Reconsidering Social Enterprise as an Alternative to Convention

When it comes time to examine socially responsible businesses, perhaps its worth considering that civil society likely has a substantial numbers of seats at that table.

Perhaps not articulated in these exact words, that was the essence of what Kylan was asking me. You know Kylan–one of those bright, earnest undergraduates for whom the preoccupations of life haven’t fully snuffed out a belief that the world can be a better place and that maybe he will play a part in getting it there. Ever thoughtful and deliberate, Kylan wanted to talk about his future–in particular, what post-graduation path he should take to realize his dreams.

My conversations with Kylan on the topic were less about specific types of jobs and more about the sectors in which most work takes place. Is government the best vehicle for pursuing good? Developing policies and programs that have broad influence have their appeal, but bureaucracy is slow and that turns restless visionaries away. By contrast, working in the nonprofit sector is an attractive option because charities, among other things, are more nimble than governments. But they typically aren’t based on a self-sustaining financial model and so strike the young entrepreneur as a kind of partial fix. A Band-Aid, maybe, but certainly not a solution. Besides, who wants to spend their days chasing grant dollars? Not Kylan.

This article by Curtis Child is drawn from his paper, “Tip of the Iceberg: The Nonprofit Underpinnings of For-Profit Social Enterprise,” in the journal Nonprofit and Voluntary Sector Quarterly.

What about business? Now there’s an idea. Perhaps not a conventional profits-above-all business, but a social enterprise, maybe the kind of social purpose business advocated by Nobel laureate Muhammad Yunus and others. It combines the social mission of a nonprofit, the flexibility that governments lack, and a model for sustainability. Decisions can be made quickly, without being held up by a board of directors (or layers of government oversight), and energy can be spent developing solutions to social problems in a market-friendly, self-perpetuating way.

My students aren’t alone in being attracted to these innovative ways of addressing social problems. Indeed, social enterprise is all the rage inside and outside of the academy. We lionize the social entrepreneur and have faith in doing well by doing good. Especially in comparison to nonprofits, social purpose businesses get framed as something altogether different–more efficient, more sustainable, and all-around better than the status quo.

There’s one problem –there seems to be a collective myopia regarding social enterprise and its relation to nonprofit activity. I learned this while studying two social enterprise industries: fair trade and socially responsible investing. My initial reasons for researching them was to understand how fair trade businesses and socially responsible investors balance their profit-focused and mission-oriented impulses. While interviewing business owners, fund managers, investment analysts, and their peers about negotiating their goals, I was struck by how often they made reference to their dependencies on nonprofits, social movement activists, human service charities, and other elements of civil society. Digging deeper, it became clear that, at least in these most quintessential social enterprise industries, businesses were less alternatives to, and more deeply reliant on, civil society to make things work.

So, while social purpose businesses are often characterized as alternatives to private nonprofit initiatives, organizations in these industries are, in fact, very much built on the scaffolding of civil society. It is simply inaccurate to think of them as replacements. My research highlights three ways that this is so.

First, social enterprises rely on civil society for financial support. The truth is, it is hard to run a business with a true double-bottom line, and traditional lenders are sometimes hesitant to make capital available to the new–and perhaps risky–social entrepreneur at its helm. This is especially apparent in the fair trade industry. Nonprofit organizations like Root Capital, however, act like banks for these organizations, making funding available where traditional capital markets fall short.

Second, social enterprises rely on civil society to communicate trust and accountability. Despite trends that put businesses on the front lines of social value production, it is still sometimes difficult to separate the wheat from the chaff. Consumers know that businesses, after all, have an incentive to present themselves as being prosocial even if profits are ultimately driving their decisions. Because of their legal mandate to be mission-oriented, nonprofit organizations can be easier to trust. Thus, as businesses have become increasingly involved in doing good, they have relied increasingly on nonprofits to broadcast their trustworthiness. Labeling and certification systems, often the product of nonprofit certifiers and watchdogs, are two cases in point.

Third, social enterprises rely on civil society for hard-to-access information. We see this in the socially responsible investing industry. Mutual fund advisers commit to earning a positive return on their investments–and doing so in a way that is sensitive to social, environmental, or governance concerns. This is challenging work, since corporations have every reason to shield their poor behavior from potential investors. Investment analysts therefore rely extensively on social movement organizations, activists, and religious groups for information and guidance. These are people on the ground, in the trenches, trying to shine light on sometimes-shady corporate practices. Importantly, the thing that mutual funds sell–in other words, the insights about corporate practices that would make an investor more or less inclined to purchase shares in a company–is in many ways produced in civil society.

So when Kylan, or any of his young peers, comes to my office and extols the virtues of new market-based initiatives to address social problems, I have decidedly mixed feelings. In their–perhaps our collective–zeal to grasp at seemingly new, alternative, and path-breaking ways of tackling the problems that vex us, we may miss what is actually taking place and the continuing relevance of conventional strategies. What is visible to us in the form of social enterprise hides a much more complex reality that we ignore to our detriment. Whatever benefits can accrue from market-based efforts to create social change will accrue because we pay attention also to the supporting cast that has become less visible but remains critically important.