From Social Entrepreneur to Good Company

Abstract

Dichotomy Between Citizens and Consumers

The idea that profit-seeking businesses should engage in socially responsible practices is not new. However, the social enterprise sector, as it has evolved over the last ten years, represents an expansive rethinking of the role of businesses in impacting society, with some researchers finding it to be an increasingly important cultural phenomenon (Dey 2006). Within the new social enterprise paradigm, social ends are no longer a transparent add-on relegated to secondary priority; rather, they are as central as financial returns to the business purpose. This new paradigm is one in which many social innovators implement business plans in the service of their social mission. As explained by Zoe Selzer, Executive Director of GoodCompany Group, these new social enterprises are ones in which, “social mission [is] baked into the fiber of the venture” (GoodCompany Interview 2012).

As consumers grow increasingly wary of exploitative business practices and as seemingly intractable social problems are of increasing concern in the public psyche, social service providers and businesses are recognizing the benefits of reconciling their approaches to respond to citizens as consumers and vice versa. In 2009, the New York Times found “indications that there is increasing interest in the idea of using business to tackle the world’s big problems” (Alboher 2009), a gargantuan undertaking traditionally assigned to public or nonprofit actors. But in a time of deteriorating government finances and growing skepticism regarding government’s ability to meaningfully address pressing social problems such as poverty, social exclusion and the environment (Dacin, Dacin and Tracey 2011), the search for new solutions is focusing on the potential of the social enterprise sector.

There is a growing interest among the general public inbecoming a social entrepreneur, with The Economist noting that “a decade ago the term was scarcely heard; today everyone from London to Lagos wants to be one” (The Economist 2010). This is not surprising considering the increased exposure of inspiring, passionate, successful individuals making a difference in the world through their entrepreneurial innovations, thanks to sophisticated organizations such as Ashoka and the Skoll Foundation (Dacin, Dacin and Tracey 2011). A career of doing good while doing well is powerfully compelling, especially as anecdotal evidence of the personal, social and financial rewards inspire the public imagination. As David Borenstein notes, “people everywhere [want to] apply their talents in ways that bring security, recognition and meaning….What has changed in recent years is that the citizen sector offers a broad avenue to satisfy those needs: to align what you care about, what you are good at and what you enjoy doing…and have real impact” (Borenstein 2004, 9 ).

Government interest in social enterprises has grown alongside that of the general public, as evidenced by recent legislative activity aimed at creating a friendlier legal and tax environment for these unique businesses to launch and thrive. In 2009, Philadelphia became the first U.S. city to pass a sustainable business tax credit, which is currently in the first year of its pilot phase. According to Councilman James Kenney, this is a strategy for attracting “sustainable businesses…that meet environmental and social performance standards”(B Lab 2011). At the state level, the Pennsylvania legislature is currently considering a benefit corporation bill that would allow companies to incorporate, or change their existing articles of incorporation, to include fiduciary responsibility to constituencies other than shareholders (LegiScann.d.). If Pennsylvania House Bill 1616 is passed, the state will be joining 10 others that have passed similar legislation to support social enterprises(B Lab 2012). At the federal level, the Jumpstart Our Business Startups (JOBS) Act intends to facilitatethe development of tools that support social enterprises, most notably by loosening securities regulations in a way that legalizes crowdfunding. Crowdfunding leverages online networks to raise capital by aggregating small amounts of equity from a large pool of investors.

The potential of social enterprises has not escaped the attention of the investment community, either. Impact investing is a growing phenomenon that has largely functioned as a niche activity among socially conscious investors, sometimes referred to as “philanthrocapitalists,” and a handful of foundations. Impact investment is now entering the mainstream, with powerful investment institutions beginning to recognize the potential of social enterprises (The Economist 2011). Notably, J.P. Morgan released a market analysis of impact investments as an emerging asset class in 2010, finding tremendous potential for both financial and social returns. Based on independent analyses conducted by J.P. Morgan and the Monitor Institute, the sector can be estimated to have the growth potential of about $500 billion over the next 10 years (J.P. Morgan Global Research 2010; Freireich and Fulton 2009).

Many of the elements necessary for facilitating the growth and development of social enterprises have begun to take root; governmental, popular and private financial support are all mobilizing to nurture social innovations and enterprises. Despite this backdrop, social entrepreneurs face important obstacles to creating viable and disruptive solutions. These obstacles can be broadly understood as a need for improved, coordinated mechanisms for building business capacity.