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What do you mean by social business?

This definition come from Muhammad Yunus

"A social business is defined as a non-loss, non-dividend company dedicated to meeting social needs; such as ensuring affordable healthcare for all, promoting better nutrition for children, creating employment for the unemployed, moving towards a safer environment, enhancing the process of women empowerment and providing safe drinking water."

"In social business, the investor gets the investment money back over time, but never receives dividend beyond that amount. All profits of the social business go towards improving the product or service provided, and increasing its reach."

By that definition P-CED is a social business. We issue no shares and distribute no dividends using all our profit for social benefit.

The concept is described in the 1996 position paper:

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.”

*Take note of that shareholder mandate, it will come up again

When P-CED was introduced to the UK in 2004, our founder described the model in an interview about our work in Russian an Crimea:

"The P-CED model is not a charity sort of operation. It is business. What we choose to do with profits is entirely up to us, and we choose before anything else happens to set most of our profits aside to assist poor people. In fact, our corporate charter requires us by law - UK law, where rule of law is very well established - to use our profits only for social benefit. We cannot do anything else with it."

In 2007 with A 'Marshall Plan' for Ukraine we argued the case for the approach to be deployed on a national scale:

'Enterprise is any organizational activity aimed at a specific output or outcome. Once the output or outcome – the primary objective – is clear, an organization operating to fulfill the objective is by definition an enterprise. Business is the most prominent example of enterprise. A business plan, or organizational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.”

This is the function of classic capitalism, which has proven to be the most powerful economic engine ever devised.

An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.

That, however, is not the only possible outcome for use of profits. 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.'

So what do we mean by social enterprise?

As our late founder wrote in 2008:

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.

Consider for one prominent example Microsoft. There is no question that Microsoft’s products have produced enormous profit along with providing broad social benefit around the world. We can communicate now in ways never before possible as a global social group, using a standardized computer operating system. That operating system in turn is based on personal computer technology developed largely by IBM. Microsoft produced the first OS for IBM personal computers, the combination of which sparked the information revolution and transformed the entire world. Both of those innovations employ for global communications an electronic communications protocol developed by US government, an inter-network of computers. That internetwork of computers was developed under the auspices of DARPA (Defense Advanced Research Projects Agency) to ensure constant computer communications among US military operations in the event of a nuclear war that would destroy entire cities. Parts of the network might be destroyed, but as long as any computers and computer operators remained, the internetwork would continue to function. That internetwork of computers and the standardized communications protocol to enable them to talk to each other is called, for short, the Internet. The Internet came from DARPA, created by US Department of Defense as a direct response to the USSR launching Sputnik in 1957. (NASA, and all that came from NASA, was also a direct result of the Sputnik launch.) The communications protocol developed to enable the internetwork of computers is called internet protocol, or IP All of those factors go into why you are able to read this now, almost anywhere in the world. Microsoft, IBM, and DARPA are three key factors — two public corporations and one US taxpayer-funded agency — and they are just that: key factors, but far from the only players who have made this possible. There are Intel, AMD, and other chipmakers who employed yet another new technology, VLSI (very large scale integration) to reduce computer circuits to microscopic dimensions. The corporations involved in this almost fantastical deployment of the machines and communications infrastructure that we now rely on profited for themselves and their shareholders, and certainly produced social and economic benefit around the world. Those efforts were and are so profound in influence as to transform human civilization itself. That is the Information Revolution, and it is nothing short of astonishing.

So it is safe to say that all these players in the Information Revolution — the enterprises that created it — have engendered almost immeasurable social benefit by way of connecting people of the world together and giving us opportunity to communicate with each other, begin to understand each other, and if we want, try to help each other.

It is that last phrase — “try to help each other” — which is what the phrase “social enterprise” is getting at. As Bill Gates said in 2000, “poor people don’t need computers.” and rejected a business approach to alleviating poverty. That statement served to mark the clear distinction between what traditional capitalism did and did not do. Gates’ aim at that time was to profit from people who could afford his company’s products, while those who couldn’t were largely or completely ignored. That has been the accepted limit of traditional capitalism. It has been a marvelous means of social benefit and economic advancement for many people. Nevertheless, those excluded are just left out.

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.

How about Doing well by doing Good?

Why not. There's nothing wrong with doing business which creates social benefit, even if that business contributes as little as 1% of its profit for social benefit, as was reasoned in the 1996 paper:

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."   

For example, SalesForce which has described itself in the past as both social enterprise and social business, makes clear a pledge for 1% , urging others to do the same to "improve the state of the world".

Likewise Patagonia, a Benefit Corporation, contributes 1% of sales to protecting the planet.

The once radical suggestion that capitalism had purpose beyond profit is now being re-stated by corporate leaders , like Paul Polman of Unilever 

“Profit is not a purpose, it’s an end product. I always want a deeper result. People assume that if you do something good, it must cost money. I don’t know where they get that idea from,” he said, adding that business leaders “don’t need to compromise”.

Polman has joined Sir Richard Branson in a call for a peaceful solution to the crisis in Ukraine. As P-CED's founder had done to the US Senate:

“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?”

B Corporations have no commitment to any portion of profit, Rather they submit to social and environmental certification to serve people and planet while making a profit 

Closer to the other end of the scale is the UK Community Interest Company, in which the majority of profit is applied for the benefit of community. In the UK, there's general acceptence that social enterprise commits at least 50% of profit to social/environmental aims.

A lesser known variant, the L3C, or Low-profit, Limited Liability Corporation acknowledges that some profit must be sacrificed to meet social objectives. Marc Lane who champions the L3C introduced me to this debate between himself and Muhammad Yunus, which might be described as "to profit or not to profit"

"An L3C is a for-profit, social enterprise venture that has a stated goal of performing a socially beneficial purpose, not maximizing income.[6][7] It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise.[8] The L3C is obligated to be mission-driven so there is a clear order of priorities for its fiduciaries"

Yunus describes the spectrum of social investment and the absolute position of social business. Marc Lane draws attention to the crisis of charity and need to find a vehicle for investment. Yunus describes how social business gained the shareholder mandate at Danone.    

Does it matter who you do it with?

In the fimal analysis perhaps what matters as much  if not more as any distrbution of profit, is who you do business with. When social business partners with corporations with a reputation for exploting the developing world or exploting the finite resources of the natural world, whatever is done in the name of good is far outweighed by the negative impact of overall operation. Likewise, social enterprise supported by soft government channels which do business with despotic leaders and corrupt oligarchs, clearly isn't the way to go

So what about social networking?

Yes, this is another interpretation of social business and the two are no mutally exclusive. For P-CED the web  had been seen as the vehicle for global replication. The free flow of information is key:

"In order for economic development to take place in any given location, the very first thing required, before anything else can possibly happen, is information. This information includes first and foremost where to look for the necessary resources to do anything. If new businesses are needed, knowing they are needed and finding funding for them are two very different things. The first step is to locate possible capital resources in order to move forward, and this step is no more and no less than information. Once resources are located, the next step is what terms and conditions are involved in obtaining those resources -- more information. Once this is known, paperwork must be completed, business plans made, market research and due diligence conducted, and all of this compiled and forwarded to the appropriate parties. Again, nothing more than information. In fact, most of the work involved between identifying a need and solving the problem is information acquisition and management: getting and developing information.

As Alvin Toffler predicted in Power Shift, where once violence and then wealth were dominant forms of power, information is now becoming the dominant power. Those nations with the greatest freedom of information and means of transmitting it have now become the most powerful and influential, and the strongest economically. Toffler also predicted the collapse of the Soviet Union would come about due primarily to its authoritarian control and limiting of information. Unfortunately for Russian citizens, this old habit has continued for them beyond the collapse of the former Soviet Union and will at the least make an interesting case study on the survivability of a once strong nation which still remains committed to limiting and controlling information.

By going with the normal flow of free-market enterprise and the emerging replacement of monetary capital with intellectual capital as the dominant form of basic enterprise capitalization, it becomes easier to set up new companies primarily on the basis of invested intellectual capital. (See Post-Capitalist Society, by Peter Drucker). In plain English, socially responsible and forward-thinking companies can be set up quickly and cheaply--and these companies have indefinite potential for earnings and localized, targeted economic development. The initial objective is to develop model enterprises and communities, then implement successful strategies from those models into surrounding communities regionwide or nationwide, as needed."