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Social business, as the term had once been commonly used, was first defined by Nobel Peace Prize laureate Prof. Muhammad Yunus and is described in his books Creating a world without poverty—Social Business and the future of capitalism and Building Social Business—The new kind of capitalism that serves humanity's most pressing needs.
In Yunus' definition, a social business is a non-loss, non-dividend company designed to address a social objective within the highly regulated marketplace of today. It is distinct from a non-profit because the business should seek to generate a modest profit but this will be used to expand the company’s reach, improve the product or service or in other ways to subsidise the social mission.
In fact a wider definition of social business is possible, including any business which has a social rather than financial objective.
A more commonly used and better understood concept is the related model of social enterprise. This term describes broadly 'commercial activity by socially minded organizations'. Charities may engage in social enterprise in order to generate funds, as per the 'op-shop' model; a social enterprise model may also be used to provide supported employment to those with barriers to work. Social business is therefore a subset of social enterprise, with the specific characteristic that, whereas a social enterprise can be funded by philanthropy or government grant, a true social business should be self-sufficient.
In Yunus’ book Creating a World without Poverty—Social Business and the Future of Capitalism, two different types of social businesses are proposed:
- A Type I social business focuses on providing a product and/or service with a specific social, ethical or environmental goal. A prominent example is Grameen Danone.
- A Type II social business is a profit-oriented business that is owned by the poor or other underprivileged parts of the society, who can gain through receiving direct dividends or by indirect benefits. Grameen Bank, being owned by the poor, is the prime example of this type, although it would also classify as a Type I social business.
Grameen Danone, which is Yunus' prototype social business, was launched in 2005. Its social mission is to address malnutrition in Bangladesh, by providing products, such as yoghurt, containing many of the nutrients missing in an impoverished child's diet and providing these products at a price affordable to everyone. Grameen Danone received seed capital and in-kind support from dairy products company, Danone and the brand credibility leant by Yunus' well-known micro-finance company, Grameen Bank.
Professor Muhammad Yunus, a well-known advocate of the social business model, argues that capitalism is too narrowly defined. The concept of the individual as being solely focused on profit maximizing ignores other aspects of life. Failures of this system to address vital needs, that are commonly regarded as market failures are actually conceptualization failures, i.e. failures to capture the essence of a human being in economic theory by limiting humankind to the homo economicus.
Yunus postulates a new world of business in which profit-maximizing enterprises and social-benefit-maximizing enterprises coexist. In addition, a social business would operate much like a profit-maximizing business in that the company as a whole grows financially and gains profits. The only difference is that the company's shareholders and investors would be re-accumulating their initial investment as opposed to receiving dividends. He calls the latter social business.
Key ingredients to the success of the approach are education, institutions to make social businesses visible in the market place (a social stock market), rating agencies, appropriate impact assessment tools, indices to understand which social business is doing more and/or better than other social businesses so that social investors are correctly guided. The industry will need its Social Wall Street Journal and Social Financial Times.
Therefore, a social business is driven to bring about change while pursuing sustainability. Although from a strictly profit-maximizing perspective it seems inappropriate to pursue a goal other than profit, social business’ aim is to achieve certain social and environmental goals. In this perspective, a social business can also be understood as a business-pursuing NGO which is (eventually) financially self-sufficient.
Social business is a cause-driven business. In a social business, the investors or owners can gradually recoup the money invested, but cannot take any dividend beyond that point. The purpose of the investment is purely to achieve one or more social objectives through the operation of the company, since no personal monetary gain is desired by the investors. The company must cover all costs and make revenue, but at the same time achieve the social objective.
The impact of the business on people or environment, rather than the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business.
Seven Principles of Social Business
These were developed by Prof. Muhammad Yunus and Hans Reitz, the co-founder of Grameen Creative Lab:
- Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization
- Financial and economic sustainability
- Investors get back their investment amount only; no dividend is given beyond investment money
- When investment amount is paid back, company profit stays with the company for expansion and improvement
- Environmentally conscious
- Workforce gets market wage with better working conditions
- Do it with joy
- Impact Investing
- Social entrepreneur
- Social entrepreneurship
- Social enterprise
- Double bottom line
- Triple bottom line
- List of social enterprises
- Yunus, Muhammad (2009). Creating a World Without Poverty: Social Business and the Future of Capitalism. PublicAffairs. p. 320. ISBN 978-1-58648-667-9.
- Jäger, Urs (2010). Managing Social Businesses. Mission, Governance, Strategy and Accountability. Palgrave Macmillan. p. 256. ISBN 978-0-230-25254-7.
- Yunus Muhammad , Moingeon Bertrand, Laurence Lehmann-Ortega (2010), "Building Social Business Models: Lessons from the Grameen Experience”, April-June, vol 43, n° 2-3, Long Range Planning, p. 308-325"
- Yunus, Muhammad (2011). Building Social Business: The New Kind of Capitalism that Serves Humanity's Most Pressing Needs. PublicAffairs. p. 256. ISBN 978-1-58648-956-4.
- Wimmer, Nancy (2012). Green Energy for a Billion Poor: How Grameen Shakti Created a Winning Model for Social Business. MCRE Verlag. p. 226. ISBN 3-943310-00-0.