Saturday 15 September 2012

The Myths of Social Enterprises

The concept of social enterprises has a long history, albeit manifested under different names and orientations. The backlash against the deficiencies of capitalism in recent years has accentuated the development of social enterprises around the world. However, there is still not a shared consensus of what essentially a social enterprise is.

Social enterprise has philanthropic roots in the US and cooperative origins in the UK.  More recently, some governments are also trying to encourage the third sector to take a more market-driven approach in providing social goods.  Social enterprises are therefore often narrowly seen as organisations seeking to solve the problems of the bottom of the pyramid or challenges in developing economies.

According to the wiki definition, a social enterprise is “an organisation that applies commercial strategies to maximise improvements in human and environmental well being, rather than maximising profits for external shareholders”. Social and environmental challenges are obviously not confined to the have-nots. Developed economies also have their challenges. Pollution, wastes, obesity, stress-related diseases, aging population, education, housing, workplace relations and work-life balance are but a few examples. Therefore it is conceptually inappropriate to limit the scope of social enterprises.

The second fallacy is that social enterprises must be non-profit organisations. To repute this argument, it is essential to understand what non-profit and for-profit mean. A non-profit organization is an organization that does not distribute its surplus funds to its owners or shareholders; whereas a for-profit organization can do so. It is also important to differentiate between the concepts of for-profit and profit maximization. Whilst the latter should be condemned, there is nothing wrong for an organization to provide incentives to its investors through the distribution of dividends. The distribution of profits should not compromise the enterprises' social benefits. Indeed if we want more private investors to be involved in the delivery of social goods, instead of just relying on government funds and subsidies, there is every justification that a social enterprise can be for-profit.

The social and environmental challenges that we are facing today are enormous, and in order to solve these problems, a social enterprise also has to be an innovative enterprise as well.  The innovation can be in the technology, product, service, delivery process, customer experience or in how the enterprise is managed.  Scalability is another issue, in order that the enterprise can attain maximum impact on the society.  

All in all, social enterprises should be a lot more than non-profit organisations serving the needs of or creating employment opportunities for the disadvantaged segments of the society.  And social enterprises should definitely not be a euphemism for non-profit organisations struggling to develop a viable business model with no or limited innovation.

Many of the enterprises that do not name themselves as social enterprises are also creating enormous benefits to our society. Many technology ventures are cases in point.  My favorite example is LinkedIn.  Most people will not associate LinkedIn as a social enterprise. But it is certainly doing a lot of good in connecting professionals around the world. Another example is Zappos. The happiness culture advocated by Tony Hsieh is creating a lot of good to its employees and customers. By demonstrating the crucial link between the purpose of an organization and sustainable growth, the Zappos culture is also influencing companies around the world in a big way. But I do not think Tony will ever call himself a social entrepreneur.

Because of the confusion and sometimes the unfortunately negative associations of a social enterprise, some organisations and advocates in social innovation have stopped using the term. We are seeing more and more people making references to “impact ventures” or “for purpose” organisations instead.

As Juliet says, "What's in a name? That which we call a rose
by any other name would smell as sweet." So long as the enterprise is making a difference and creating positive value to the society, there is actually no point in debating whether it is a social enterprise. This is the approach we take in the Make a Difference (MaD) Venture Fellows Programme. We are inviting young, innovative, do good and do well entrepreneurs to join the Programme in Hong Kong on 24-27 Jan 2013. They can work in diverse sectors from environment, energy, education, medical and health care to technology that enhances productivity and connectivity and management practices that build happy teams and customers. This Programme aims to celebrate and support entrepreneurs who are making a difference to scale new heights by connecting them with capital, networks and market knowledge in Asia. If you are MaD enough, please apply via by 28 Oct 2012.

Saturday 7 April 2012

From Corporate Social Responsibility to Corporate Sustainability

CSR as Philanthropy

Corporate Social Responsibility (CSR), like many business jargons, means different things to different organisations.  For some companies, CSR is almost synonymous with philanthropy. From charity donations, planting trees to corporate volunteering, these companies pursue CSR activities as a means to build a good brand image. With rising public rampage against the evils of capitalism, the ‘need’ to adopt CSR as a reputation (or risk) management tool has become more real than ever. Other companies take a more integrated approach. They will consider the social and environmental consequences of their business activities.  CSR is not an after thought but aligned with their operation and stakeholder management processes to minimize the negative impact on the society.  Yet a 2001 Harvard Study by Mohr, Webb, and Harris showed that although these CSR activities inspire a positive image of a company, it is far from certain that customers will change their purchase behavior as a result.

CSR as a Value Creation Tool

Truly successful companies integrate CSR as part of the overall corporate strategy to enhance their competitive advantage. CSR becomes a proactive value creation tool to innovate the business, develop human capital, enhance energy efficiency and develop shared values with customers and the society at large.  Below are three examples:
  • P&G and Unilever deliver micro versions of their products to the bottom of the pyramid in developing countries.
  • Patagonia has launched an advertising campaign with the headline of "Reduce What You Buy”, appealing to the green conscious customers who are at the same time prepared to pay more for quality products.
  • Standard Chartered ’s partnerships with local blindness charities around the world has led the bank to introduce “speaking” ATMs with Braille keys and recruit the blind from the school for its call-centres. 
Proactive Corporate Sustainability

Some people consider the above as examples of Strategic CSR but I believe Corporate Sustainability is a more appropriate description. Corporate Social Responsibility, as suggested in its name, implies a reactive approach i.e. the company is obliged to giving back to the society (to ease its conscience) for all the money it makes. Corporate Sustainability in contrast is a proactive strategy to ensure an organisation’s long-term growth, taking a balanced development approach to profit, people and planet. It is a business approach that creates long-term shareholder value by embracing sustainability opportunities while at the same time successfully reducing and avoiding sustainability costs and risks.

Purpose-Driven Business

Central to the sustainability policy is the definition of the ‘core purpose’ of an organization.   Like a compass, the purpose governs the vision, the values, the brand promise, the strategic and operational priorities and the behavior of senior management. Organizations that put purpose at the heart of what they do give meaning to and establish strong emotional connections with their employees and customers alike.  It is a potent source of employee engagement and brand building, differentiating the winners from the losers in a commoditized and crowded marketplace.  A 2010 IMD/Burson Marsteller Corporate Purpose Impact Study showed that a strong, strategically coherent and well-communicated corporate purpose is associated with up to 17% better financial performance.

Developing Corporate Sustainability in Asia

Asia, probably with the exception of Japan, has traditionally been lagging behind Western Europe and North America in CSR practices. In recent years, we have witnessed more and more companies adopting CSR practices albeit a majority is still at the image building or reputation management level. Of the 2012 Global 100 Most Sustainable Corporations, 16 are from Asia - 11 from Japan, 2 each from Singapore and South Korea and 1 from India.  A recent study by EIRIS, a responsible investment research specialist, shows that only 1 percent of Asian companies made to the top grade based on environmental, social and governance (ESG) issues, compared to 20% in the UK. 
What are the key drivers for driving sustainable businesses in Asia? Companies in Asia obviously have to realise the case for sustainable business, that “doing good” is not just philanthropy but strategically linked to “doing well”. They have to take a long term and holistic approach to business growth and be prepared to sacrifice short-term gains.   It requires considerable mindset changes as well as capacity building work.

Role of Stock Exchanges

According to Richard Welford, Chairman of CSR Asia, governments and quasi-public bodies—particularly stock exchanges – are some of the most important drivers. In Hong Kong, Malaysia, the Chinese Mainland, and more recently Singapore and Thailand, stock exchanges are playing an increasing role in encouraging reporting on sustainability. Quality and transparent ESG disclosure is crucial for investors to start demanding sustainable business practices in lieu of short-term financial gains. The growing sustainable investment market also presents new opportunities for stock exchanges in the form of new products and services for responsible investors. These include specialized indices such as the Johannesburg Stock Exchange Socially Responsible Investment Index.

Consumer Education

Consumers and the civil society also play a vital role in demanding more sustainable businesses. Unlike those in North America and Western Europe, consumers in Asia fall largely in the price sensitive or brand conscious groups. What a brand stands for, in terms of its core purpose and values, is relatively unimportant for most Asian consumers. However, this is changing as more and more Asian societies become more affluent – especially amongst the young generations.  As more Asian consumers start to move up the Maslow’s Hierarchy of Needs in search for meaning and self-actualisation, companies will be obliged to change their brand strategy.

Role of the Civil Society

The civil society can be a catalyst in consumer education, as well as in delivering sustainable solutions together with corporations.  NIKE, for example, has transformed its corporate responsibility function into Sustainable Business and Innovation to integrate sustainability into its business model. One of the key pillars of its sustainability strategy is to mobilize the civil society in scaling solutions. It has been working with Creative Commons and other brands to build a digital platform (the GreenXchange) to enable the sharing of sustainability innovations on a global scale.

In Hong Kong, we have recently launched Let’s Make a Difference – a network of like-minded philanthropists and corporations - to promote the development of innovative and sustainable businesses. It grows out from the Make a Difference initiative that was introduced in 2012 to inspire and empower young people to create positive economic, social and environmental changes for Asia. We are recruiting members to Let’s Make a Difference and look forward to partnering with organisations that want to leverage the creativity, knowhow and network of young people in making a difference.

Thursday 5 April 2012

Innovating Capitalism: Making Money with a Difference

Does capitalism in its current form still serve the common good of society?  The global financial crisis has triggered intense debate, most recently in the Financial Times, about the future of capitalism, and whether capitalism -the driver of innovation - is overdue for innovation itself.

The answer to the call for “better capitalism” lies, in part, in a critical rethink of the role of business in society. Maximizing shareholder value is no longer the Holy Grail. Companies that perform best over time are purpose-led organisations that seek to build sustainable businesses in the interests of all stakeholders.  

These companies make money but purpose, not profit, is their raison d'ĂȘtre. They advance productivity, improve the lives of people, address environmental issues, boost job satisfaction, manage a socially-responsible supply chain and so on.

Such companies do not necessarily have to be big. We see that at the Make a Difference forum held each January in Hong Kong.  MaD runs an award scheme to identify and champion young change-makers who can bring about economic, social and environmental benefits to Asia an innovative and sustainable manner. Winners of the 2012 MaD Award amply demonstrate how small enterprises can change the world in a big way.

Take Marina Gana Vida (MGV), a company which runs a fish farming business in Mindanao, an area of the Philippines that has been plagued by widespread poverty and civil unrest caused by religious differences. By introducing an eco-friendly supply chain, from fish breeding, to making nets, storage, processing to distribution and marketing, MGV contributes to conserving marine resources and improving the livelihood of 2,500 Muslim households.

Founder Jonah Nobleza established MGV as a social enterprise unit of Strategic Development Corporation Asia in 2007 at the age of 30.  "MGV is governed by three maxims," he said. "We believe in healthy food for consumers, vibrant and resilient coastal households as well as a happy earth." Armed with compassion, courage and business acumen, Jonah and his team aspire to develop MGV as the leading supplier of all natural marine products in the Philippines in the next ten years.  As the Grand Award Winner of the 2012 Make a Difference Award, MGV will use its US$20,000 cash prize to set up a community feed mill to facilitate its shift to full organic fish farming.

Doing good and doing well is not confined to social enterprises. Arthur Huang, a university professor, engineer and architect, founded MINIWIZ S.E.D., LTD in 2006 at the age of 28.

“Producing less and buying less are the only solutions to sustainability. But how can we achieve this when business demands growth and consumers desire more?”  Arthur saw this as the challenge and opportunity for Miniwiz. Synergizing expertise in design, engineering and manufacturing, his company delivers innovative, cost competitive and attractive solutions and products under its 3Rs mantra – Reduce, Reuse and Recycle.

Miniwiz’s most prominent project “EcoARK” was built for the 2010 Taipei International Expo using 1.5 million PET (plastic) bottles that were 100 per cent upcycled.  It has also developed ground-breaking waste composites called POLLI-BER, made with recycled thermoplastics and agricultural waste. Miniwiz is now working with the Harvard Graduate School of Design to research into sustainable construction and materials with a specific focus on Asia.

Small organisations can also make a big impact by influencing large companies and leveraging their resources. Beijing-based Horizon Corporate Volunteer Consultancy, founded by Wang Zhong Ping in 2005, has assisted over 100 enterprises in China – including Fortune 500 companies - to run corporate volunteerism programmes by pairing charity organisations with corporate resources. The consultancy has worked with over 100,000 volunteers and 600 charitable organisations, benefiting more than 100,000 children, the elderly and the disabled.

Productivity growth backed by decades of conventional capitalism has resulted in cheaper consumer goods becoming more available while basic needs such as food, housing, healthcare, energy and education are becoming less affordable. Governments all over the world are facing the dual challenges of meeting these needs without landing themselves deeper in debt.

I believe today’s opportunities lie not so much in producing more, better and cheaper consumer goods, on the old capitalist model, but in businesses providing innovative and profitable solutions to meet the social and environmental needs in both developed and developing economies. As each year’s crop of MaD Award winners demonstrate, such businesses can succeed on their own or in partnership with governments and NGOs.