The Fallacy of Social Enterprise?

Can anyone show me a business that is NOT ‘social’?

One that pays no-ones wages; that provides no-one with identity and respect?

That meets no customer needs?

That creates nothing that is valued by anyone?

One that does nothing socially useful with any of its profits?

It is nothing to do with legal structures, where profits go or being part of a ‘social enterprise movement’. It is part of being a human being and being enterprising. How many billions was it that Gates popped into the Gates foundation? Rowntree, Kauffman, Carnegie, Ziff, Ford, Getty, Mellon, Packard, Wellcome, Sage…

There is just ‘good’ business – ‘bad’ business and an awful lot of stuff somewhere in between.

Some businesses, and the social entrepreneurs behind them (can you show me an entrepreneur who is not ‘social’?) start out ‘bad’ unsustainable, polluting, exploitative etc and become ‘good’.

Some that start out ‘good’ get trapped in never ending battles for survival and become little more than ‘miserable grant writers’.

And there is a whole lot of subjectivity in making the distinctions between good business and bad business.

There are lots of us who have set up ‘for profit’ businesses as the simplest and easiest way to drive forward our social missions – which we hold just as passionately as our ‘social enterprise/not for profit distribution’ colleagues.

Once we start to recognise that ENTERPRISE is a tremendous driving force for innovation and change; good and bad; not only in the the economy but also in societal and global development, and stop pretending that only officially sanctioned, card carrying members of the ‘social enterprise movement’ have a monopoly on ‘good’ we might start to get some traction on developing enterprise as a tool for progress.


  1. Mike, I know we’ve chatted about this one – I worry that saying that all businesses are social kind of misses the point about how vital it is that we encourage businesses and entrepreneurs to take their social impact as seriously as their financial impact.

    I could show you loads of entrepreneurs and businesses for whom any meaningful consideration of their social impact is a distant second to their primary goal of maximising shareholder value/generating as much profit as possible. Too many businesses externalise the social costs of their activities – and I’m afraid we’ve got to start pointing out how unacceptable that kind of business behaviour is.

    The kind of businesses and entrepreneurs i’m mainly interested in are the ones that put as much effort into having a positive social impact as they do generating a financial return. These businesses occasionally take a financial hit – in order to achieve more change. Many businesses wouldn’t dream of doing that – in fact they are legally bound not to do that. With the economy in a mess, we need true social entrepreneurs and social businesses – not ones who pay lip service to it and hide behind a “we’re all social” tag.

  2. Rob

    I think that if we worked on the premise that ALL businesses are social and then got all of them to do some kind of ‘How Social Are You’ reflection then we might be able to develop all entrepreneurs (and their advisers) to take their responsibilities for social, environmental and financial bottom lines much more seriously.

    You show me an entrepreneur who does not give meaningful consideration to their social impact and I will show you someone who is either:
    a) desperate to keep their head above water financially, and consequently feels obliged to do things that they would rather not, or is
    b) stuck in their own personal development and has not yet understood their relationship with the wider community and the planet as a whole.

    Either way they need help!

    The social enterprise movement seems to believe that if we can just round up enough of the ‘good’ people and get them into ‘social enteprise’ then somehow we can offset the impact of financial desperation or of ‘under developed humanity’. If these are the root cause of social ills then surely it is by engaging these people rather than trying to counterbalance their impacts that we will make most progress?

    The artificial, (policy-led) and inaccurate division of enterprise into ‘social’ and ‘other’ actually sanctions those short term, under developed ‘for profits’ who choose to focus purely on financial returns. It also stigmatizes those of us who are ‘for profits’, ‘for society’ and ‘for the environment’.

    From what I can remember the legal obligation on the management of ‘for profits’is to maximise return on investment in the long term for shareholders and investors. This means that they have a legal duty to manage reputation. Although financial return on investment is the ultimate scorecard – most realise that the way to ‘keep scoring’ is to seriously manage the triple bottom line.

    When you say many businesses wouldn’t dream of taking a financial hit in order to achieve more change I have to say that is not my experience. I have over the years refused invitations to work with tobacco companies and arms companies – taking a financial hit – in order to achieve more of the change that I want to see. Just about every business I have ever worked with, or in, has had to make similar difficult value based decisions.

    But perhaps that is the point. It all comes down to our values and how we translate them into action. Nothing to do with our status as a ‘social’ enterprise at all.

    All of these viewpoints are lightly held. As you know I am as enthusiastic about the potential of enterprise to make the world a better place as anyone. I just feel that this won’t be done by cleaving it into social (good) enterprise and the rest – especially using the arcane, arbitrary, structural and legal definitions that seem to abound.

    Makes sense?

  3. There’s plenty there that we agree on Mike – particularly the fallacy that this thing called “social enterprise” is somehow the home of all things good in business. I much prefer the broader term social business – and within that I include people like you and me who would be classed by many as “for profits” but who take achieving social good seriously. I don’t doubt that you’ve taken a hit in the past for social reasons – but I’d argue that you are not typical.

    I don’t share your positive outlook on the mainstream business world. There are plenty of good businesses out there – but I would argue that they are counter-cultural – the dominant business culture is one where profit rules and doing good is for the CSR team or for the charity golf day. Sorry if that sounds like an unreconstructed class warrior – but I really don’t see so many businesses seriously managing their triple bottom line. I think things are changing for the better – but we’ve got a long way to go.

    We live in fascinating times – which way will the dominant business culture go? Will the current economic crisis cause a radical rethink of the role of business – or will we go backwards? I feel very positive – which is why I keep blogging about the opportunity for change – but I’m also very aware of the voices which are already suggesting that in difficult times business needs to focus on making money – and not worry itself with additional “costs” – such as extended paternity leave or environmental responsibility. The world needs social entrepreneurs and social businesses – (defined as widely as possible – whilst retaining some meaning!) – more than ever.

  4. Kinda of a screwy post. I get what you are saying, but I think you should go further in saying it.

    Obviously there are lots of “Social Enterprises” out there (80,000 503c’s in the US) and many of them are not doing much if any good while still parading around the cute term “Social Enterprise” as their new buzz word. However, those organizations are there for the benefit of society which is their key differentiation with for-profits which are obligated to “do good” for their shareholders and investors.

    Bottom line for me is people (Regardless of the IRS forms they file) should be doing more to help solve problems locally, globally and etc.

  5. Hooray to your bottom line Jim.

    I am never sure in this argument who decides what or who is ‘for the benefit of society’. Surely most innovation is the product of the private sector, with investments in development only being made because of an expected financial return on investment. Don’t the best private sector/for profit distribution businesses work hard to deliver a social good and make a profit? I know that there are still plenty of bad ones that profiteer from carcinogens, ‘munitions, etc – but surely as society becomes more transparent and they become more accountable they shift to invest in more ethical practices to secure the ROI for shareholders in the long term?

    It is the false divide that we put between ‘social enterprise’ and ‘for profits’ that do neither any good. Tomorrow Yorkshire hosts the largest conference and exhibition of social enterprises in the UK. Surely if these social enterprises exhibited at the mainstream business conventions they might influence more, learn more and trade more widely? Why do social entrepreneurs have their own schools, their own teams of publicly funded advisers, their own lines of grant funding and soft loans – simply on the basis of either their legal structure or an arbitrary decision on whether their principal aims are ‘social’.

    I guess my main gripe is that we continue to develop the stereotype of ‘social enteprise = good’ while ‘for profit = bad’ when life is much more complicated. It is the obvious falsesness of the dichotomy and the way it promotes separation and tension that I find hard to comprehend.

  6. I couldn’t agree more. There is a sense “out there” that if you are a non-profit or a social enterprise then you are *good*. It’s a blind faith perhaps in people who don’t do their research. Likewise, many people think businesses because they are for-profit are only in it for themselves. We will be happier and healthier when both are viewed equally in society.

    It seems non-profits have always had the softer route. It’s not been as competitive as it is in for-profit organizations. If they don’t get a grant – they struggle, but the board doesn’t come in and give everyone the boot. I think this stems from accountability (The lack thereof). Non-profits are not typically held accountable for generating “X” amount of good nor have they been held to task for innovating process or technology – so why invest in them? For profits is the inverse. Maybe when there is enough accountability and competition in social enterprising we will see the divide go away. I would not invest in any business that doesn’t have the experience and planning to bring a thing to market – for-profit or otherwise.

    Regardless of an orgs tax status, the people managing it should be driven to innovate, create and implement change for the good of all. Starbucks, the Red Cross, Exon, all of them. If not then there is no enterprise – Social or otherwise.

  7. Sue Talbot says:

    At the risk of failing to let a sleeping dog lie….and I know the debate’s moved on, but…

    I read your posting originally and wasn’t terribly happy, but decided to try not to be Ms Contentious. Then I took a different route home and noticed the “Health and Social Club” down the road.

    Its name belies its purpose: it’s a brothel, so accumulates profit by renting out the bodies of trafficked girls and women, who are effectively owned by the business, in the same way as the furnishings, or perhaps a farmer’s cattle. Now, I have no doubt that someone would argue that this business meets “customer need” ; it presumably pays wages to the men/women who keep the girls in line; these will be re-circulated in the wider economy – locally and globally; I’m sure it’s valued by the procurer/ess and provides them with a sense of identity and self-worth. It’s certainly enterprising, but then so was slavery.

    Yes, it’s an extreme example, but I think it illustrates why it’s fallacious to say that all businesses are necessarily social in their impact. Meeting need, paying wages, provision of identity, creation of “valued”goods/services are not the bottom line of business. Profit is. Everything else is at least secondary, and sometimes completely incidental, to the accumulation of capital.

    I’m not saying that businesses that don’t have explicit social aims can’t/don’t fulfil beneficial social roles and functions. But I do think that the “social” bit of the phrase “social enterprise” is important because it’s an explicit statement of purpose/aims/values, allied to the means by which it will be accomplished. Yes, we’re producing and trading goods/services for profit; we’re doing so using organisational models that promote flexibility, responsiveness, innovation (we hope). We know the nature of the “social” element varies: it might be the goods/services provided; employment/procurement policies; or the purposes to which the profit is put beyond re-investment. The key element is that it the business exists explicitly and consciously to achieve something beyond the maximisation of profit.

  8. Slavery, trafficking, renting out bodies – are these not all social phenomena? It is hard to think of a more ‘social’ business.

    If the health club changed its legal structure, becoming for example a co-operative would it be any better? I think that there is a Collective of Prostitutes – – (looks like an SE, sounds like an SE – but not sure if it is or not). Does this make the industry any more or less acceptable?

    This is an issue of ‘good’ and ‘bad’ business rather than social or not social. But perhaps I have been reading too much Ayn Rand?

  9. on the issue of social enterprise being values enshrined and entrenched over form – there are other examples of what are held to be ‘true’ legal forms for social enterprise being used by, shall we say, less than ‘socially acceptable’ trading ventures – the Indian Sex Workers co-operative and the Israeli water cannon co-operative to name but two…and lets not forget the S&M club that almost became a Community interest Company!

  10. To elaborate slightly, of course all businesses are to a certain extent social. Lockheed Martin, Kellogg Brown & Root, Bechtel and Halliburton are all “social” in the widest sense of the meaning (employing people who in turn employ others, consume goods and services etc). They are all also incredibly profitable businesses and would blow each and every social enterprise out of the water if measured solely on their comparative bottom lines.

    That social enterprises should be judged only on their bottom lines would massively miss the point though. Many are formed to consider their founding, constitutional principles before the balance sheet. Obviously, in the strictest sense of the word this makes them worse businesses. It also makes them better, more responsible businesses too though and that is the fundamental distinction.

    I think the fundamental question around the social enterprise debate is whether the social aspect is detrimental to the presence of the enterprise culture necessary to make a business work to the magic 90-100% capacity. In truth it probably is, the cultural/ethical difference of social enterprises vs. ‘for profit’ can’t fail to have an impact in behaviour. Of course basic Darwinian principles will always be the most efficient, the law of the jungle is the oldest law in existence.

    That doesn’t mean that social enterprise is a fallacy though, just as our bombmaking friends at Lockheed or our Oil drilling pals at Halliburton would struggle to be a successful social enterprise I am sure that the staff at Shine in Harehills, for instance, wouldn’t find it at all easy selling landmines and laying pipelines.

    Social enterprises are well suited to what they do in most cases and the ones who aren’t (unless the market is horribly skewed by wrongheaded funders – that’s probably another argument) will fail to thrive and wither on the vine. The business of enterprise is a broad church nowadays and surely that’s something to be welcomed.

    • And who are the customers of Halliburton, Lockheed et al? Democratically elected govts on the whole, or dictators funded by democratically elected govts. These too are meeting a social demand (the foreign policy that we choose at the ballot box). It is the people that WE elect that create the arms industry. It is us that creates the tobacco and sex industries too. These ARE social enterprises – reflections of our society and its priorities as practiced rather than espoused.

      Not sure about the Darwinian argument but psychology would suggest that social enterprises should outperform for profits because of the purpose that they represent and should embody. In practice few social enterprises remain terribly effective in delivering on their purpose and most exhibit significant mission drift in pursuit of financial viability. Many employees in social enterprises soon become disenchanted as they realise that they are not able to be the great engine of innovation and social change that they had hoped.

      There are good and bad businesses on both sides of the social enterprise boundary. My question is what value does the label – a policy makers confection – actually bring to the party?

      • I deliberately chose those examples of businesses that do not rely on any domestic market and are also hugely profitable. The fact that businesses rely on society as their markets does not make them a social enterprise. Halliburton, Lockheed, Bechtel’s businesses are created at a level which we have no democratic input and that was precisely my point.

        The Darwinian aspect I brought up was that the fitter, hungrier, leaner businesses will always punch above their weight in terms of productivity. The label question is simple, labels never bring anything to the party, but in recent times neither have labels like ‘Standard & Poor’s AAA’.

        The fact of the matter is that, whilst social enterprises will never trouble the FTSE 500, the good ones do an awful lot of good on a local level. Yes the label is typical of the Third Way, Polenta bothering, language of recent policy making but at the constitutional level they are undertaking admirable endeavors.

        I truly believe that the social enterprise model is a very good way of delivering a broad range of local services but the proof in the pudding wont be in this government but the next where I believe the private sector will have a lot more input into the agenda. It will be interesting to see who comes out on top in terms of service quality but I also fear that, in true Tory style, the bottom line will once more be the only metric that concerns them.

  11. I think it is about individuals taking action within their own industry. Answer these three questions:

    1. What industry are you in?
    2. How responsible is your industry?
    3. What action are you taking as an individual?

    You either belong to (and are) a (1) Good Egg, (2) Bad Egg, (3) or Rotten Egg.

  12. The case that all business has a social dimension was also argued by my deceased colleague Terry Hallman in 2008 when he asked ‘What is social enterprise?’ He goes on to say.

    “Allowing that some people do not matter, as things are turning out, allows that other people do not matter and those cracks are widening to swallow up more and more people. Social enterprise is the first concerted effort in the Information Age to at least attempt to rectify that problem, if only because letting it get worse and worse threatens more and more of us. Growing numbers of people are coming to understand that “them” might equal “me.” Call it compassion, or call it enlightened and increasingly impassioned self-interest. Either way, we are all in this together, and we will each have to decide for ourselves what it means to ignore someone to death, or not. ”

    In 2009 with Caritas in Vertate the Catholic Church made this statement:

    ‘This is not merely a matter of a “third sector”, but of a broad new composite reality embracing the private and public spheres, one which does not exclude profit, but instead considers it a means for achieving human and social ends. Whether such companies distribute dividends or not, whether their juridical structure corresponds to one or other of the established forms, becomes secondary in relation to their willingness to view profit as a means of achieving the goal of a more humane market and society’

    “Striving to meet the deepest moral needs of the person also has important and beneficial repercussions at the level of economics. The economy needs ethics in order to function correctly — not any ethics whatsoever, but anethics which is people-centred. .”

    Just as business can be unscrupulous, as we know from experience of Eastern Europe. so too can social enterprise even under formal models. Some wil go to almost any length to paint fellow travellers out of the picture.

    It was a profit for purpose business that my colleague conceived in 1996 and it reasoned that it was entirely legitimate for business to have a social purpose and proved authenticity by putting a cause ahead of his life. He deserves attribution, don’t you think?


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