Social business

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A social business is a business which aims to be financially self sufficient, if not profitable, in its pursuit of a social, ethical or environmental goal. Examples of UK social businesses included The Ethical Property Company, Divine Chocolate and Fair Finance. A more famous example is the Bangladeshi Grameen Bank, set up by Prof. Dr. Muhammad Yunus in 1983. Dr. Yunus is a key proponent of the social business model, seeing it as a means to eradicate poverty and to influence the future of capitalism. However, his definition specifies that profits cannot be distributed to investors and must instead be ploughed back into the business or the community it serves.

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[edit] Definition

Social business can be defined as follows:

Social Businesses seek to profit from acts that generate social improvements and serve a broader human development purpose. A key attribute of social businesses is that an increase in revenue corresponds to an incremental social enhancement. The social mission will permeate the culture and structure of the organization and the dual bottom lines - social and economic will be in equal standing with the firm pursuing long term maximization of both.1

In his book Creating a World without Poverty - Social Business and the Future of Capitalism Dr. Yunus defines what a social business is and what it is not.

It boils down to the following requirements:

  1. social objectives: it needs to have positive social objectives (help comes from the altruistic social services that the business provides to the poor): e.g. health, education, poverty, environment or climate urgency
  2. community ownership: it needs to be owned by the poor or disadvantaged (dividends and financial growth return to the poor where their fiscal situations are helped bringing them out of poverty): e.g. women, young people or long-term unemployed
  3. non-profit distribution: investors may not, after having had their investments paid back, take profits out of the enterprise.

A social business is driven to bring about change as opposed to profit driven. Although from a strictly capitalistic perspective it seems foolish to pursue a goal other that profit, social businesses aim to meet certain social and environmental goals. The Grameen bank is an example of a business that combines two of these business models into one; It offers social services and goods to the poor and in addition is owned by the poor. Others, including Catalyst Fund Management & Research, argue that there is no benefit in restricting a company's ability to distribute profit to investors and that this may in fact serve to reduce a business' access to much-needed capital. Capital restrictions may then compromise the company's ability to achieve its social aims. Dr. Yunus argues that capitalism is too narrowly defined. The concept of the individual as being solely focused on profit maximising ignores other aspects of life, religious, emotional, and political. Failures of this system to address vital needs, that are commonly regarded as market failures are actually conceptualisation failures, i.e. failures to capture the essence of a human being in economic theory. Dr. Yunus postulates a new world of business in which profit maximising enterprises and social benefit maximising enterprises coexist. In addition, a social business would operate much like a profit maximizing business in that the company as a whole grows financially and gains profits. The only difference being that the company's share holders and investors would be re-accumulating their initial investment as opposed to receiving dividends. He calls the latter social business enterprises.

[edit] Social Business Enterprises (SBEs)

Social Business Enterprises are based on the benefit maximisation principle. They are operated as a business enterprise with the objective to pass on all the benefits to the customer. SBEs are non-loss-non-dividend companies that compete with profit maximising enterprises and other social business enterprises.

Key ingredients to the success of the approach are education, institutions to make social businesses visible in the market place (a social stock market), rating agencies, appropriate impact assessment tools, indices to understand which social business enterprise is doing more and/or better than others so that social investors are correctly guided. The industry will need its Social Wall Street Journal and Social Financial Times.

[edit] Profit for Investors: NO, Profit for the Enterprise: YES

Having been named as no. 22 of the world's greatest 30 entrepreneurs by Business Week, Yunus is adamant about not making money out of the poor. His family of Grameen businesses includes a Foundation, and he condemns the Mexican model of going public. See: New York Times, April 5, 2008: Microfinance's Success Sets Off a Debate in Mexico [1]

The article refers to the 'boundless pool of investor capital' and the 'limited pool of donor money'. It also says that poor clients were 'generating the profits but they were excluded from them'.

Social objectives and financial rewards thus have to be considered for investors, managers and employees as well as the clients of an enterprise, especially if the enterprise deals with money as its product.

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