Social Entrepreneurship and Corporate Social Responsibity: Which has more social impact?



Post in April 19, 2016 8:44 am BY

Abstract

Social enterprise is an emerging sector, and social businesses tend to operate with limited funding. How does this affect the ability of the sector to create social impact, in comparison to corporate social responsibility schemes which have substantial financial support? By comparing Social Entrepreneurship (SE) and Corporate Social Responsibility (CSR), the paper discusses whether partnerships between social enterprise and CSR schemes are the way forward for maximizing social impact.

 Key words

social entrepreneurship, social enterprise, corporate social responsibility, social impact

Social entrepreneurship

Entrepreneurship is “the ability to start up a profit-seeking venture and then grow it into a business that makes great wealth for the owners (either private or public)” (Drucker, 1995; Schumpeter, 1975). Entrepreneurs therefore measure success in terms of financial profits and returns on investment.

Social entrepreneurship is increasingly popular as a way of “doing business while achieving a social and economic impact” (Dees, 1998). Social entrepreneurs useentrepreneurship principles and a business-like structure to solve social and/or environmental problems. They measure success by whether or not they have fulfilled their social missions. Social entrepreneurs can make profits, but invest back into the enterprise to be able to do the same thing in another part of the world, or continue improving the same place but with a new mission, for example providing clean drinking water first and then moving on to quality of shelter.

The concept of social entrepreneurship has been caught up in its own popularity and a variety of definitions have emerged. Amid the general confusion, four aspects of thoughts can be distinguished, each of which emphasizes a different outcome (income generation, social impact, job creation, and broader social change) and attaches different degrees of importance to the economic, social and governance values of social entrepreneurship.

 

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Social entrepreneurship represents a blurred landscape, given the fact that social entrepreneurship is a hybrid concept, with entrepreneurial values on one side and social values on the other side. Social businesses have the main challenge of striking a balance between social and financial missions. While social enterprises can be for-profit, not-for profit, or at least non-loss enterprises, profit seeking is not their main purpose.

Figure 1: The boundaries of social enterpreneurship

Social enterprises can be classified under two categories based on what enterprises produce.  The first category includes social businesses which have developed a novel social or environmental product/ service; for example, new technologies for alternative energy or mobile education services. Their customers could be the ‘bottom of the pyramid’ (BoP) groups. The second category includes social businesses which replace existing products/ services with more social and responsible choices. For example, Tony’s Chocolonely is a good example in the cocoa market, as this for-profit social enterprise strives to make ‘slave-free’ and organic chocolate on a large scale

Figure 2: Characteristics of social enterprise

Corporate Social Responsibility

Corporate Responsibility is the art of managing already operating, for-profit businesses in ways that are beneficial to others beyond the company founders and investors.The successful performance of corporate responsibility is measured by how well the company does no harm, and/or provides direct benefits, to all other stakeholdersin addition to the company owners. Such stakeholders include employees, operating partners, consumers, entire communities and even our natural world, or global environment.Corporate responsibility operating mandates therefore often seek to deliver some sort of non-financial gain (or remediation) to any others besides the company founders and investors. When done well, this may increase shareholder value in the long term. Corporate responsibility is often a program relegated to less powerful employees with non-significant budgets, typically in the marketing department or charitable giving, rather than part of the Chief Executive Officers’ team.

When corporations embrace and emphasize the social aspect of their corporate responsibility, they must do more than simply avoiding being sued or doing no harm to others. They must proactively invest into and generate greater tangible and intangible wealth for many others in society. Significant CSR outcomes are often driven by large budgets and high executive decision-making. John Elkington’s Triple Bottom Line (1994), which refer to People: fair labor conditions; Planet: sustainable environmental practices; and Profit: gains/ROI) is often used as a measure of CSR success.The CSR entrepreneur will be determined that both his company and any companies in their supply chain have fair labor conditions and use sustainable environmental practices.

 Social entrepreneurship and corporate social responsibility

Social entrepreneurship and corporate social responsibility are significantly different in some ways and also much alike in others.The differences between CSR and SE are:

Firstly, embedding social goals in the organization’s core objectives. CSR approaches range from simply being an add-on function (such as financially supporting an NGO) to integrating CSR more into the core of policy (“strategic CSR”) or adopting a sustainable mission further in their core practice (“shared value creation”). Whatever the CSR approach, social goals are added to the overall corporate objectives in different levels. Whereas, social goals are the primary objectives of social enterprises.

Therefore, an enterprise would only be considered as social enterprise if it would accept a significant reduction in its profits in pursuit of its social goals. From this perspective, a for-profit business with a CSR strategy does not qualify, as it might abandon its social aims if it believed its profits were at stake. For example, a steel company may operate more environmentally and socially by adopting a CSR approach, but its main objective is not to achieve a social impact. It would only qualify as a social enterprise if, for example, it employed the disadvantaged and used steel production to achieve this in a sustainable way.

 Secondly, focusing on different groups. CSR works with a perceived tension between shareholders(who want profits), and stakeholders (including employees, communities, environment). CSRrecognizes the harnessing of public opinion to reform profit-seeking companies. For shareholders concerned with social investing, CSR is acceptable, but it has no presumptive commitment to social responsibility. Whereas,SEfocuses on the client or end user in a socially responsible way. SE seeks to harness profit-seeking capital to reform problems the public overlook. SE tries to figure out how to fill true needs of the needy at an affordable cost.

Thirdly, being reactive/ proactive. CSR provides a lot of good initiatives, but is a reactive process. CSR means taking responsibility for the effects of one’s business on the surrounding environment. CSR examples are saving energy, buying fair-trade products. While a CSR entrepreneur tries to carry out his core business in a responsible way, a social entrepreneur focuses his core businesses on creating social value.

As for similarity, SE or CSR imposes some consequential expectations for delivering net-positive social impact outcomes in addition to company profits to shareholders. Social entrepreneurs actually embed CSR into their startup business model.  Doing no evil and making no harm is not enough, social entrepreneurs must gain in significant ways. In addition to improving their own financial wealth, by creating profits on their company’s balance sheet, social entrepreneurs are seeking to improve the balance sheets of many others outside the company (by financial and/or non-financial gains).

When SE and CSR are done correctly and done well, their social impact outcomes are well aligned and not very different at all.  Each aims to create greater social wealth for many others at scale across the world as operating impact.

 Social Entrepreneurship and Corporate Social Responsibility Partnership

Since business cannot succeed in a society that fails, it has become imperative for businesses to partner in the development of the community and environment. This has resulted in great opportunities for partnerships between companies and non-governmental organizations, not-for-profit organizations, governmental agencies and other social enterprises.Partnerships between social enterprises and CSR schemes should be the way forward because of some consequences below:

Firstly, social enterprises can work with CSR schemes to maximize social impact. The supply chain reallyopens up great opportunities for social enterprises to engage with businesses. For examples, KPMG works with many social enterprises through its Sustainable Procure Program. The firm has been committed to sustainable procurement practices since 2006, and in the UK, its supplier code of conduct is underpinned by the ten principles of the UN Global Compact. This Program aims to deliver social and environmental benefits by working with the firm’s suppliers across the key themes of a Living Wage, the environment and diversity and inclusion.

Secondly, the partnerships offer a solution for social enterprises with financial difficulties and result in effective CSR outcomes. For example, The Freedom Bakery in the UK has provided employment and training to people who have recently left prison in an attempt to break the common cycle of reoffending. Or the social enterprise KOTO in Vietnam is employing street children. These enterprises have remained competitive in their industry not by marketing their social impact.

Conclusion

Social entrepreneurship and corporate social responsibility shares some similarities in terms of social impact but have more striking differences in terms of social goals embedding. Partnerships between social enterprises and CSR schemes is a good trend for maximizing social impact and delivering effect CSR. However, there are some challenges of making such partnerships work effectively to meet the respective goals of each organization, which will be discussed in another future paper.

 

Reference

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Drucker, P. (1995). Innovation & Entrepreneurship.New York: Harper Business, Page 28.

Elkington, J.(1994). Towards the sustainable corporation: Win-Win-Win business strategiesfor sustainable development. California Management Review 36, no. 2: 90-100

Schumpeter, J. (1975). Capitalism, Socialism, and Democracy. New York: Harper, Page 82-85.

Austin, J., Stevenson, H., & Wei‐Skillern, J. (2006). Social and commercial entrepreneurship: same, different, or both?Entrepreneurship theory and practice30(1), 1-22.

Muhammad Yunus (2010), founder of the Grameen Bank: ‘A social business is a non-loss, non-dividend company designed to address a social objective’.http://www.grameen-info.org/

Jeff Trexler (2008), ‘Social Entrepreneurship as an Algorithm: Is Social Enterprise Sustainable?’ E:CO Issue Vol. 10 No. 3 2008 pp. 65-85

www.ashoka.org

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Social Enterprise UK (2011) Social Enterprise Explained, for beginners, wonderers, and people with ideas, big and small. Interview with Peter Holbrook, Chief Executive of Social Enterprise UK

KOTO. http://www.koto.com.au, accessed on February 1, 2016.

KPMG, Sustainable Development. https://home.kpmg.com/uk/en/home/about/corporate-responsibility/sustainable-procurement.html, accessed on February 1, 2016.

The Freedom Bakery. https://home.kpmg.com/uk/en/home/about/corporate-responsibility/sustainable-procurement.html, accessed on February 1, 2016

Tony’s Chocolonely. http://www.tonyschocolonely.com, accessed on February 1, 2016.

 

**Co-authors: Nguyen Quang Huy & Phan Thi Thuy Tram