Social Business: the concept as discussed in Wikipedia

July 11, 2008

Social business

From Wikipedia, the free encyclopedia

A social business is one which aims to be financially self-sufficient, if not profitable, in its pursuit of a social, ethical or environmental goal. Examples of social businesses in the United Kingdom included The Ethical Property Company, Divine Chocolate and Fair Finance. A more famous example is the Bangladeshi Grameen Bank, set up by Professor 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. Definition

Definition:

Social businesses 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.<a title=”1″ href=”http://en.wikipedia.org/wiki/1″>1

In his book Creating a World without Poverty – Social Business and the Future of Capitalism, Professor Dr. <a title=”Muhammad Yunus” href=”http://en.wikipedia.org/wiki/Muhammad_Yunus”>Muhammad 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 ben efit in restricting a company’s ability to distribute profit to investors and that this may in fact serve to reduce a business’s access to much-needed capital. Capital restrictions may then compromise the company’s ability to achieve its social aims.

Professor Dr. Muhammad 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.

Professor Dr. Muhammad 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 is that the company’s shareholders and investors would be re-accumulating their initial investment as opposed to receiving dividends. He calls the latter social business enterprises.

Talk to walk

In the first chapter of Creating a World without Poverty – Social Business and the Future of Capitalism, Professor Dr. Muhammad Yunus puts forward his meeting with Franck Riboud, CEO of Group Danone, in 2005. Sharing ideas, they decided to launch a joint venture in Bangladesh : concrete execution of a social business, reducing poverty and bringing health through food to as many as possible. This project, Grameen Danone Foods, has set four objectives :

  1. To develop a product that has high nutritional value and is affordable for the poorest individuals
  2. To improve the living conditions of the population : jobs, income level, enhancement of the social fabric
  3. To protect the environment and conserve resources
  4. To ensure a sustainable economic activity

“Grameen Danone Foods is a unique opportunity to create a company with a strong social dimension, a business whose goal is not to maximize profits but to serve the interests of the population, yet without sustaining losses. This small-scale project may be the start of a whole new type of market that will change the economic foundations of the world.” Professor Dr. Muhammad Yunus, President of the Grameen Group
It is the first project launched by danone.communities, a dedicated fund to incubate and developp social businesses reducing poverty and bringing health through food.

Social Business Enterprises

Social Business Enterprises (SBE) 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.

Mexican counter model

Having been named as no. 22 of the world’s greatest 30 entrepreneurs by Business Week, Yunus is adamant about not making money off of the poor. He has condemned the Mexican model of Carlos Danel and Carlos Labarthe of going public and profiting from microlending.[1] The “Two Carloses” countered that their bank better taps the “boundless pool of investor capital rather than the limited pool of donor money.”[1] Alex Counts, the president of the Grameen Foundation, retorted that the poor clients were “generating the profits but they were excluded from them.”[1]

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.

References

 External links:

Social Business in Wikipedia

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11 Responses to “Social Business: the concept as discussed in Wikipedia”

  1. Tim Ramsey Says:

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  2. bdoza Says:

    Thanks for visiting and for the comment.


  3. “Creating a world without poverty” ?!
    danone.communities started as a laboratory to ensure sustainable economic activities, developping products that have high nutritional values and are affordable for the poorest individuals.

    Thanks for the quotation.
    Let’s keep contact about these enthralling subjects.
    I follow your feed on our Netvibes Univers (still under-construction 😉
    http://www.netvibes.com/danonecommunities#BlogAboutSocialBusiness

    Olivier for http://www.danonecommunities.com

  4. bdoza Says:

    Thanks for the comment.It is very praiseworthy that Danone has involved itself in materializing the concept of social business and you people are working for it.
    I was impressed the way the Danone expressed its willingness to be in the venture as described in ‘Starting with a handshake’ in Muhammad Yunus book. I myself made a visit to Grameen-Danone Food Plant, at Bogra, Bangladesh the account of which I described at http://bdoza.wordpress.com/2008/03/25/a-visit-to-grameen-danone-a-model-pf-social-business/

    Hope the contact will remain continued.

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