Social Business: Doing Good and Doing Well Too

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					Social Business: Doing
Good and Doing Well,
By Sonjui L. Kumar
April 2012

This column has often discussed the issue of social
corporate responsibility: the idea of companies
doing well by doing good, whether focusing on
employee health, the environment, or supporting
local charities. Certainly, the last decade has seen
an extraordinary rise in employee and customer
programs that highlight a company’s role as a good corporate citizen. However, traditional
corporations, public or private, large or small, must first and foremost maximize returns to their
investors, which make these social goals secondary and often ignored. Well, there is a new type
of company gaining traction, referred to as social businesses, which turns the tension between
doing good and making money on its head. A social business is a for-profit company whose
primary purpose is to solve a social problem. Sound like a charity or nonprofit? Look again, for a
social business is a for-profit enterprise that is run like any other business and must sustain itself
financially while accomplishing its mission. This form of business was first popularized by
Muhammad Yunus, the Nobel laureate and father of micro-lending, in a series of books
including his most recent publication, Building Social Business: The New Kind of Capitalism
That Serves Humanity’s Most Pressing Needs (Public Affairs 2011). Professor Yunus has
promoted the concepts of social business by partnering on some high-profile projects with
Dannon Yogurt (producing a low-cost high-nutrition yogurt product for the third world) and
Adidas (manufacturing a $1 sneaker to prevent diseases that infect barefoot children).
Accordingly a number of university, nonprofit and entrepreneurial communities are now
encouraging the creation of these social businesses at the private start-up level.

It takes some focus on what makes a business a “social” business to understand its true value to
us as a community and why it has caught the interest of both first-time and serial entrepreneurs
alike. A key component of a social business is that it must meet a social need. So, the company
must solve a societal problem, such as providing healthcare for the poor, serving the educational
needs of low-income communities or making loans to under-served markets. Next and as stated
above, the business must be established to make a profit and be able to sustain itself financially
with profits being reinvested into the enterprise. Although companies can get donations or grants
from public or private sources, its primary financial model should be a traditional one focused on
maximizing revenues while minimizing expenses. Another essential characteristic of social
businesses is to provide market-rate salaries and benefits to its employees. Social business
companies may also focus on other societal goals such as operating in a way that is
environmentally friendly, employing diverse people, or locating in an area that needs economic
activity. Finally, an area of some discussion has been whether investors in social business should
recover more than their original investment as a return. Dr. Yunus is emphatically opposed to
any return being paid, believing that the social capital of solving a problem should be enough for
most investors. An opposing view believes that some return, even if small and not market-rate, is
needed to keep investors interested in funding these businesses. Entrepreneurs are choosing the
method that best suits their own philosophies.

To support the social business cause, several states, including California and Maryland, have
recently enacted statutes that allow the creation of a new form of corporation, called “B” corps or
Benefit corporations. B corps are like other corporations in most ways but have three additional
requirements: (i) to create a material positive impact on society; (ii) to consider the interests of
its workers, community, and environment as part of its fiduciary duty; and (iii) to publicly report
on their overall social and environmental performance against an established standard on an
annual basis.

So should all businesses be social businesses? The major proponents of the cause say no, it
should be viewed as just another form of doing business. It’s not a replacement of the capitalistic
tradition but an alternative to it. Similarly, there is no suggestion that social businesses replace
our charitable institutions. It should be noted, however, that there are certainly a class of donors
that may be much more willing to “donate” funds to a cause that is sustainable and does not
solely rely on future donations to accomplish its goals. It’s the same reasoning that’s behind the
old adage: “Give a man a fish and you feed him for a day; teach a man to fish and you feed him
for a lifetime.” Social business is still in its infancy and its impact is far from being known, but
it’s a trend that is catching on and cannot be ignored by either the nonprofit or the for-profit

[Business Insights is hosted by the law firm of Kumar, Prabhu, Patel & Banerjee, LLC. Sonjui
L. Kumar is a corporate, transactional attorney and a founding partner of KPPB. Her practice
focuses on acting as general counsel to privately held companies including foreign companies
doing business in the U.S.

Disclaimer: This article is for general information purposes only, and does not constitute legal,
tax or other professional advice.]

Published by Khabar Magazine, Business Insights section April 2012 issue.

Description: Learn more about Social Business from this article by Sonjui Kumar from Khabar Inc. Originally published on Khabar Magazine's Business Insights section, April 2012 issue.