Social Enterprise, CIC's & B-business

#1

Meritocratic Business is synonymous with the idea of Social Enterprise (in Canada), Community Interest Companies (CIC in the UK) or B-Business (in the US). They are all based around the idea that business should be a blend of social and financial returns. The model is designed with a higher purpose of not only lining the pocket of the business owner, but also helping to build the community by employing people who are currently marginalized or alienated by the current system (i.e. low SES, Disabled, Elderly, At-risk youth, etc.), by creating fair workplaces that offer living wages, and by offering a product or service that will benefit the community as a whole.

Right now this model is a grey area and standard models still need to be developed. I know this from the personal experience as my organization is currently starting up a Social Enterprise on Prince Edward Island and there is a lot of rigamarole and consulting with accountants and lawyers that needs to happen before you can launch this type of enterprise. I am employed by a non-profit organization on PEI that has the mission of promoting the full participation and inclusion of people with Disabilities in Island society. We are on the cutting edge of this new type of business model and realize that it is the only way forward for Non-profit organizations who are currently being weened off of government assistance. If Non-profit organizations that service the community are going to survive and thrive on PEI than they have to start looking at ways to generate some of their own income. That is where Social Enterprise comes in. It is different from Non-profits as the organization needs to operate as a Meritocratic business that is interested in generating profit, but also interested in putting that profit to work for the people of the community. Some Non-profits, not all, tend to squander their money when they do not have to worry about running a profitable business. This new model does not accept this type of loose financial policy because the Social Enterprise needs to be profitable to keep the doors open and to employ people. There are no government funds for this type of business as that would be unfair competition with the private sector.

It is a complex model, but more organizations in Canada are starting to examine it closely. I will keep people up to date on our progress but so far we have had a very positive reception from local government officials and the private business community on PEI.

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#2

Excellent information, I have been looking for the specifics in this arena for a while now. I still have much to learn about this as this is my first hearing of it but I want to raise some topics for discussion. If all businesses can be described as meritocracies in that they are run by (presumably) the most qualified people, the change we want to make is not to bring meritocracy to business (although that certainly is a component of the new system) but to cultivate the evolution of free-market capitalism towards social capitalism. A dialectical interpretation of this evolution could be that the traditional western business model of narrow shareholder maximization is the thesis, non-profit organizations for social good are the antithesis and CIC/SE/B-business are the synthesis.

There is a TED talk by Jay Coen Gilbert one of the founders of B-Lab (the organization which conducts the B-Corp certification system) with an interesting excerpt form an Ebay vs Craigslist court case:
“Directors of a for-profit Delaware corporation cannot deploy a [policy] to defend a business strategy that openly eschews stockholder wealth maximization – at least not consistent with the directors’ fiduciary duties under Delaware law.”

So this is an out and out confession that companies’ only objective is to maximize stockholder wealth, at least in Delaware. This is one of the better pieces of research I have come across which facilitates the evolution from free-market capitalism to social capitalism. It cannot be emphasized enough that unless we make some fundamental changes, most companies will have no obligation to contributing to the well-being of society and in fact many will be harmful to the collective. We must be prepared for the vigorous rhetoric which supports the traditional business model and invariably favors the interests of the wealthy. Milton Friedman was a prominent advocates of the idea that profit maximizing businesses are the most effective means of attaining collective social well-being. Contemporary advocates like Friedman use exactly the same arguments. The past few decades have provided us with many indications that businesses whose sole objective is shareholder wealth maximization cannot be a part of our future. It is pertinent that we can examine this situation and clarify all the details. I think what we need to address is the conflation of shareholder wealth maximization with stakeholder wealth maximization.

Also, I should point out a minor distinction between a B-Corp and benefit corporations. While a B-Corp is a for profit business that has been certified by the nonprofit organization B-Lab, the benefit corporation is a new type of state government legal corporate structure, the first of which occurred in Maryland in 2010 and is currently only available in five states with six states in the process of establishing legislation. They both have only been around for a few years and look to facilitate the long term evolution of capitalism towards a more socially conscious society. Here is more on this distinction: http://www.triplepundit.com/2011/09/the-confusion-over-b-corp-and-benefit-corporation/

These are all such young ideas but they do seem to be the most logical step forward. Things like the financial crisis and environmental concerns have led to an increase in social awareness with respect to companies that only maximize shareholder profits. I think this is why we are seeing such growth in social enterprise and there is every indication that this will continue. As Dangus mentioned, these are all in developmental stages and standardized models have not yet been established but I am wondering if we can get some insight on here as to the long term trajectory of CIC/SE/B-business. One of the major difficulties I suspect current social enterprises face is being competitive against a market which does not have the same social responsibilities. It is interesting to think about a situation where all companies face similar social responsibilities and thus the competitive arena is equalized.

#3

Great response, I will reply more thoroughly when I get a bit more time to review and formulate a response. Hopefully with some more updates on our social enterprise

#4

Yes I would like to hear more about your experience Dangus. This post will getting a bit off topic of social enterprise but I feel it is relevant nonetheless and can obviously be moved if need be.

I should have held off on saying contemporary arguments can be summarized entirely by those of Milton Friedman. A more accurate statement would be that the neoliberal thought collective (of which Friedman was a main contributor) largely, but probably not entirely, represents contemporary economic arguments which profess traditional profit-maximization business. I mainly know about this because of videos from economists, largely INET affiliates, and especially the work of Phillip Mirowski. Mirowski has a tremendous June 2013 book “Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown” which talks about what he termed “the neoliberal thought collective”. The book is rich in content and quite difficult for me but it is absolutely tremendous for understanding what’s going on in the economics profession.

Mirowski also appears in the BBC documentary by Adam Curtis called “The Trap”. A focus of the documentary is mathematician John Nash’s game theory with attention on its role in economic policy. Wikipedia says “Curtis’s narration concludes with the observation that the game theory/free market model is now undergoing interrogation by economists who suspect a more irrational model of behaviour is appropriate and useful. In fact, in formal experiments the only people who behaved exactly according to the mathematical models created by game theory are economists themselves, and psychopaths.” The correlation between a lack of empathy and activities of people acting in the name of “economic sense” should become expressly prevalent because of the financial crisis and to some degree, this seems to be the case.

There is a Youtube video from Canadian Author John Ralston Saul who gave a talk at a recent INET conference called “Innovation: To What Purpose?”, which is extremely relevant to the ideas in this post. He discusses things like empathy in economic thinking, the role of innovation in enhancing well-being and sort of hints at the idea that business should benefit the general will instead of just the individual will. It is an extraordinary talk which again is somewhat outside the confines of this topic but I want to include a certain anecdote from it. Saul gives a great first-hand account of when he was a personal assistant to Maurice Strong (entrepreneur and one time UN under-secretary general) in the 70’s. Saul says he was an unlikely spectator of a high-powered global meeting between executives in the oil industry and major users of oil. When the Europeans asked General Motors why they don’t just go up from avg 15 mpg to avg 25 mpg vehicles, as the Europeans had easily done by that time, one of the GM representatives emphatically stood up and said “because we don’t want to”. He terms this as an example of the types of people who believe capitalism can be used for their individual purposes and without a reflection on public purpose.

#5

I think we could probably host the discussion on here, if it gets moved that should not be a problem.

It turns my stomach when people are so greedy, they have more than most could ever aquire in multiple lifetimes yet do next to nothing to improve their communities. Not to say there are not philanthropists and business people who are looking to make a difference, but the general trend seems to be to try and aquire multiple lifetimes worth of excess. I was partly attracted to Meritocracy because of the idea of a death tax. I do believe that people should be able to get ahead and accumulate wealth if their work merits the financial gain, but the world has reached a level of absurdity and greed that is completely unprecedented.

My brother is the economist/lawyer in the family and is also a bibliophile who has a healthy obsession with reading financial history. I have dabbled in reading a few websites but I would hardly call myself an expert on such matters. I have read a few anonymous authors and fringe theories, but the main conclusion I seem to keep reaching is that the financial system as a whole is pretty messed up - completely driven by greed, materialism, and cut throat selfishness. It is a game best played by psychopaths and shysters so I try to avoid it as much as possible. I will talk with my brother and see if he is interested in joining this thread. He is always looking for a good argument/discussion about economics and has been hard pressed to find people with an open mind for discussing such things - most professors/economists are held up on the Keynsian model and will not even think about disucssing others (i.e. the Austrian school, Hayak I believe?).

I have heard the expression you should never let a good crisis go to waste. To be honest I do not spend much time worrying about crisis in the world as my family and I are fairly close to self sufficienct here. If society halted tomorrow I am sure we would be fine. I am by no means an anarcho-capatilist as I am a firm believer in strong communities and, theoretically, good governance that is not corrupted by greed. My wife actually saw a post online the other day that I completely agree with … try paying the politicians minimum wage for a while and see who sticks around… many of them have lost touch with their constituency and can not fathom the poverty that still exists to this day. I regularly see how difficult it can be for people to raise families, pay for meds, buy gas, pay rent, eat, and still have a life when they are making 20k a year. It is a new form of wage slavery. At the same time spoiled brats are writing off their 3rd and 4th escalade that mommy and daddy bought them, or buying a new one because they were unsatisfied with the color of some BS! It infuriates me, but many feel helpless, or are too lazy, to try and narrow the gap with those who make a million-fold more than the regular pleb could ever dream of. Most citizens literally can not even fathom the kind of wealth discrepancy that exists. They may see it on a micro scale when their rich friend can afford the latest gizmos and toys but it runs much deeper than that. The ones who have true extreme wealth should be ashamed that they do not strive to help those less fortunate. I digress, this is turning in to a rant and perhaps will need to be posted elsewhere, lol!

I see from your first response that you must have business experience or at the very least be well read on social enterprise. I appreciate the clarifications about the B-business model, it is still all very new to me and most of the information I have used is from a binder my boss received at a conference in Calgary. It is called Enterprising Non-Profits (ENP) and they host a Canadian website (http://www.socialenterprisecanada.ca/). It had been my main guide on the topic. I really think you hit the nail on the head when you equate Social Enterprise to being the synthesis between for profit and non-for-profit. What I have learned working in the non profit sector (In agriculture and working with people with Disabilities) is that the funds are quickly drying up for all non profits. There are fewer and fewer philanthropists and joe public is tired of being hit up for cash at every turn because most are struggling to get by themselves…

I was tasked with starting the social enterprise for the non-profit because our farm, Island Forest Foods, is set up as a corporation and I have some experience behind the scenes with business, financing, shareholder agreements, etc. I was fortunate that one of our shareholders is an self-made entrepreneur and magnate who wanted to ensure that every aspect of our business was set up to allow for future expansion and was running tickity-boo. I learned much during the process and although much of the paperwork seemed trivial at the time, I see now how important it is to run a successful operation at any scale. As he liked to say, “good paper makes good friends.” Its is a very true statement and it is a motto we are following with the social enterprise. Otherwise there is a lack of accountability. Someone with less scruples could be lining their pockets, skimming some off the top, or it could simply lead to dissension amongst the ranks. Nothing drives a wedge between two people quicker than money matters. More importantly though, if social enterprise is going to succeed it needs to be run as a legitimate business. As I said in my first post some non-profits, not all, like to take the government (taxpayer) money and spend it like there is no tomorrow. They are stuck in a situation where they have to spend it all or they will not get as much the next year. As you can imagine this leads to some fairly ridiculous financial decisions being made. Social enterprise can not operate this way or else it would be unfairly competing with the private sector. In some cases it should have preferential treatment because the social aspect is saving money for the government in the long run, but any advantages should be modest and equivalent to the amount the enterprise is putting back into the community. An example could be a lease-hold agreement with favorable terms on government property. As you said, it would be very interesting to see a situation where the competitive arena was equalized and companies had to take on more social responsibility. As it stands we are trying to break even and hopefully earn extra to pay dividends to the non-profit shareholder, so that we can keep people employed, but we are doing so with all of the “misfit toys” or “bad news bears” so to speak. Our organization does not discriminate, it is against our mission and mandate to do so, but when we are competing with other organizations who do not have to worry about the social aspect we are certainly at a disadvantage and have to get creative to make things work.

I will say it again that I am no economic expert and that is why I like Meritocracy because hypothetically a board of professional top level “master” economists would be directing the economy out in the open accountable to the public - not behind closed doors. There would be no more irrational things like a GM manager saying lets not increase efficiency “because I dont wanna”. I mean how childish is that, if those types of comments were made publicly I would like to think they would be getting the Axe from that job the next day. People need to realize its not always about them and they their actions have an impact on the collective, especially high echelon decisions like that. I do not know much about game theory but it seems simple to me in a way. Complex simulations only work when you remove human nature or nature in general. Nature does not like to perform within a certain defined framework, and im sure there are many cheats on Wall street who exploit every weakness and loophole they can find - that is true human nature. As a comparison to game theory you can look at the Millennium Challenge war games in 2002. Im sure it all looked great on paper and computer simulations for the US, but general Paul K. Van Riper, who had actually spent time in the trenches of war, did not abide by these ridiculous rules. Even with the odds overwhelmingly against him in terms or brute force he went off the radar, reverted to pigeons, scooters, inflatable dingys and rockets and won. Delivering a crushing blow to the US military in no time. Do you think he was playing by the rules? Of course not, thats why they could not predict his guerrilla tactics, the same way Caesar ran in to trouble against the Anglo-Saxons, or the U.S. rant into trouble against the Vietnamese. The US whined and complained, in effect “took there ball and went home” and had to redo the whole drill to “win” and show that it would have played out different in a “real” war. I know which one seems more real to me, but economics and war (unless its war history) are areas I prefer to steer clear of.