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Social Business

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Abstract

The aim of this paper is to study the phenomenon of social business and gain an understanding of their nature, operations, objectives and implications by using the book “Building Social Business” by Professor Dr Yunus.The paper also investigates the criticisms of social business and difference between social business and CSR.Finally the paper discusses the sustainability and future of social business.

Introduction

Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way.
The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal/s.
Social business is about making complete sacrifice of financial reward from business. It is about total delinking from the old framework of business. It is not about accommodation of new objectives within the existing framework. Unless this total delinking from personal financial gain can be established you'll never discover the power of real social business. Some times you can set up a technically correct social business with the purpose of making profit through your other companies by selling products or services to this social business company. This will be a clear sabotage of the concept. There may be many other subtle ways by which one can weaken the concept and practice of social business. A genuine social business investors must make all efforts so that he does not walk into this trap unwittingly.

Seven Principles of Social Business

• Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization

• Financial and economic sustainability

• Investors get back their investment amount only. No dividend is given beyond investment money

• When investment amount is paid back, company profit stays with the company for expansion and improvement

• Environmentally conscious

• Workforce gets market wage with better working conditions

• ...do it with joy

UNDERSTANDING THE CONCEPT OF ‘SOCIAL BUSINESS ENTERPRISE’ Modern day enterprises are faced with problems of ‘conceptualization failure’, the failure to capture the true essence of the human being. Prasso (2007) elucidates the thought further: ‘to put it simply, Yunus believes not that Adam Smith’s concept of profit-motivated, free-market capitalism is flawed, but that it is too limited. The conventional thinking that capitalism breeds wealth creators and competitors who subsequently spread that wealth by creating jobs and opportunities for the good of societies has not worked out very well for the majority of the world’. Yunus and Weber (2007) illustrate the imbalances in the global distribution of income by quoting figures: 94 percent of world income goes to 40 percent of the people, while the other 60percent must live on only six percent of the world income. A landmark report released by The World Bank (2008) estimated the global poor now exceeding an estimated 1.4 billion, up from around 1 billion as per previous estimates (Faiola 2008). This amounts to over a fifth of the total world population. According to The World Bank (2005) there has not been a measurable acceleration in the eradication of poverty in the developing world in the past decade, as almost one-third of the countries have shown no increase in GDP per capita since 1980 and overall, some 50 percent of developing countries showed an increase in the number of people below the poverty line of US$1 per day during the 1990s. Delivering the Nobel Peace Prize Lecture, Yunus (2006) further argued that by re-defining the entrepreneur in a broader way ‘we can change the character of capitalism radically, and solve many of the unresolved social and economic problems within the scope of the free market. Let us imagine an entrepreneur who, instead of having a single source of motivation (such as maximizing profit), now has two sources of motivation, which are mutually exclusive, but equally compelling: a) maximization of profit, and b) doing good to people and the world. Each type of motivation will lead to a separate kind of business. Let us call the first type of business a profit-maximizing business, and the second type of business as a social business’. The result will be a new world of business where enterprises will be of two kinds: (1) The well-known and well established profit maximizing kinds, which are devoted to making private gains alone (these can be called Profit Maximizing Enterprises or( PMEs), and (2) The social benefit-maximizing kinds, which are created to do good to people, rather than operating with the sole intent of making private gains (Social Business Enterprises or SBEs). The first category is the one about which we all know, the traditional capitalist operating with in the realm of the free-market economy with the sole objective of earning as much profit as possible. The other is what Yunus (2006) refers to as the ‘social entrepreneur’, and describes as ‘anyone who is offering his time, energy and commitment to address any social or economic problem of a group or community. The problem addressed may be a small local problem or a big global issue. The action required may or may not require money, and it may even be a personal campaign for or against something’. The Department for Business, Enterprise and Regulatory Reform (2007), on the other hand, describes an SBE quite comprehensively as ‘a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximized profit for shareholders and owners’. The problem with Yunus’s two-part division of organizations is that it is over-simplified, since most organizations of today transgress such distinctive boundaries and perform beyond the realm of the objectives for which they were initially established.

Social business VS CSR (Corporate social responsibility)

There are many interrelated terms often used which may be thought of as synonyms to Social Business. Such as:

• Social Entrepreneurship • Non-Profit Organizations • Foundations • NGO • Cooperative • Social Marketing • Corporate Social Responsibility

Many people get confused between CSR and Social business but the two are totally different things.
Social Business- its goal is to solve a social problem by using business methods, including sale of products and services. There are two kinds of social businesses, Type I and Type II.

Type I Social Business
This kind of social business is a non-loss, non-dividend devoted to solving social problem and owned by investors who reinvest all profits in expanding and improving the business. The investors can take back their original investment over a period of time, but cannot take any profit.

Type II Social Business
This kind of Social Business is a profit making company, owned by poor people, either directly or through a trust that is dedicated to a predefined social cause. Since the profits are directed towards poor people, this profit is automatically serving a social cause. The Grameen Bank, which has the poor people as its depositors and customers, is an example of this kind of social business.

Corporate Social Responsibility: CSR practices are those done by profit maximizing firms in order to fulfill their ‘responsibilities' towards the society. Hence, out of their whole profit, they may dedicate about 5% to CSR activities, whilst the remaining 95% will be for themselves. Although there is nothing wrong with the concept, it does not have anything to do with social business. A social business is designed to solve a social problem rather than contributing part of it for the society.

Future of social business

Although the concept is relatively new, it has received a lot of international attention. The pioneer of such a business is Grameen Danone Foods Limited where the French dairy giant Danone joined hands with Grameen to launch fortified yoghurt for the malnourished children of Bangladesh. This endeavour later rolled on to numerous other initiatives with multinationals like Veolia, Adidas who are happy to invest part of their profits for overall social well-being. At the same time, the concept also attracted a lot of academic institutions as a new business model and prominent institutions like HEC Paris, Glasgow Caledonian Univeristy, European School of Business, California State University, Kyoto University, National University of Singapore, Asian Institute of Technology and North South University in Bangladesh have started initiatives ranging from certificates to research in this area. The Grameen Danone venture was also written as a case for students both from HEC Paris and the Harvard Business School.

Of course the concept is not foolproof and it would be foolish to think so. However, it is still at a very premature stage and requires careful attention. Nevertheless, with time, experience and exposure it can prove to be a very strong weapon to combat if not all-some of the social issues the world is facing. At the time, it is also understood that all companies will not be interested to pursue this model but in its short span, it has already shown that significant number of companies see the promise this concept holds.

We feel that any small step taken towards the betterment of the society should be wholeheartedly welcomed by all. Unfortunately for Professor Yunus, such is not the case and it is felt that he is constantly under politically orchestrated attacks. In order to protect him from such defamation, eminent people from across the world have formed ‘Friends of Grameen,' a voluntary association that aims to promote micro-credit and social business. It can be hoped that under such a protective umbrella, social business can spread its wings and reach newer heights to solve social problems.

CRITISIMs
In the rapidly changing business world, many concepts emerge, evolve and decline at a pace faster than their own evolution. This has led to the development of innumerable business jargons whose rate of awareness and acceptance varies from country to country. One such buzzword happens to be 'Social Business', a concept developed by Professor Mohammed Yunus, the Founder of the Grameen Bank and the pioneer in formalizing the practice of micro credit. For his contribution in the field of micro credit and poverty alleviation, Prof Yunus won the Nobel Peace Price in 2006. The concept and its models have been used all over the world with much success, it still garners significant criticism stating that in reality, it is actually charging the poor a much higher rate of interest than normal. Given the strength of criticism micro credit received, despite it being a globally accepted practice and making its founder win the Nobel Prize, it is not wrong to assume that the second revolutionary concept developed by Prof Yunus called Social Business, may also attract similar kind of criticism.

Social Business is a new kind of business model proposed by Prof Yunus, where the business would be running to earn profit in order to solve a social problem. The reason it is more likely to attract negative publicity is because there is a lot of confusion regarding its true meaning. At the same time, the connection of micro credit and its various loopholes make some people easily assume that this is another 'fashionable' concept designed to cheat the poor.

Social business has the ability and tools needed to address the current crises of the environmental and human conditions. Because the current economic worldview is capitalistic and business-driven, the improvements should first be made within that system and not with attempts to completely reverse or debunk it. "When a large number of people are vying to do the best possible job of developing and refining an idea- and when the flow of money toward them and their company depends on the outcome of the competition- the overall level of everyone's performance rises dramatically (Yunus 27).” This is an undeniable benefit of capitalism- as compared to socialist ideology where it has been generally accepted that motivation is not created

Is social business sustainable?

A social business requires the society’s participation and such model offers possibility that after a period of incentives and encouragement, government or donor support, it would be possible to be sustainable by itself. It is sustainable because people find it convenient and valuable, profitable because it no longer depends on the funding and just, because it powerfully changes people’s lives. I believe creating a sustainable social business lies on two things 1) the right people and 2) having a good business sense. The right people know what they are doing, know about the community and the culture, and know what the community needs. Having a good business sense means not just measuring the profits but counting how many people are helping.

I therefore conclude that social business is sustainable if we have the right people and a good business plan (which of course includes a perpetually pure goal of helping the community). What drives the people to participate is the idea that the business is doing it to help more and more people improve their lives.

References • Yunus, M. (2003). Halving Poverty by 2015 - We Can Actually Make it Happen. Commonwealth Lecture, 2003.London: The Commonwealth Institute. • Yunus, M. (2006). We Can Put Poverty into Museums. Nobel Lecture presented at the Nobel Peace Prize Ceremony’. Oslo, Norway. Retrieved from http://nobelprize.org/cgibin/ print?from=/nobel_prizes/peace/laureates/2006/yunus-lecture-en.html on May 02, 2008. • Yunus, M. (2006a). Social Business Entrepreneurs are the Solution. Skoll World Forum on Social Entrepreneurs.Oxford: Said School of Business, University of Oxford. • Yunus, M. and Weber, K. (2007). Creating a World without Poverty, Social Business and the Future of Capitalism.New York: Public Affairs (Perseus). • Yunus centre http://www.muhammadyunus.org/

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