I’ve recently been working through the book of one of my longtime role models, Muhammad Yunus, founder of Grameen Bank. Because the book is five years old, I wasn’t sure how the framework of “social business” that Yunus laid forth has held up to the test of time, but sure enough I caught a video interview of the Nobel Peace Prize winner on The Economist just the other day. Although beset by political attacks on the independence of his famous Bank, Professor Yunus still espouses his belief that social businesses, like his own Grameen Danone (a partnership with French bottled-water giant Danone, better known here as Dannon), are the companies of the future.
The basic premise of a social business is one in which the focus is not on profit-making for the shareholder, but instead the explicit goal is maximizing a specified social impact. While the employees are still paid competitive wages and salaries, and products are manufactured and marketed as we’re used to, the difference is in the overarching objective and the responsibility of the CEO. Crucially, a social business operates unlike a government or non-profit in that it relies solely on its own performance in the marketplace for revenue, as opposed to taxation or donation. Growth, expansion, and competition are still essential to a successful social business, but excess profits are not paid as dividends to shareholders, but rather that extra cash is used to improve the business’s social impact (e.g. by passing on savings to consumers in the form of, say, healthy foods at a lower cost than profit-taking competitors).
As Professor Yunus notes, social businesses fall under the broader umbrella of social entrepreneurship – these companies are naturally innovative, creative ventures, and of course can be new establishments (and not just branches of existing multinationals like Grameen Danone). Although there has not yet been an explosion of social businesses as predicted, the premise remains sound in 2012, and it would be inspiring to see a new fleet of these enterprises leading the inextricable dual charges of economic and social recovery as we exit the final stages of the Great Recession. At a time when rising economic inequality (and the resulting frustrations over it) dominates headlines, it makes perfect sense to pursue this fresh tack of social business – at once spurring worker churn (a positive, natural consequence of new firm creation) as well as helping lift folks out of dire economic straits. In doing so we not only create wealth for the social business owners, but instead of shareholders seeing the ultimate benefit of highly successful companies, social business can help in breaking down the longstanding pre-market discrimination that has plagued America’s poor and stifled the great American dream of opportunity and upward mobility.