Profitability and Social Enterprise

In the words of Nobel Laureate Muhammad Yunus:

“I wouldn’t want to mix profitability with social enterprise. I would keep them separate. Then you would have to explain how much of social you have in your business and how much of profit. Big businesses will not answer this question because they don’t know. But they use this concept to persuade that they are the ‘good guys’ without revealing that they are probably doing only one percent on the social front. So if you want to do both, keep it separate.”

While I agree very much with his assessment of big business , how can any form of business operate without profitability? Even business which makes social benefit its primary focus.

In 2007 , Yunus published ‘Creating A World Without Poverty’ introducing the concept of social business, business which operates for a social objective rather than shareholder return,

That same year, we published our ‘Marshall Plan’ proposal for Ukraine, which had this to say \about profitability:

‘An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.

‘That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples — the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise.’

In 2004, the model was described to a diaspora leader:

“The P-CED model is not a charity sort of operation. It is business. What we choose to do with profits is entirely up to us, and we choose before anything else happens to set most of our profits aside to assist poor people. In fact, our corporate charter requires us by law — UK law, where rule of law is very well established — to use our profits only for social benefit. We cannot do anything else with it. To the extent that it is difficult or impossible to engage honestly and predictably in business activities in any given community and make a profit, we are reduced in what we can do with any profits that might be made.”

Interviewed by Axiom News in 2010 about non dividend distributing social enterprise, founder Terry Hallman spoke of the risk of the profit focus over social commitment:

“When we get into divvying up financial profits it’s too easy to get sidetracked by a myriad of possibilities along those lines,” Hallman tells Axiom News.

“In that case there is distraction from the primary objective of any given project, the social concerns for people at risk of exclusion, or already excluded, from the opportunity to have a decent, safe, secure life.”

Hallman adds that if “a lot of emphasis is placed on financial returns, the usual suspects can and will get in, figure out to how strip out the social aspects of social businesses and keep all profits to themselves.”

“Think of the corporate raiders on the loose in the U.S. in the 1980s. Same thing. That mindset is the driving force that has created such need for social businesses to begin with.”

“People-Centered Economic Development (P-CED), which is based on the U.K. community interest company (CIC) structure, issues no shares and has no dividends to distribute, yet does have the option of setting up various for-profit ventures and offering investors a percentage of financial ROI, according to Hallman.”

Hallman described the model in his 1996 position paper.

Later that year we had the opportunity to share when a Social Business Tour led to an ideas competition. It started a conversation with Erste Bank, A Grameen social business partner, who, I imagine, make a profit.

They go silent on me when I introduce our proposal for social enterprise in Ukraine.

It takes a little while for me to discover that Yunus had been at a Davos 2009 meeting about creating more effective social programs in Ukraine. An event hosted by one of their prominent oligarchs and with Richard Branson, of all people, reiterating what our ‘Marshall Plan’ had argued about business resolving social problems.

“A philanthropic meeting point organised by the Victor Pinchuk Foundation in Davos during Annual Meeting of the World Economic Forum, Davos Philanthropic Roundtable is aimed at developing philanthropy in Ukraine and increasing effectiveness of social projects. Main theme of the Second Davos Philanthropic Roundtable, entitled “From Philanthrocapitalism to Philanthrocrisis”, was the impact of the economic crisis on philanthropy and perspectives of philanthropy development.

“The key speakers at the event were the dignitaries who have significantly contributed to the development of a new model of philanthropy: 42nd President of the United States Bill Clinton; former Prime-Minister Of Great Britain Tony Blair; businessman and philanthropist Richard Branson; Laureate of 2006 Nobel Peace Prize Muhammad Yunus; actor and founder of the One Foundation Jet Li, founder of the Bill and Melinda Gates Foundation Bill Gates and also Victor Pinchuk, the Roundtable organiser, public leader and businessman. Matthew Bishop, Chief Business Editor of The Economist and co-author of the book “Philanthrocapitalism: How the Rich Can Save the World” acted as a moderator of the discussion. “

Who among them were not interested in profitability?

Both USAID and the British Council have been made aware of our plan and in 2011 they made their move, with a social enterprise development project in Ukraine. Among the partners were Erste Bank and the foundation of the above oligarch.

It didn’t do much to prevent growing tensions in Ukraine and as violence came to the streets of Kyiv, leaders from Maidan made a call on the EU for a ‘Marshall Plan’ and support for anti-corruption activities. I forwarded to MEPs in the South West.

3 weeks later, the same appeal was made by George Soros.

Yunus was back at Davos with the usual suspects and a discussion on whether capitalism could deliver a financial and social return, as the ‘Marshall Plan’ had argued years earlier:

Hung out to dry with a chronic illness and no access to affordable healthcare, Hallman died in August 2011, leaving behing his notes:

‘As the 60th anniversary of the Marshall Plan came around in June 2007, noise was emerging within Ukraine of a certain political boss preparing a Marshall Plan for Ukraine. This person was a reputed mob boss — exactly the sort of entity that the original Marshall Plan meant to oppose. It seemed most likely that whatever he came up with would be self-serving, hijacking the label ‘Marshall Plan’ and turning the whole notion on its head. I reviewed the original Marshall Plan and realized that what I had written was, in fact, the definition and spirit of the original Marshall Plan. Thus, in June 2007, I appended the original title with “A Marshall Plan for Ukraine.” After some discussion among trusted colleagues over timing, I published an abbreviated version of the paper in two parts in August 2007 in the ‘analytics’ section of the Ukrainian news journal for-ua.com. The abbreviated version removed the rollout sequence over five years, which was more a technical matter and probably of little interest to general readership. It also removed the names of the organizations I had strongly recommended to manage various components, insofar as there was any organization to recommend. There were two, one for childcare reform for children in orphanages, one for childcare reform of children in Ukraine’s theretofore invisible gulag archipelago for disabled children. Both of those organizations had already been approved by ‘others’ by August 2007. Bringing them to light at that juncture might have been counterproductive to their efforts, particularly because of the extreme sensitivity surrounding the matter of disabled children. I opted to just let things proceed quietly, and was convinced beyond doubt for once that sincere and committed efforts to help these children were finally underway. There remain approximately 90,000 children in orphanages, 10,000 in the ‘gulags’. Another 200,000 children live on the streets because state-care options have been less tolerable than street life. Because street children are most visible and therefore obvious, other organizations notice them and are making at least token efforts to help them. Nevertheless, the overall problems are systemic. It is not enough to help these kids without dealing with the causes — primarily corruption and displacement of Ukraine’s cash and resources — that put children in such conditions to begin with. This systemic recognition is at least beginning to be understood. The ‘Marshall Plan’ details it, and provides comprehensive solutions with a financial net-cost to government over seven years of: zero.’

Yunus says “Human beings should be driven by empathy; we need selflessness. I am not saying don’t talk money. Have a bifocal lens and also see the social problems around you and provide solutions.”

Isn’t there empathy in risking one’s life to defend the vulnerable and voiceless?

As Hallman put it in his 1996 treatise “Economics, and indeed human civilization, can only be measured and calibrated in terms of human beings. Everything in economics has to be adjusted for people, first, and abandoning the illusory numerical analyses that inevitably put numbers ahead of people, capitalism ahead of democracy, and degradation ahead of compassion.”

If Muhammad Yunus wants to distance himself from profitability, he could do worse than distancing himself from those who not only put numbers before people, but who push others out of the way to claim their social credentials.