Socially Conscious Business Part 2: But Isn’t Business, Business and Charity, Charity?

Are “social enterprise,” “social enterpreneurship” and “socially conscious business” oxymorons?

We don’t think so. Our purposes and principles are built on the belief that these terms are not oxymorons.

Yet we understand why you might think they are. You might understand business basics and how wealth is created. You might at the same time care about the conditions of the world. You or your business might make sizeable donations to a favorite charity.

Socially conscious business goes beyond charitable donations.  It embeds philanthropic purpose at the heart of its existence and melds social good with for-profit business model. Which begs the question: can the two modalities of business and charity be integrated into one whole?

The Difference Between Socially Conscious Business, Social Enterprise, Nonprofit, and Traditional Business

It is common knowledge that NGOs, religious organizations, nonprofits, and other philanthropic groups do a lot of good in the world.  They are dependent on grants, donations, and government contracts.  This is very different income stream from business. These organizations shuffle wealth around. Businesses create wealth that pours back into the local economy.

Agora seeks to impact lasting change on developing world communities spiritually, socially, and economically. This is typical fare for traditional philanthropic NGOs and nonprofits. But trying to accomplish this through the establishment of socially conscious, for-profit businesses is not-so-typical.

How does that relate to traditional business?  Doesn’t traditional capitalistic economic theory assume the trickle down effect of wealth? Doesn’t the trickle down effect preclude the need to think directly about social conditions?

Some of the confusion stems from the historic and regulatory perspective that ‘business is business’ and ‘charity is charity’. Typically, corporations measure success in terms of profit and a return to shareholders.  Social entrepreneurs, however, have a motive beyond profit. They want to solve social problems, create and sustain social value, and bring a positive return to society.

Socially Conscious Business and Corporate Law

This seems simple enough. Yet corporate law has not always been friendly to such endeavors. Consider this excerpt:

Historically, United States corporate law has not been structured or tailored to address the situation of for-profit companies who wish to pursue a social or environmental mission. While corporations generally have the ability to pursue a broad range of activities, corporate decision-making is usually justified in terms of creating long-term shareholder value. A commitment to pursuing a goal other than profit as an end for itself may be viewed in many states as inconsistent with the traditional perspective that a corporation’s purpose is to maximize profits for the benefit of its shareholders.

The idea that a corporation has as its purpose to maximize financial gain for its shareholders was first articulated in Dodge v. Ford Motor Company in 1919. Over time, through both law and custom, the concept of “shareholder primacy” has come to be widely accepted. This point was recently reaffirmed by the case eBay Domestic Holdings, Inc. v. Newmark, in which the Delaware Chancery Court stated that a non-financial mission that “seeks not to maximize the economic value of a for-profit Delaware corporation for the benefit of its stockholders” is inconsistent with directors’ fiduciary duties”¹

So the terms “socially conscious business” and “social entrepreneurship”  primarily define a coming together of two extremes:   the corporation solely focused on profit; and the Not-For-Profit or NGO focused solely on social impact. Socially conscious business seeks to simultaneously profit society and themselves. For some this is a faster route to economic growth, justice and prosperity. Social entrepreneurs offer an altruistic entrepreneurial business that seeks to benefit all aspects of society; a maximization of social satisfaction.  The end product is social capital.

Aren’t there structural challenges for socially conscious businesses? Haven’t we already established that corporate law does not give room for socially conscious enterprise? How can these two ideas come together?

We’ll find out in the third part of our series.

 

¹  Benefit Corporation, “Wikipedia”, November 27, 2014