Interest Convergence - Or Why Social Enterprise is Not a Fad - socentlaw

Interest Convergence – Or Why Social Enterprise is Not a Fad

Because I have spent the last three years of my career (a long time considering that my legal career began eight years ago) immersed in the social enterprise field, it often occurs to me whether social enterprise is just a fad, and more important whether corporate engagement and interest in social enterprise will wane just as quickly as it has developed. Consider, for example, constituency statutes that were promulgated in many states in the 1980s to protect local corporations in response to increased out-of-state takeover activity. Generally, a constituency statute allows directors to consider the interests of non-shareholder constituencies when making business decisions for the corporation. Non-shareholder constituencies include employees, customers, creditors, suppliers, and the communities where the corporation is situated or does business; the national, state, and local economies; and both the long-term and short-term interests of shareholders and the corporation. And yet, constituency statutes never became relevant in empowering mission-driven corporations to “just say no” to multinational conglomerates acquiring them (for example, consider the often-referenced takeover of Ben & Jerry’s by Unilever which occurred after a constitutency statute was adopted in Vermont).

The fate of the benefit corporation and other new organizational forms created to facilitate social enterprise may be the same as constituency statutes—an inspirational goal to protect social missions, but never really relevant to the actual accomplishment and sustainability of those missions. “Hybrid” legal structures may never be used in significant numbers or adjudicated by courts in meaningful and useful ways. They just may never ripen to their full potential. Additionally, an economic boom could decrease the urgency of corporations to focus on the drivers of their interest in social enterprise—namely, increased global demand for natural resources, unprecedented economic disparity and inequality, and in-your-face evidence of climate change. (I don’t think that it is a coincidence that social enterprise has developed so rapidly during an economic downturn.)

I happen to believe that social and environmental sustainability issues are important to the well-being of the world’s economic, financial, and social health, and therefore worth pursuit. On that issue I agree with Cass Brewer’s earlier post. However, corporate managers or other people don’t have to agree with my sentiment in order for corporate interest in social enterprise to be sustained over the long run. My interest in social enterprise comes from a place of caring for the fate of humanity and our planet. But corporate interest in social and environmental sustainability issues often comes from the very thing that social entrepreneurs are trying to alter—pursuit of profits. Corporate managers see an untapped potential in pursuing social and environmental objectives because greater social, environmental, and economic equality and sustainability will lead to larger markets of customers and consumers for their products and services. Those markets are at the base of the pyramid and present a new area of growth for companies working in the saturated markets of the developed world. So while I may advocate equality and sustainability for their own sake, corporate managers may advocate it because, in the long run, it opens up new markets and more profits.

For example, Proctor & Gamble (P&G) operates an initiative called “Protecting Futures: Keeping Girls in School” through which it partners with non-governmental organizations to provide puberty education, sanitary protection, and sanitary facilities to girls in developing countries. The goal of the initiative is to provide the means for girls to attend school during their menstrual cycles (purportedly girls in the targeted countries miss school a few days a month while managing their menstrual cycles). While the goal is admirably, undoubtedly corporate managers at P&G must also see the potential to capture the loyalty of future customers and expand into a new market—if the girls stay in school, do well, and obtain employment they will have the funds to continue using the P&G products by purchasing them. Similar logic is the basis of many corporate social responsibility initiatives or other forays into projects that create social or environmental value, including those corporations who establish and/or fund educational programs—these companies see the need to continue to educate their future workforce, often with technological skills in math, science, and engineering. Even pure (non-CSR) social enterprise like the Rickshaw Bank in Guwahati, India is successful in large part because private banks sees a new avenue of profits in the rickshaw drivers that pay them to rent and eventually own their own rickshaws.

There is no denying that corporations also have to contend with the effects of climate change, increased global demand for resources, and social/political unrest on their manufacturing, supply chains, workforce, product distribution, consumer market, and other business operations. It will not be easy, or profitable, for corporations to continue business as usual without some understanding, acceptance, and incorporation of sustainability and/or social innovation goals. Nonetheless, these corporations are adapting and hell if they’re not going to make money while doing it.

This is why social enterprise is so brilliant! And why it is thriving and will continue to thrive. Social enterprise promotes a convergence of interests—financial interests and interests in humanity and the planet. So far, it’s a win-win situation.

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