"The tragic comedy of the world-improvers... is that they are simply assisting money to be more effective" - Spengler
Social Business Criticism: The Environment
Business in the 21st century is intense. Competing with companies from around the world, everything from gaining new customers to attracting employees is a struggle. In addition to other firms, there are many critics and governments who would love to crucify a corporation. These predators love to scapegoat corporations as greedy and responsible for the world’s problems.
In addition to the usual CSR defence mechanism, some corporations have a new strategy: Camouflage! Just as insects look like leaves to avoid being eaten, corporations disguise themselves as ‘social businesses’ to avoid critics. And as predators use camouflage to sneak up on prey, some firms use this to their advantage.
What is a Social Business?
A definition of Social Business commonly used is a business that is:
- created and designed to address a social problem
- financially self sustainable
- Profits are reinvested in the business to increase social impact; expanding its reach, improving products, etc.
- usually environmentally conscious and worker friendly with good wages.
All of these points are subjective and hard to define. What counts as a ‘social problem’ and ‘good wages’ is in the eye of the world-improver. What these characteristics have in common is they all sound good. They sound like another save the world type of charity. If you heard about a firm that lends small amounts to the rural poor so they can improve their lives, you would think it’s like a charity. Welcome to Corporate Camouflage.
Social Business Criticism: Defensive Camouflage
Many businesses, especially those in industries like finance, find themselves under criticism. Critics can destroy their reputation and scare customers. In addition to critics, governments and regulators also love to tax, blame and squeeze companies. For a business looking to avoid these predators, mimicking a charity can disarm the critics. Who would criticize a firm lending to poor women to start a small business? Or a firm helping to improve the health and sanitation of the poor?
To be a social business, there is only one requirement. You must claim to be a social business. For example, by providing the poor with needed products (formerly known as selling).
By claiming to be a social business a corporation can avoid being noticed, or even seem charming. All the while remaining profit seeking. Many CEOs of social businesses even become celebrities for their ‘social work’.
Social Business Criticism: Predator’s Camouflage
Claiming to be a social business can be effective in other ways. Potential customers may be wary of a bank, especially if they’ve never borrowed or deposited money previously. But this bank’s CEO is on the cover of magazines for helping the poor. This bank is a social business that has a social impact and addresses social problems, it must be trustworthy. By claiming to be a social business, a firm can:
- improve its brand image
- gain new customers
- reduce its cost of labor, as some workers want to work for what they think is a charity
- create barriers to entering its industry. A social business signals to potential competitors that profits are low or non-existent.
Social Business Criticism: Crypto Corporation
Just as Corporate Social Responsibility (CSR) was loosing its shine, CSR spins off a related label. The ‘Social Business’ title is both a defence mechanism to avoid criticism and a predator’s trick. Why spend years building your company’s reputation, when adding the word ‘social’ instantly gains trust. Similarly, a business operating in a difficult area, such as a poor community, can avoid the profit-seeking criticisms. Just claim to be a social business.
And of course, the world-improvers who celebrate these Crypto Corporations are assisting them to be more effective.
Social Business Criticism: Mahatma Muhammad Yunus
After seeing this interview with social business pioneer Muhammad Yunus, I’ve added a critique to his comments on Social Business. Here is his interview with The Economist: http://www.economist.com/blogs/schumpeter/2012/10/muhammad-yunus-social-business.
Yunus defines social business as a “non-dividend company, to solve human problems, you can take back your original investment money, but nothing more than that”. This assumes that dividends and realized capital gains are the only ways an investor can take money back. It ignores the difference between operating and financing cash flows. The CEO or founders can take millions in salary, while still remaining a “non-dividend company”. The company can also be used as a tax shelter, to gain influence or prestige. This also ignores the time value of money.
Yunus explains “it’s de-linked from the personal profit motive, the investor’s motivation is to solve human problems”. If we could count the number of failed attempts to ‘de-link from the personal profit motive’. Not to mention the catastrophes caused in the name of ‘solving human problems’. By this vague definition, an oil company can claim to be lighting the world, creating electricity and transportation.
As Yunus says “there are two kinds of businesses” not just profit maximization. Implying that Social Business ‘solving human problems’ is the second type. He is right. There are two kinds of businesses, one with a profit motive and another that hides its profit motive.