Why add the “social” to “entrepreneurship”?
Introduction
As can be interpreted from the title of an article in the Journal of Social Entrepreneurship “Organized Chaos: Mapping the Definitions of Social Entrepreneurship” (Alegre et al 2017), there are a great many definitions of exactly what constitutes “social entrepreneurship”.
For the purposes of this article, I have adopted the concept of social entrepreneurship described by Philipp Erpf (2017) as characterized by:
(1) an entrepreneurial effort of one (or some) person(s);
(2) the aim to provide an individual benefit for the customer/client with the offered goods and services;
(3) the importance of being profitable;
(4) a strong social focus (origin and mission of the social enterprise are dedicated to face large scale social issues)
Erpf notes however that “This definition seems to be similar to the characteristics of business entrepreneurship; hence, social entrepreneurs perceive their organization to a greater or lesser extent like a business enterprise” (p.200). If this is the case, is it then necessary to conceive of “social entrepreneurship” as being fundamentally different to “entrepreneurship” and are there any arguments for and against social entrepreneurship in general?
Let’s take a look at a few of the arguments against and for the concept of social entrepreneurship.
The “Shareholder Supremacy Argument”
The economist Milton Friedman famously argued that the “the social responsibility of business is to increase its profits.”[1]. Over the last century, this is largely the way that capitalism has worked and has served to create hundreds of millions of jobs, supported and encouraged innovation and generated massive wealth in an ever-growing, interdependent, global economy.
Indeed, the CISL (2015) report — Rewiring the Economy — notes that “Global economic development has enhanced the quality of life and wellbeing of billions of people.” So, why shift from a system by which the spectrum of businesses, from small-medium enterprises (SMEs) to large multi-national corporations (MNCs), have created so much benefit for so many?
Well, the other side of the coin, as the report explains, includes the fact that “…inequality is rising, conflict and insecurity are a constant concern, ecosystems are being degraded, resources depleted and greenhouse gas levels are climbing. These trends are detrimental to communities, environments, businesses and long-term economic prospects.” (p.1)
So, what does this recognition mean for the argument to continue with the sole business focus on profits? In 2019, Forbes magazine declared “The End of Shareholder Supremacy”[2], a reversal of the so-called “Friedman doctrine”. The Forbes supposition was supported by the fact that “On August 19, 2019, 181 CEOs of America’s largest corporations overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximizing shareholder return.”[3]. Others however have since argued that “we should approach the latest commitments to ESG with skepticism” (O’Leary & Valdmanis 2021).
Providing an interesting and succinct rebuttal to the notion of shareholder supremacy, Jed Emerson (2018) refutes the dualistic mindset that economic value creation is separate to, or divorced from, social and/or environmental value: “The firm does not create its value solely as a function of its management and operations but rather as an outcome of how it operates in the world, takes resources out of the world and is advanced through the policies, values, and energy offered it from that world” (p. 123)
Does this mean that businesses with a broader view of, and accountability to, stakeholders beyond shareholders will become the predominant corporate model? This will remain to be seen, given the demands for ever increasing financial returns by many individual and institutional shareholders. However, there is no doubt that momentum is building for the ‘supremacy’ of a new business model that not only accounts for a broader range of stakeholders, but in fact puts purpose at the core of the business model.
The “Not-for-Profit Sector covers it” Argument
The “Non-Profit” or “Not-for-Profit” (NFP) sector is also known as the community sector or third sector[4] which includes charitable and voluntary organisations. This is a massive global sector accounting for a significant proportion of many countries’ GDP. For example, the combined income of Australia’s registered charities is the equivalent of 8.3 per cent of Australia’s GDP.[5] According to Statista, in 2016 in the United States alone, there were approximately 1.54 million nonprofit organizations …with a combined asset value of US$5.79 Trillion (in 2015) and reported revenues of US$2.62 Trillion in 2016.
Surely, this sector has it covered in terms of social and/or environmental impact needs?
The fact that the United Nations Sustainable Development Goals have a funding gap of some US$2.5 Trillion per annum would indicate otherwise. By providing innovative solutions to social and environmental problems, social entrepreneurship has a potentially significant part to play as, according to Prof. Alex Nicholls (2006), Professor of Social Entrepreneurship at University of Oxford, it is an “international phenomenon” positioned within one or more of three macro categories of actors: market, state and civil society.
While the NFP sector regularly steps in where there is a “market failure” and when government fails to act, it is clear that the triumvirate of State, Market and Civil Society must act in unison to drive achievement of the SDGs. According to Nicholls, social entrepreneurship “represents an umbrella term for a considerable range of innovative and dynamic international praxis and discourse in the social and environmental sectors” (p.5).
Interestingly, there has been a significant shift by many organisations in the NFP sector toward developing revenue streams that do not rely on donations and grant funding. The creation of revenue-earning businesses has boosted funding for many NFP organisations, but has not always been successful as the OECD (2019) notes in relation to Japan:
“In the past decade, the Ministry of Economy, Trade and Industry (METI) implemented policies that enabled the social sector (non-profit organisations) to do business (instead of philanthropic activities) and become financially sustainable. However, the lack of business skills often leads to unsustainable and unprofitable operating models.” (p.170)
Nevertheless, social enterprise from within, and external to, the NFP sector will continue to play a larger part in delivering social impact internationally. The NFP sector must consider that “increasingly, new donors may not care what is and is not a charity and will be more open to social enterprises and for-profits that are seen as making a social impact.” (Phillips & Wyatt, 2021:12)
The “Rational, Self-Interest” Argument
Related to the ‘shareholder supremacy argument’, Sud et al (2009) frame, what they call the “structural argument”, partly as a matter of “the inherent tension that all business enterprises face: competitive advantage (i.e., self interest) versus corporate social responsibility (i.e., interest in others’ welfare)” (p.18) whereby the rules of the game are stacked against social enterprise by virtue of the “structure of a capitalistic economy”.
It could then be argued that the current capitalist system, including competitive tensions, access to finance and other resources, and the necessity of financial sustainability to survive the long-term, is so embedded that a social entrepreneur’s self interest will inevitably lead to a greater focus on financial returns and traditional competitive behaviours and a weakening of the social purpose imperatives.
Conversely, the rules of the game are beginning to change and, with a range of different social and economic dynamics brought to bear during the covid-19 pandemic, this change in the structure of capitalism may accelerate to provide even greater legitimacy and access to social entrepreneurship.
Indicating a shift in structure, a recent survey of 168 companies conducted by Harvard Business Review and Salesforce (2021), concluded that “Reflecting the business community’s growing recognition that the most successful, sustainable companies exist for reasons greater than just maximizing returns for shareholders, nearly six in 10 survey respondents (58%) say the main reason their company prioritizes corporate purpose is “to ensure our business contributes positively to society at large.” (p.2)
Conclusion
As can be seen from this brief summary of three arguments against the concept of social entrepreneurship, there are also good countering arguments and, more importantly, fast growing evidence that social entrepreneurship is here to stay as a sustainable business model that will grow globally.
Social enterprises have been referred to as “hybrid organizations” (Miles et al 2014, Grimes et al 2013) in that they utilise traditional “for profit” business models to create financial sustainability while pursuing a social mission that is integral to the business model. The two foci are not incompatible. In fact the two can work in a mutually-reinforcing, virtuous cycle that venture capital firm Mustard Seed Impact calls “lockstep”. The Mustard Seed Maze portfolio provides a good example of early-stage and growth organisations with an eye on profits but also with social and/or environmental purpose woven into the fabric of their business.
Sud et al (2009) contend that “no single social institution… is capable of resolving the large-scale problems now facing us, or those yet to come. It will take the collaborative efforts of many different sectors to effectively address our complex social problems” (p.22). This implies the need for greater collaboration, the further development of social enterprise ecosystems, knowledge-sharing and the kind of partnerships envisaged by SDG17.
There is plenty of evidence out there regarding growing momentum in social entrepreneurship and the contributions social enterprises make to creating a better world. Skoll Foundation is one example of a focal point highlighting such organisations.
Finally, as Gartenberg and Serafeim (2019) note: “Societal shifts seldom come suddenly. They often manifest as the gradual erosion of support for one worldview and the rise in support of another.”
I believe that social entrepreneurship will be a vital part of that new worldview.
References
Alegre, I., Kislenko, S. and Berbegal-Mirabent, J., 2017, Organized Chaos: Mapping the Definitions of Social Entrepreneurship, Journal of Social Entrepreneurship, 8:2, 248–264, DOI: 10.1080/19420676.2017.1371631
CISL, 2015, Rewiring the Economy — Ten tasks, ten years, The University of Cambridge Institute for Sustainability Leadership, July 2015, updated November 2017. https://www.cisl.cam.ac.uk/resources/cisl-frameworks/rewiring-the-economy
Emerson, J., 2018, The Purpose of Capital: Elements of Impact, Financial Flows and Natural Being, Published by: Blended Value Group
Erpf, P., 2017, What is social entrepreneurship and how can it be differentiated from business entrepreneurship?, Die Unternehmung, Vol. 71, №2, Themenheft “NPO-Management“, pp. 197–208.
Gartenberg, C. and Serafeim, G., 2019, 181 Top CEOs Have Realized Companies Need a Purpose, Harvard Business Review, Digital Article, August 20, Accessed 15 Feb-20: https://hbr.org/2019/08/181-top-ceos-have-realized-companies-need-a-purpose-beyond-profit
Grimes, M., McMullen, J., Vogus, T., Miller, T., 2013, Studying the Origins of Social Entrepreneurship: Compassion and Does Compassion Matter to Social Entrepreneurship, Academy of Management Review , 38(3) 460–463
Harvard Business Review and Salesforce, 2021, Corporate Purpose in an Age of Crises, Pulse Report, February 04. Accessed at: https://hbr.org/sponsored/2021/02/corporate-purpose-in-an-age-of-crises
Miles, M.P., Verreynne , M.,and Luke, B., 2014, Social Enterprises and the Performance Advantages of a Vincentian Marketing Orientation Journal of Business Ethics, Vol. 123, №4, Special Issue on The 19th Annual International Conference Promoting Business Ethics (2012) (September 2014), pp. 549–556
OECD, 2019, Social Impact Investment 2019: The Impact Imperative for Sustainable Development, OECD Publishing, Paris. https://doi.org/10.1787/9789264311299-en
O’Leary, M. and Valdmanis, W., 2021, An ESG Reckoning Is Coming, Harvard Business Review — digital article, 04 March. Accessed at: https://hbr.org/2021/03/an-esg-reckoning-is-coming
Phillips, S.D. and Wyatt, B., 2021, Intersections and Innovations: Change in Canada’s Voluntary and Nonprofit Sector. In Susan D. Phillips and Bob Wyatt (Eds.), Intersections and Innovations: Change in Canada’s Voluntary and Nonprofit Sector. Edmonton, AB, Canada,: Muttart Foundation.
Sud, M., VanSandt, C.V., & Baugous, A., 2009, Social Entrepreneurship: The Role of Institutions, Journal of Business Ethics, 85 (Supplement 1), pp. 201–216. DOI: 10.1007/s10551–008–9939–1
Author’s Disclosure Notes:
The author is an investor in the Mustard Seed Maze Social Entrepreneurship Fund I and a shareholder in Mustard Seed Impact Ltd.
A version of this article was submitted as an assignment for the University of Oxford’s Social Entrepreneurship (online) Course: Wilson, K., 2021, Why put the “social” in “social entrepreneurship”?, Assignement 2, Social Entrepreneurship 3, University of Oxford, Continuing Education, submitted 05July2021.
