Social business is defined by Professor Muhammed Yunus, one of its main promoters, as a cause-driven business.
A social business is a non-loss, non-dividend company designed to address a social objective. The profits are used to expand the company’s reach and improve the product/service. This model has grown from the work of Muhammad Yunus and others.
Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make revenue, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way.
The impact of the business on people or environment, rather than the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goals.
According to Professor Dr. Muhammad Yunus should meet the following requirements:
- social objectives: it needs to have positive social objectives (help comes from the altruistic social services that the business provides to the poor): e.g. health, education, poverty, environment or climate urgency
- non-profit distribution: investors cannot take profits out of the enterprise as dividends.
- A business may also be classed as a social business if is owned by the poor, and therefore the profits directly work to achieve the social objectives of the business, hence this second definition.
It is often owned by the poor or disadvantaged (dividends and financial growth return to the poor where their fiscal situations are helped bringing them out of poverty): e.g. women, young people or long-term unemployed.
A social business is driven to bring about change while pursuing sustainability. Although from a strictly profit-maximizing perspective it seems inappropriate to pursue a goal other than profit, social business’s aim is to achieve certain social and environmental goals.
M. Yunus drafted 7 principles of social business:
- Business objective will be to overcome poverty, or one or more problems (such as education, health, technology access, and environment) which threaten people and society; not profit maximization
- Financial and economic sustainability
- Investors get back their investment amount only. No dividend is given beyond investment money
- When investment amount is paid back, company profit stays with the company for expansion and improvement
- Environmentally conscious
- Workforce gets market wage with better working conditions
- ...do it with joy
The international Ashoka network has been promoting social business for a decade or so. Many examples of social businesses they have supported can be found on their Web site.
Grameen Danone is the first social business joint venture set up since 2005 by the Grameen Bank and Danone Inc. (a French dairy product company operating worldwide). The setting up of this company, which aims at making available dairy products in Bangladesh at very low prices, has led to discussions between the CEO of Danone and P. Yunus, founder of the Grameen Bank. Danone insisted to giving shareholders a 1% dividend, to get enough investors. Since then, the Grameen network has set up other partnerships, with companies such as Veolia, BASF, and Intel.
Social business and solidarity economy
In Latin languages speaking country, "solidarity economy" is a term that has been more popular and more previously used than "social business". If we compare the features of those two models, we come up with the following:
- Solidarity economy can often be identified with one of the options that M. Yunus views for social business: being owned by the poor. In contrast, social business isn't necessary "economy by the poor and for the poor", it can be "economy by the rich (or by mixed-source) and for the poor" or social needs.
- Social and solidarity economy is mainly defined by its governance, as a collective and democratic organization of the economy, social business by its goals.
Looking back to the 7 principles of social business, we can see that principle 1 and others are not necessarily met by social entreprises, such as cooperatives. Conversaly, principle 6 can be seen as behind the standards of the democratic organizations of social entreprises.
- Yunus, Muhammad (2008), Creating a World Without Poverty: Social Business and the Future of Capitalism