Zyan Zhao
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Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Zyan Zhao
Implications from the Global Financial Tsunami Commencing since the second half of 2007, the worldwide Financial Tsunami has tremendously shaken the global economy and affected people’s daily life in all corners of the world. The U.S. subprime mortgage crisis can be seen as the origin of the global financial tsunami. Low interest rates combined with reduced lending standards fuelled property demand, pushing prices to new heights. Yet dissatisfaction for the low rates led to the search for higher yields. This desire could not be met by traditional investment opportunities. Banks started marketing subprime loans aggressively and the success made them relax their lending standards. The incentives for loan originator, brokers and agents—they were paid on the basis of how many loans they could sell without much consideration of future defaults—led to remarkably poor financial practices. Lack of the awareness of social responsibilities can be viewed as one of the major reasons for the misbehavior of financial institutions such as banks and rating agencies, thus resulting in the global financial tsunami. The worldwide disaster is gaining more and more attention from the business, political and public sectors and driving them to start rethinking a fundamental issue--Corporate Social Responsibility (CSR).
Problems of Corporate Social Responsibility Definition of CSR CSR are practices that improve the workplace and benefit society in ways that go above and beyond what companies are legally required to do.1 In traditional term, companies’ social responsibilities include philanthropic contributions to society and integration of social aspects into business operations and decision making. Specifically, the companies can establish scholarships and foundations, donate money or volunteer employee time to charities and community projects, or do anything else that generates good. Win-win Opportunities of CSR The opponents of the CSR argue that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long 1
Vogel gives out the definition is 2005. 1
Zyan Zhao
as it stays within the rules of the game.”2 However, the description of the limits of a company’s social responsibility figures at only one point in many pieces about corporate citizenship and is so despised because they are using restrictive, short-time notions of profit. In fact, CSR reveals hidden win-win opportunities to generate profit. A company nurtures its intangible assets such as the reputation in the community is likely to create tangible commercial advantages; generate goodwill and loyalty from consumers; aid recruitment and retention of employees; and avoid the public relations disasters of corruption scandals and environmental accidents. Additionally, consumers increasingly assess a company’s broader social performance and the more socially aware they become, the more it might use its credentials as a good ‘corporate citizen’ to carve out a niche for itself in the market. It will spend good money nurturing its brand image if it anticipates this will enable it establish a market position from which to reap even more money in the future. For example, in January 2007, Marks and Spencer announced a £200 million plan to make its business carbon neutral. Its share price jumped immediately because the market considered this ‘green positioning’ would produce more than enough cachet among consumers to offset the cost of its implementation. Problems in Practicing CSR Having said this, however, the fact is that in most cases, firms that practice CSR have a lower market value than profit-maximizing firms because shareholders are not willing to bear the short-term cost of CSR unless the firm’s stock price is sufficiently low to induce them to do so. This situation gives companies disincentives to practice CSR. A Possible Solution and its Infeasibility Under such circumstances, some CSR advocates suggest to raise certain standards to force all companies in the industry to take their social responsibility. Limitations in the government’s regulatory resources will make the self-regulatory processes inevitable. But, just as traditional political processes exhibit failures, these self-regulatory processes will inevitably fail to incorporate the interests of all affected stakeholders. What’s worse, when an industry’s dominant companies act to raise their standards by colluding with one another to establish an industry norm, the protection secured for the social good may well be anti-competitive; motivated by the desire to make life more difficult for competitors whose goods or services do not comply. In order to keep up with the changing trends that the society has higher expectations for the corporations to take on more social responsibilities while at the same time attract as many investors as possible, most companies now just take superficial CSR practices and CSR is implicitly only a flashing fad. The purpose of this report thus is to find out a true win-win solution for companies to voluntarily take their social responsibilities, while still agree with 2
Friedman 1962: 133 2
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the fundamental goals of profit maximization.
New Form of CSR—Social Entrepreneurship Introduction of Social Entrepreneurship Over the past thirty years, the world has witnessed the emergence of a major new 'sector' - a sector apart from government and business that is comprised of millions of new organizations whose primary purpose is to address the problems that nobody else is addressing, namely Social Entrepreneurship. This sector is altering the way the work of society gets done almost everywhere: It is redefining and sharpening the role of government, shifting practices and attitudes in business and opening up waves of opportunity for people who seek to apply their talents in new, positive ways. Social entrepreneurs are solution-minded pragmatists who are not afraid to tackle some of the world’s biggest problems. They recognize the extraordinary potential in the billions of poor people who inhabit the planet, and they are absolutely committed to helping them use their talents and abilities to achieve their potential. Social entrepreneurs use inspiration, creativity, courage, fortitude and, most importantly, direct action, to create a new reality – a new equilibrium – that results in enduring social benefit and a better future for everyone.
Misunderstanding about Social Entrepreneurship One misunderstanding about social entrepreneurship is that these enterprises must be non-profit making. In fact, social enterprises do not have to earn nothing or even experience financial loss to fulfill its social responsibility. For example, Vikram Akula’s SKS Microfinance is an organization that offers microloans and insurance to poor women in impoverished areas of India. It is one of the largest and fastest-growing organizations in the world, with total disbursements exceeding $500 million to about 2.2 million women. Even though SKS Microfinance is a social enterprise and dedicated to helping poor women from villages, it has made a huge profit with a return on assets of 1.75%.
Social-Business Hybrid Organization Solution to CSR Problem—Social-Business Hybrid Organization My solution to this problem of superficial CSR practice in most of the companies is to combine the traditional profit-maximizing organizations with the social enterprises by incorporating social entrepreneurship into the companies as a department. The for-profit companies can establish a Social Entrepreneurship Department which then cooperates with 3
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Zyan Zhao
social entrepreneur associations like Ashoka: Innovators for the Public3. The department staff will choose feasible and practicable social entrepreneurship projects from Ashoka’s online platform. The companies can provide long-term fund and operational assistance to the innovative social entrepreneurs so that they can achieve both economic and social returns. The marriage between business profit-maximization goal and social responsibility will create a new hybrid social-business organization to deliver education, health care, electricity, legal services, housing, credit, and many other services to billions of people. Benefits of the Hybrid Partnerships We will investigate the benefits brought by the hybrid partnerships both for the supporting companies and the development of social entrepreneurship. Intangibles Values of Incorporating Social Entrepreneurship for Companies Apart from the direct economic value of incorporating social entrepreneurship, this practice will also bring tremendous intangible assets for the companies. Social entrepreneurship incorporates the characteristics of innovation, risk-taking and pro-activeness. The innovation characteristic illustrates the ingenuity required for social entrepreneurship. Risk-taking highlights the significant financial and social boundaries that must be overcome in social entrepreneurship. Pro-activeness emphasizes the trailblazing position of social entrepreneurship, dependent largely on a type of leadership that can navigate change. Innovation, risk-taking and leadership are critical for the companies in order to compete in this ever changing business environment. In business, centuries of experience have demonstrated that the most effective way to promote systematic innovation and adaptation is to foster conditions that encourage entrepreneurship. Indeed, the most powerful thing that can be done today to accelerate innovation and improve problem-solving inside the company is to create a framework of social entrepreneurship, that is, in this situation, to establish a social entrepreneurship department. Companies’ Support for Development of Social Entrepreneurship Now we will investigate how the existing companies can better support the further development of social entrepreneurship. First of all, we have to analyze various kinds of difficulties that social entrepreneurs may encounter when they independently develop their businesses and then find out how the for-profit companies can help social entrepreneurs overcome these difficulties. 3
Ashoka's Change-makers "open sourcing social solutions" initiative Change-makers uses an online platform for what it calls collaborative competitions to build communities of practice around pressing issues. Similar organizations include the Skoll Foundation, the Omidyar Network, the Schwab Foundation for Social Entrepreneurship, the Canadian Social Entrepreneurship Foundation,EthiCorp Pte Ltd New Profit Inc. and Echoing Green. 4
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Difficulty 1: Insufficient supporting funds As the number of large-scale social entrepreneurs and local change-makers multiplies, so does the number of support institutions such as foundations and government agency. However, the structure of the government grant agencies and foundations makes it difficult for either institution to serve leading social entrepreneurs. The people try hard, but the structural barriers are formidable and firmly set. What leading social entrepreneurs need and what today’s dominant social financial institutions—governments and foundations –can provide conflicts. Social entrepreneurs need social investors who will value new ideas. The most important innovations cut across the disciplinary and organizational boundaries created to solve old problems. Governments are bound by narrow, rigidly and impermeably bounded “stovepipes” defined by legislation and refined ever more narrowly by the organizations and regulations that follow. Foundations are captive to internally formulated “strategies,” their institutional stovepipes, and staffs who typically follow specialist lateral career paths. The situation is different if the supporting organizations are for-profit companies. They can profitably provide direct investments because they have convincible credit records and can easily borrow fund from the financial institutions. Moreover, social entrepreneurs need medium- to long-term and often substantial investment because they must test and refine an idea and learn how to market it. The long-term funding is almost impossible for governments and foundations guided by their own internal one-year budgeting imperatives that allow them to only provide one-year funding. Companies, however, can easily gain the long-term capital from its shareholders at low cost. Difficulty 2: Wrong business decisions Social entrepreneurs may be good innovators and leaders, but lack of sufficient business knowledge and real-world experiences may lead to wrong business decisions. By establishing a Social Entrepreneurship Department, managers can choose feasible and practicable social entrepreneurship projects in their familiar industries. In fact, social entrepreneurs serve the same functions as business entrepreneurs: they envision new opportunities, gather resources, build management teams and organizations, overcome resistance and market their ideas. In this respect, the company managers can help the entrepreneurs establish and develop the business with their specialized knowledge and experience to ensure that the entrepreneurs will not make serious mistakes.
Conclusion Corporate Social Responsibility is increasingly being considered as a strategic option in order for the corporation not to lose corporate advantages or not to be seen to have just jumped onto 5
Rethinking of Corporate Social Responsibility (CSR) and Social Entrepreneurship
Zyan Zhao
the ‘good intentions’ bandwagon, but more to position itself as an informed and involved partner expressing true concern for social problems. However, given the current barriers for companies practicing CSR, we must create a new form of CSR—the Social-Business Hybrid Partnerships—to achieve the real win-win goal for all stakeholders.
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Global Initiatives Symposium in Taiwan 2009