What if I told you that the word ‘profit’, long associated with cigar smoke and Wall Street, is becoming the currency of positive change?
At first, this might seem paradoxical, but our generation is fundamentally changing how we conduct business, for the better. And I’m not referring to office mindfulness and beanbag breakout spaces; we’re doing this through what is called ‘social business.’
Social business is when a company is pursuing not just financial returns, but returns that benefit society too. This is a far cry from the thinly veiled Corporate Social Responsibility (CSR) attempts we’ve seen in the past, and can exist as social enterprises, B-Corporations, and mission-led businesses. Currently in the U.K, 70,000 social enterprises exist, half of which were founded in the last five years and employ over a million people. These business pursue financial returns for the good of society, and have contributed 24bn to the economy.
Business leaders like Muhammad Yunus are fundamentally shifting how we view the private sector’s relationship with society. Yunus founded Grameen Bank, a micro-finance, community development in Bangladesh that gives small loans to Bangaldesh’s poor and asks for nothing but trust. With 7.5 million borrowers and a 99% repayment rate, 65% of his borowees managed to improve their social-economic conditions and lift themselves out of extreme poverty. The world watched as Yunus received his 2006 Nobel Peace Prize, encapsulating the potential of a social business operating on a global scale.
On a local level, Social Bite is a collection of social enterprise cafes, solving homelessness in Scotland one (delicious) sandwich at a time. Their work with the Scottish Government in developing Scotland’s Housing First policy should be your next Google search. In a time when UK homelessness is at its highest since the 1980s, their work is not just admirable, but necessary.
It’s important to note that social businesses experience similar failure rates as other businesses. This is because so much of social enterprise is shaped around sustaining the personal passions and qualities of their entrepreneurs. However, contrastingly to regular start-ups, ethical practices are increasingly embedded in the company structures of social businesses. Mechanisms such as a ‘Mission Lock’ ensure that the company acts in accordance with its original commitment to a social outcome. If you’re a shareholder of Etsy, Ben & Jerry’s or Patagonia, you’re able to sue the directors for failing to carry out the company’s social mission, just as you would if directors of a traditional business violated their financial duties. This is socially-conscious, vigilante business.
Social business is better business. Alexandra Hayden, a founding member of the UK’s first student-led social investment firm, Prosper Social Finance, argues that the success of social businesses is due to the fact that businesses that put ‘social considerations into their business operations are “better” relative to their competitors.’ Hayden argues that if a company ‘produces a product in a more environmentally friendly or sustainable way but at the same cost of production’ this means the business ‘is less susceptible to risks’ such as carbon taxes or governance fines. Social business doesn’t have to be to the detriment of profit and in a time of unprecedented private sector accountability, social businesses have nothing to hide.
Why this shift, and why now? One angle is that the effect of social media makes the stories behind these brands highly accessible, and thus their leaders highly accountable. Crowdfunding makes accessing capital easier, so long as you have an initiative people believe in. But, is this a chicken and egg scenario? Our generation is increasingly looking at the job market and asking a question our parents didn’t dare to: ‘what can my employer do for me?’ Because other than the rather obvious ‘pay me’, the zeitgeist of ‘enable me to make an impact’ is rising.
If the efficacy of social business is evident and sustainable, could a time come when society may no longer need the charitable sector? A gap is widening in the U.K between the demand for third sector services and the money needed for them; charitable giving by individuals declined in real terms by 3.4bn (12.7%) between 2010 and 2015, and between 2000 and 2013 government grants to charities fell by almost two thirds. Despite this, in 2014 around 90% of charities reported that demand for their services had increased. Is a shift towards social business the answer? I write this in Edinburgh, a global capital of social enterprise. For every 1000 people in Scotland, there is a social enterprise. Could the devolving and merging of our social services through business be the plughole in the gap between need and funds?
The rise of social business is a vital reality check; companies do not have to be directed solely by an overexcited application of capitalism. Capitalism has the capacity to be, dare I say it, inherently humane. Michael Porter, an advocate of social business, describes this ‘shared value’ of using profit to address social issues, as a ‘higher kind of capitalism.’
Even if we don’t see the private sector shifting en masse just yet, I am hopeful for the future. Profit allows scalability and if this profit merges with social purpose, so much can be achieved. Yunus himself said, ‘a charity dollar has only one life; a social business dollar can be invested over and over again.’