Social Enterprise and Stakeholders
How business leaders are successfully breaking the mold of traditional business wisdom
The mantra that many business leaders ascribe to today is one that has been tossed around since its inception by the economist, Milton Friedman. It is the standard answer that business school students give when they are inevitably asked the question: “What is the primary goal of a business?” The answer most commonly heard in the halls of prestigious institutions is “to maximize profits, of course.” Another common response, especially in the average boardroom, is “to generate the highest possible return on shareholder investment.” This view is commonly referenced as the “Shareholder Theory” of business and many ascribe to it as if it were gospel or law.
However, the nature of business is changing and a new model for the operations and goals of a business is beginning to gain more and more traction. A cornerstone to the ideas that we will be shining a light on in future BabbleOn enterprise features is the “Stakeholder Theory” first proposed by R. Edward Freeman in the book Strategic Management: A Stakeholder Approach. This idea identifies the “stakeholders” of a business as their employees (yes this includes executives), customers, suppliers, communities, unions, bodies of government, and yes, financiers and shareholders. Further than that, this theory breaks the adherence to Friedman’s ideas and states that businesses and organizations have an obligation to serve these stakeholders as a whole, rather than simply just at the “top level.”
Not only are more and more institutions beginning to educate their students on the importance of recognizing their stakeholders from an organizational standpoint but more organizations and corporations are beginning to truly take this concept to heart. These organizations are often defined under a single blanket term: Social Enterprise.
These business are changing the face of business and breaking the mold of traditional business “wisdom” by taking the system of free enterprise and using it to the benefit of all of their stakeholders. Taking a note from purpose driven organizations, social enterprises are formed marry the social mission of a non-profit or government organization with the market driven approach of a business (as defined by the Social Enterprise Alliance). In other words, these business not only generate revenue but make it their goal to tackle social issues and improve the lives or their communities, employees, and customers through simply operating a business. Profit isn’t the goal of these organizations but merely a byproduct of pursuing their mission.
As prominent social scientist and president of The American Enterprise Institute (a conservative think tank) Arthur Brooks said in a recent TED Talk: “Capitalism isn’t about accumulation but about aspiration.” Social enterprises are fast becoming the embodiment of that ideal and are making strides in addressing the world’s social issues through business.
I encourage you to ask tough questions when making purchasing decisions. The success of companies that adopt the social enterprise model is largely dependent on an increased public consciousness. We, and the businesses that we support, have a responsibility to make decisions that don’t only benefit us but benefit our communities locally and globally.
In future pieces we will discuss the success of businesses that have adopted the social enterprise model (as well as the benefits and challenges in the types of models under the social enterprise banner) and look at some of the claims made about these organizations. Let’s foster a discussion and work together to approach entrepreneurship and business development from new directions. If you have any questions or topics you would like to hear more about please let us know by engaging with us here on Medium or on social media. The world needs social entrepreneurs and businesses that give a damn about a little more than returns.
