"Isn't every company a social enterprise?" asks Eric J. McNulty, the director of research at the National Preparedness Leadership Initiative
He goes on to point out what he sees as 4 fallacies
1. Having a business adopt a social mission is special or different.
All businesses are social entities says McNultly in that they employ people, operate in communities and consume resources. It sound remarkably like the thinking of a social enterprise pioneer who asked "What is Social Enterprise?"
"There is so far no commonly agreed definition. Is an enterprise social if it produces some sort of social benefit? If so, in that sense, many or indeed most traditional businesses for profit can be considered social enterprises. Business enterprises typically produce something of value for clients and customers, otherwise they would cease to exist as business enterprises. Earning thousands or millions of customers can by definition be considered social benefit. Social refers to groups of people, as contrasted with one person. If a company produces a product or service, it has to benefit a group of people sufficiently for them to use that product or service. Owners and stockholders benefit from financial profits gained by the enterprise. Stockholders range from individuals owning relatively large percentages of a company to ordinary pensioners relying on income from micro-investments into the company. Profits from almost any large public corporation are shared among wealthy individual stakeholders to humble, modest households who have holdings in the company through an array of mutual funds managed by government-regulated financial managers."
He went on to describe how social enterprise focusses on those who fall between the cracks, where traditional capitalism and for-profit enterprise fail to reach.
'The term "social enterprise" in the various but similar forms in which it is being used today -- 2008 -- refers to enterprises created specifically to help those people that traditional capitalism and for profit enterprise don't address for the simple reason that poor or insufficiently affluent people haven't enough money to be of concern or interest. Put another way, social enterprise aims specifically to help and assist people who fall through the cracks. Allowing that some people do not matter, as things are turning out, allows that other people do not matter and those cracks are widening to swallow up more and more people. Social enterprise is the first concerted effort in the Information Age to at least attempt to rectify that problem, if only because letting it get worse and worse threatens more and more of us. Growing numbers of people are coming to understand that "them" might equal "me." Call it compassion, or call it enlightened and increasingly impassioned self-interest. Either way, we are all in this together, and we will each have to decide for ourselves what it means to ignore someone to death, or not.'
So what is the purpose of business? Drucker may have said that it isn't all about profit, though I believe he said the purpose of business was to create a customer.
It was however a social enterprise which argued that the purpose of business was people:
"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."
These opening words from a 1996 paper set out the concept of a business with the primary purpose of creating benefit for the communirty
As one may read, the argument that other people matter has trickled up to both B Corporations and Conscious Capitalists.nearly two decades later:
2. Shareholders have a special status among the constellation of stakeholders
Steve Denning may well write eloquently on the matter of shareholder primacy and I'm one of those who've egnaged with him, but its from social enterprise that the challenge to Friedman;s assertion derives:
The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a charitable, non-profit organization whose proceeds go to local, national, and international charities. Non-profits, however, are typically very restricted in the type of business they can conduct. In the United States, all non-profits must constantly pay heed that they are not violating those restrictions, lest they suffer the wrath of the Internal Revenue Service. For-profits, on the other hand, have a relatively free hand when it comes to doing business. The only restrictions are the normal terms and conditions of free-enterprise. 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.”
A business which invests at least 50% of profit in social benefit is now well established n many UK definitions of social enterprise, which is a business and not a charity.
It was the same source, not Walmart whose activism for economic rights and a living wage had inspired senator John Edwards "Two Americas" camoaign and led to the embedding of the I in our business model
These are deeds not words, which so many find hard to distinguish.
3. All share owners are the same
Clearly not, as was explained in our work with Sumy State University and the subject of "Trading at the spped of light" where shares are held for fractions of a second. Again social enterprise saw what was coming:
"During the plenary session, I briefly expanded on the written comments in my paper regarding financial economics costing far more than what it produces. That was a few statements on "trading at the speed of light", also known as high-frequency trading, in the stocks and commodities markets. That was 5 May. The following day, the US stock market plunged 1000 points in five minutes, the largest drop ever. Why? Exactly what I warned students and faculty about only one day earlier. I closed my plenary speech with the comment "They are stealing our money and it's out of control." That isn't capitalism. It is more akin to Frankenstein's monster.
I can explain in detail exactly what happened and exactly how it was done. Since this is intended to be a study guide and learning experience for students, it makes more sense to first present the basis scenario of high-frequency trading, or trading at the speed of light. Note that in the following video, they are talking about trades -- buying and selling -- measured in milliseconds for one buy/sell transaction. That is thousandths of a second. Since the time the video was made in 2009, state-of-the-art technology has reduced that amount of time to microseconds: millionths of a second – 13 microseconds to be exact. Once the microsecond barrier is broken, next is nanoseconds, billionths of a second. This video should help in beginning to understand those implications."
4. Simply applying capitalist business practices to the world’s most intractable social problems will solve them.
Indeed not. In Ukraine the most intractable problems were those alleged mission driven business wouldn't go near. Namely corruption within the childcare system Speaking out about these things was done at great risk and it led to a national scale development proposal for social enterprise - one of 4 major components of a 'Marshall Plan' which called on business for cross sector collaboration
"Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise."
Though you may have heard much of the same thing 5 years later, in Creating Shared Value they wouldn'r be joining us in tbe trenches or taking any of the risks.
Opening up the reality of that situation resulted in threats against me and anyone else interfering with that system. I came under direct assault by tax police, government’s primary enforcement arm if anyone steps out of line. This is not a research activity where many, if any, other people dared to participate. UNICEF was willfully blind to the matter because it was just too dangerous to bother to intercede Powerful interests remained entrenched with enforcers to make it dangerous. Jurists were correct, in my view. It was more a mafia operation than anything else, aimed at misappropriation and laundering of large money. That was perfectly congruent with how Ukraine operated before the revolution. USAID wanted nothing to do with it, nor would they fund any organizations or activists who might try. Some things could be done and some things could not be done. Helping these children was something that could not be done. So, I exposed it and made it the central focus and metric of Ukraine’s microeconomic development blueprint. In that context, it was far more difficult to ignore, dismiss, or argue about. For about six months, I really did not expect to survive. Nevertheless, Ukraine’s government finally conceded the point and announced the opening of more than four hundred new treatment centers for children who were theretofore invisible under tight and deadly enforcement.”
We didn't get it But now the business leaders want to help. I refer to Paul Polman, Richard Branson, George Soros and a pletora of others who want to deploy business to re-build Ukraine. Many are now calling for a 'Marshall Plan' but so far only a social enterprise has put one one the table,
As our late founder saw it:
"Hallman concludes that social business and social enterprise must be done by working backwards, from the problem: identify the worst social conditions in any given location, then analyze why the problem(s) exist. This method will always reveal all factors and barriers. Only then can the problem be understood, and then possibly fixed. But, he notes, barriers are often found in various organizations who are supposed to be trying to fix the problem, but have vested interests in direct conflict with achieving actual solutions."
In that last sentence is an allusion to the wholesale 'passing off' of business as social enterprise. |n the UK by this means we've seen our National Health Service dismantled and sold off. It was Tony Blair who as Prime Minister made social enterprise govermrent policy, yet alongside Sir Richard Branson. They are talking about business with social returns in Ukraine It may well be that social enteprise was only ever intended as palliative to act as a smokescreen for a broader neoliberal agenda. It may well explain more than a decade later, why there is still little in the way of seed funding for grassroots social enterprise,
Most unpalatable of all is that from the House of Lords, an institution who will not deal with the pedophiles within its own ranks, Lords Mandelson MacDonald and Risby, have stepped forward to help another oligarch rebuild Ukraine. We can be well assured that childcare reform won't be on this agenda.