The late Peter Drucker, professor and management consultant, believed that a company's primary responsibility is to serve its customers. Profit is not the primary goal, but rather an essential condition for the company's continued existence and sustainability.
He went on to say that profit is not the purpose of business and that the concept of profit maximization is not only meaningless, but dangerous. We all know that profit is necessary for a business to function but this does not mean that profit should be the main purpose of a business. Reading Drucker’s key ideas I thought they were very much aligned with Muhammad Yunus’ concept of social business.
A social business is a non-dividend company created to solve a social or environmental challenge through an entrepreneurial approach instead of charity. The company must cover all costs and be financially sustainable, while achieving the social objective in sectors such as healthcare, education, poverty, environment, housing, climate urgency etc. Once the original investment has been recouped by the investors, profit stays within the social business to expand its outreach and increase the social impact. Profitability in any company is a key factor in allowing it to reach sustainability and to innovate, thus avoiding catastrophic losses. Without profit a business cannot survive. Achieving sufficient profit is necessary also to allow for risks in the financial activities of the company, however profit maximization does not have to be the purpose of the business.
Social businesses can be created within all main sectors of the economic system, private public and social, but I am going to focus on the private sector in this short article and in particular on Corporate Social Responsibility (CSR). To date several large multinationals such as Danone, Veolia, BASF, Uniqlo etc. have created social businesses to address a social problem (for more information please check the following page socialbusinessearth.org/social-business-related-links)
Social business and CSR share common aspects. In particular, both utilize funds to contribute to the interests of all stakeholders while taking an active role in addressing social and environmental problems.
A common approach to CSR is corporate philanthropy implemented through monetary donations and technical support to non-profit organizations and communities. Generally, donations are in areas such as the arts, education, housing, health, social welfare, and the environment. An increasing number of corporate organizations consider a philanthropy-based approach not very effective in developing the necessary professional skills of local populations, whereas a social business-based approach generally increases the opportunities for a more sustainable development.
As Yunus stated, while there is nothing wrong with donations, charity and traditional corporate social responsibility, their effect is too often a single-shot affair. The poor have to wait until the donors come around again. It generates dependency on the donor community and it doesn’t build economies in underdeveloped countries, which face multiple problems. Neither governments nor charities from other nations can solve these problems. A combination of capitalism, with business leaders helping the poor to establish their own businesses, would work better. This is social business.
A company’s involvement in social business through CSR would not only provide creative and sustainable solutions to social or environmental problems, it would generate new opportunities for the company itself by gaining know-how and learning how to operate in new markets. In addition, launching a social business highly reflects on the brand as customers are increasingly aware of a company’s social commitment.
If every profit maximizing company launched a social business, poverty would be largely alleviated and many urgent challenges in our society would be solved. As a result the world would become a more livable and friendly place providing equal opportunities for all. This is what we strive for and we hope you will join us in our mission.
Franck Riboud, Chairman and CEO of Danone Group, talks at length about social business in this interesting interview www.youtube.com/watch?v=hC5Wz3_tnnA
For more information on how to involve your company in social business please contact Social Business Earth www.socialbusinessearth.org
Main image displayed in this article is credit of Danone Communities