

Akhmetov’s System Capital Management JSC is a partner of the Swiss-based World Economic Forum. It has used the services of, or attracted financing from, Germany’s Deutsche Bank AG, the U.K.’s Royal Bank of Scotland Plc and Austria’s Raiffeisen Bank International AG. Firtash has made generous donations to the University of Cambridge. This year he started financing the Days of Ukraine festival in the U.K., held at prestigious sites in London, such as the Saatchi Gallery.

The two men have also hired prominent Western consulting companies, including McKinsey & Co. Inc., to develop an economic plan for Ukraine, while bolstering Yanukovych, who is the biggest obstacle to any reasonable economic policy."

We all know what happened next, to Yanukovitch and Ukraine:

With a recent article on The Profitability of Trust, it's WEF chairman Klaus Scwab who re-reasons many of the points we made about capitalism, especially in the 'Marshall Plan' for Ukraine.   

With a group of the usual suspects and oligarchs,  Schwab now advocates a business strategy to help re-build Ukraine.

An interesting point is the call to " Acknowledge the primacy of the value of human life" which was the starting point for people-centered economics, almost two decades ago:

"At first glance, it might seem redundant to emphasize people as the central focus of economics. After all, isn't the purpose of economics, as well as business, people? Aren't people automatically the central focus of business and economic activities? Yes and no.

People certainly gain and benefit, but the rub is: which people? More than a billion children, women, and men on this planet suffer from hunger. It is a travesty that this is the case, a blight upon us all as a global social group. Perhaps an even greater travesty is that it does not have to be this way; the problems of human suffering on such a massive scale are not unsolvable. If a few businesses were conducted only slightly differently, much of the misery and suffering as we now know it could be eliminated. This is where the concept of a "people-centered" economics system comes in."

What is the Purpose of Business?

Implications for social enterprise

Over several decades funding for Social entreprenuership has been driven largely by foundations like those of Schwab and Ashoka and in the UK by Unltd, who have now embraced Profit-with-Purpose.  That might suggest a shift toward autonomous business which at least in part, operates for social purpose while delivering a financial return to shareholders.

With their considerable resources, Unltd co-sponsored an event in 2009 at Oxford's Said Business School. Following the economic crisis, they'd tuned into the failings of traditional capitalism, but the endorsement of the view from Walmart's CEO was an indication of which way this was heading: Pamela Hartigan is there, of course, though yet to be converted from her advocacy for social enterpreneurship. . 

"The global focus of business is changing and a new economy is emerging. Indeed Wal-Mart's CEO Lee Scott claims that sustainability is 'the single biggest business opportunity of the twenty-first century"

As I've explained above, a Profit-for-Purpose business is one which delivers only a social return while being self sustaining. It may require assistance from goverment for projects, but not core operations.   .  

For SE-UK (formerly the Social Enterprise Coalition) this was something beyond their current focus when introduced to them in 2006.

In 2009, B Corporations weren't describing themselves as profit-with-purpose when I introduced them to "profit for social purpose".   

Consider what Virgin Unite are saying today about aligning business with social purpose.   In 2009, I'd responded to their soliticiation for project ideas, drawing their attention to what Richard Branson had said about applying business to focus more on social problems.

The event was known as the Davos Ukrainian Lunch and he was surrounded by the "great and good" regurgitating what our project plans has said about the limitations of traditional capitalism.   The event AKA Davos Philanthopic Roundtable is sponsored by another Ukrainian oligarch who has close connections not only with Branson but also with Tony Blair and Sir Elton John.

Holding in mind what I said earlier about the WEF and their strategy to support Ukraine, it's no surprise to find the same oligarch, Viktor Pinchuk among the list of participants.  His wife Elena Franchuk, bought the UK's most expensive property several years ago.  She works with Sir Elton on an intiative which has acquired Big Lottery funding.   

The Brave New World of social investment

In February 2008, with a letter calling on USAID to support the 'Mashall Plan' which had stated:

'This is a long-term permanently sustainable program, the basis for "people-centered" economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine's poorest and most desperate citizens, rather than a "top-down" approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first -- not secondarily, along the way or by the way. '

  Aptly titled "Genesis", our letter concloded:

"I hope we continue to realize ever more fully that outside the box and inside the box have only a box in the way. We outside the box know quite a bit of what’s going on, many times in exquisite detail, perhaps in ways that those inside the box can’t quite as easily access if at all. We are grossly underfunded in favor of missiles, bombs, and ordnance, which is about 100% backwards. Now, with even the US Pentagon stating that they’ve learned their lesson in Iraq and realize (so says top US general in Iraq ten days or so ago) that winning hearts and minds is the best option, I and others shall continue to think positive and look for aid budgets and funding spigots to be opened much more for people and NGOs in silos, foxholes and trenches, insisting on better than ordnance, and who understand things and how to fix them. We can do that. We can even do it cost-effectively and with far better efficiency than the ordnance route. Welcome to our brave new world. Except it’s not so new: learn to love and respect each other first, especially the weakest, most defenseless, most voiceless among us, then figure out the rest. There aren’t other more important things to do first. This message has been around for at least two thousand years. How difficult is it for us to understand?"

The term Brave New World is used  again in this context last year, with a collection of opinions which inclused the head of Big Lottery. What resonated for me most was Jeremy Nicholls saying it should be "Social First, Money Second" . Clearly this isn't where profit-with-purpose is headed.