I have been thinking and writing lately about the ways in which social enterprises are attempting to bring together business and achieving social good. It is useful, I think, to contrast this newer and exciting approach with other ways of approaching the relationship of business and social good that already exist in the business world. There is a spectrum of models but I can identify at least five positions. Let me know if you see more.
The social enterprise represents one end of the spectrum in positing that doing social good can be (and should be) good business and that a business that has a social or an environmental purpose can be as profitable or more profitable than one that does not. The social enterprise is still a business, however, with a commitment to a profit model. It is thus not a “non-profit” which could be defined as the far end of the spectrum. As an example, one can think here of a social enterprise like Liberty United, a company I learned about reading the Rockefellar Foundation book The Power of Impact Investing, that makes unusual jewelry that displays a serial number of the reclaimed gun from which the pieces are made. The business takes the profits from the jewelry and reclaims more rifles and guns. In this case, the product is inextricably tied to the social good to which the company has dedicated itself.
At the other end of the spectrum, there is the view represented by economist Milton Friedman, that the pursuit of social good has no business in business. In his now classic formulation, “the social responsibility of business is to increase its profits” and that “to focus on anything beyond profits for the owners is to levy a tax and not to act in the best interest of the owners.” Indeed, he went so far as to say a person who promotes concern over social issues is “preaching pure unadulterated socialism.” “Insofar as his action in accord with his ‘social responsibility’ reduces returns to stockholders, he is spending their money.” Friedman argued that the questions of social good were the purview of government and to divert business assets to social causes was to essentially levy a tax on the business for a purpose that should have been political. Earlier I asked about whether Friedman would roll over in his grave to learn about social enterprises.
Between these ends of the spectrum are a number of other models that have existed before the growing popularity of the social enterprise.
On the spectrum closer to Friedman, and a variation of the Friedman position, one hears and reads about CEOs who believe that running an effective business is doing social good. Whereas Friedman thought that the question of social good was a political matter, this position says that the running a successful business is inherently doing social good. Those who hold this view believe this because they hold the view that a viable business supports many families and generates wealth that can be put to good social purposes. Reflecting this view, for example, CEO and Founder of Cypress Semiconductor, T. J. Rodgers, writes that
Since its 1982 founding, Cypress Semiconductor has been a net creator of jobs and wealth. We have returned $2.2 billion more to the economy through stock buybacks, share dividends and spinouts than we have taken out in total lifetime investments. That figure doesn’t count the $4 billion in wages the company has paid or the taxes paid on those wages. Currently, my investment helps maintain 3,479 permanent, high-paying jobs with good health-care benefits that are now threatened by more taxes. A couple of years ago, I decided to invest in my hometown of Oshkosh, Wis., by building a $1.2 million lakefront restaurant. That restaurant now permanently employs 65 people at an investment of $18,000 per job, a figure consistent with U.S. small businesses.
In this position, a successful business is doing social good through its ability to support many families, communities and through investments made by those who are well paid by the company.
A third model, which moves further away from the Friedman position, and represents what has been loosely categorized as a “stakeholder” theory position, underlies the practice of most major companies which have a “corporate social responsibility” (CSR) function in the company. The corporate social responsibility function has both moral and business justifications. On the moral side, there is a recognition that a business has fiduciary responsibility to more than just shareholders but also to various stakeholder constituents, including customers, employees, those in the supply chain that are involved in the production of the products, and those in communities that may be touched by the business. Based on this moral position, a company like Starbucks identifies its responsibility to treat its coffee bean growers with respect, as an example.
In addition to the moral position that underlies the corporate social responsibility function, it is recognized that having such a function is good for business. This recognition begins to anticipate the position of the social enterprise. The corporation with the CSR function recognizes that it can be punished by customers for having negative impacts on its supply chain of workers or by negative environmental impacts, and conversely it can create greater loyalty by investing in social concerns that customers care about. The growth of corporate social responsibility programs thus implicitly represents a criticism of the Friedman position, for they recognize that caring for stakeholders is in the best interest of the shareholders. Doing good by stakeholders is right and profitable thing to do.
A fourth model that moves still further away from the Friedman position and towards the position of the social enterprise model is represented by companies that define a social purpose as a key commitment of their business but the product of the company itself does not intrinsically have anything to do with the social purpose. A recent example is Salesforce, whose CEO Marc Benioff writes about “compassionate capitalism” and founded the company with a mission to have a social impact. One would not typically see the Salesforce software product, which is a customer relationship management and lead management software, as intrinsically doing social good, though like any product it can be used for social good (but it can be used by companies that don’t care about good too). But Salesforce was founded with a Foundation that had stock in the original company and thus the mission to do social good was embedded in the very fabric of the company. Given that Salesforce revolutionized cloud computing and fundamentally changed the business model in the enterprise software space, it is obvious that having a social purpose did not get in the way of being an incredibly successfully company.
Another example in this category might be Creedo Mobile, a precursor of the social enterprise. Since its inception in 1985, the company has pursued two ambitious goals: working for social change and running a successful business. It pursues that vision by providing phone and phone services in which $78 m in profits have been invested in progressive social causes and non-profits. In this business model, the purchaser of the product is involved in supporting progressive social causes.
At the end of the for-profit spectrum furthest away from Milton Friedman are the social enterprises which are exciting in going the furthest in making a social cause core to their business model. Some of the social enterprises, like Hives for Lives, are built on a model similar to Creedo. The profit is not intrinsically related to the social purpose but the profits are used for some specific social good. In the Hives for Lives example, all the work is done by children under eighteen and the profits from raising bees and selling honey are invested in a social cause in this case cancer research. In this case, one could argue that the very product honey is doing an environmental good too since it is helping the bee population and because it is teaching children business and social responsibility. Another type of social enterprise combines the product or service itself intrinsically with a social purpose. The example given earlier of Liberty United is a case in point. The jewelry it sells is produced out of rifles that have been reclaimed. The product is thus a reclaimed gun which is core to the company’s mission.
There is much more to say about the strengths and weaknesses of each of these models, and I plan to say more. What is exciting about the social enterprise model is that it goes the furthest in linking the for-profit activity and the social impact the founders hope to achieve. As some of these companies mature and grow, we will all cheer them on as they try to keep those values core to the business.
