The Future of Business is Social Enterprise

A social enterprise is an organization that applies commercial strategies to maximize improvements in financial, social and environmental well-being—this may include maximizing social impact alongside profits for external shareholders.

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A few months ago, I wrote about how income inequality is an emergency management issue. A major part of this inequality has to do with the outsized role that profit has taken on in global business in the 21st century. You would be hard-pressed to find a major company that doesn’t include some variation of the phrase “achieve maximum returns for our investors” in their mission or vision statements. A Wikipedia article about the largest corporate profits and losses lists thirty-nine entries in the “largest profits” list, all of which have occurred since 1998.

One of the sources of this income inequality becomes apparent when you look at the fact that it takes money to invest in the stock market, and when your employees are living paycheque to paycheque, they don’t have thousands of dollars to invest in stocks.

Investing is a rich person’s game, and when the income gap between the richest 0.1% and the bottom 90% is 188-fold, it becomes easy to see why income inequality is growing. Read that again…the top tenth of a percent of wage earners in the US brings in almost two hundred times as much money as the bottom 90% of wage earners.

In the meantime, there is a growing movement to recognize that while humans are stewards of the earth, we are not exercising good governance over our resources. Earth overshoot day – the day when humans have used more resources than the earth can produce – arrived on July 29th this year, it’s earliest arrival since the Global Footprint Network began tracking it using United Nations statistics from 1961 onwards.

Finally, people of all walks of life are beginning to recognize the urgency of the climate crisis, and that the pursuit of profit at all costs is exacting a toll on human life around the world. Greta Thunberg’s leadership is an excellent example of the beliefs of the generation after my own, ones who are teenagers and younger. They’ve never known a world that wasn’t in a climate crisis, and they are calling on us to recognize that the world is burning around us.

These three forces are deeply interconnected and related, and they will drive a major shift in the focus of business in the coming years and decades. No longer will the driving force behind business be about profit at all costs, but instead people will look to businesses to take leadership in the climate crisis, effective governance of earth’s resources, and ensuring equality for everyone by advancing the social determinants of health instead of the poverty line as the goalposts for employee compensation.

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We are deep into a systemic change in work, one where fewer people are needed to create higher profits. The promise was that employees would see the benefits of higher profits through increased wages, in a ridiculous theory called Trickle-Down Economics. What has happened instead is that companies are hoarding money, paying larger dividends to shareholders, who are then rewarding the top executives with higher salaries while paying little to nothing to employees.

According to a article, “86% of US consumers expect companies to act on social and environmental issues.” Needless to say, the 1.9 trillion ($1,900,000,000,000) that US corporations have in the bank could go a long way towards resolving some deeply rooted social and environmental issues. In a January 2018 article, reported that the earnings by billionaires in 2017 alone could wipe out extreme poverty not once, not twice, but SEVEN times over., a website that uses publicly available and scientifically sound data says that mitigating the effects of climate change would cost between 200-350 billion euro ($222-$388 billion USD) annually. To put that into perspective, the world’s top billionaires could solve the climate crisis and still take home half of their income…without touching what is in their bank accounts.

As information becomes more readily available to more people, these examples of excess and greed are more often coming to light, and people are starting to recognize that there is a deep disconnect between how our world should be, and how it is. More and more, people are looking for companies that put people ahead of profits, and stewardship ahead of shareholders.

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In the coming years, I believe there will be a massive shift in corporate operations. While many of the old stalwarts will retain a profit-focused mindset, new companies will spring up that focus on using their money to do good for their employees, their cities and towns, and the entire world. Companies that aren’t prepared to shift their focus will very much run the risk of becoming the latest Kodak.

For those of you who may not be familiar with them, Kodak was once the single largest name in photography. At one point it held over 90% of the North American photography market and could be found everywhere. In 1975 they created the first digital camera, but then shelved it because they were worried that it would take away from their film camera business line. By 2007, they held only 7% market share and eventually ended up filing for bankruptcy in 2011.

There is an entire generation of people who have grown up not hearing the name Kodak, or knowing of the immense powerhouse that it used to be. They failed to see the transition from film photography to digital photography and they suffered because of it. The same will be true of companies who continue to focus on profits instead of social and ecological welfare.

This shift won’t be easy. It will come with wailing and gnashing of teeth as those who have profited under the old system try to convince us that the new system won’t work. They’ll call it “communism” and “socialism” and say that there are things that can only be trusted to the private sector. They’ll trot out trickle-down economic theory and “Reaganomics” to justify their ever-increasing salaries. And while they do that, individuals, families, small business owners, and whole communities will be changing the world under their feet.

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Each person has a choice about where and how to spend our money, and the first thing to change will be a living wage for everyone. Companies around the world are recognizing the advantages of providing a living wage for their employees and small businesses are leading the charge. When people are paid their worth they are more committed to their employer, provide better service, invest more of their time and energy into making the business a success, and end up having more money to invest in their communities and pay more into social programs through taxes.

Many businesses have recognized the importance of being socially and environmentally conscious, and have focused their own business lines around that. My first introduction to a social enterprise was through Mountain Equipment Co-Op (MEC), a Canadian company that sells outdoor gear. While technically a cooperative, they have been committed to socially and environmentally sound initiatives for years. I’m proud to be a shareholder and part-owner of MEC, and love the quality and longevity of their products.

Other areas of social enterprise that are growing in prominence include micro-lending to entrepreneurs through groups like Grameen Bank or by crowd-sourcing like Micro-loans provide entrepreneurs who don’t qualify for regular sources of financing the ability to access small amounts of capital, usually just enough to produce a basic run of a product or to get started with a commodity like grain. This is often enough to launch many entrepreneurs on their own path to success.

I was lucky enough to be part of an incredibly successful social enterprise in my city that built a community of small businesses and entrepreneurs. When Sears Canada went bankrupt, it had an outsized impact on the city of Regina, Saskatchewan. We had once hosted distribution centres and major warehouses for Sears, along with several department stores and an outlet store. When they declared bankruptcy, all of that disappeared.

One of the big challenges was what to do with the sprawling space that used to be the outlet store. During this time, I was trying my hand (unsuccessfully) at direct sales for a children’s book company. They produced fantastic books, but I’m just not a good salesperson. I was still giving it the old college try when I saw an ad for table space available in the old Sears outlet store. So, I signed up for a few weeks, which became a few months, which became almost a year.

I watched as entrepreneurs of all types built their own companies out of passion and little else. Led by a wonderful woman who spearheaded the entire market, the property owner used their space to allow entrepreneurs to build their own businesses. Because these entrepreneurs weren’t tied down to a long-term lease, they could afford to pay themselves a living wage and invest in their own businesses (as well as those of the others at the market). Last weekend they hosted a Food Truck Wars that featured twenty-three food trucks and over a hundred vendors.

Most of those vendors are small businesses that put their money right back into the community. There is a company that produces magnificent bath products using locally and ethically sourced materials. There’s a small batch coffee roaster who sells fantastic fair trade coffee by the cup or by the bag, and even has reading material to go along with it. One of our favourites is the local butcher who does farm to sale meats, ensuring that their animals are raised in sustainable and ethical ways and then processing the meat themselves to make sure it meets their standards.

These are just three small companies in one small city who are making a big difference in how people shop and how people consume.

And you know what? It’s working!

It is a beautiful metaphor for how things are changing. When people have their basic needs met through a living wage, or even a guaranteed minimum income, they have the ability to do fantastic things. Can you imagine what would happen if people worked because they wanted to, and because they believed in the mission of the company? How powerful is that thought…Instead of working just to have the basics, you work because you believe in the work you’re doing.

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Of course, this isn’t what big corporations want. They want a large number of easily replaceable employees who are willing to do menial tasks at a low cost. They are profit-driven, which means that they want lower costs and higher profits. They either cannot or do not want to see the change that is already underway.

Engaged and passionate employees bring significant returns far beyond the cost of retaining them. They also bring their own challenges because engaged and passionate employees who are committed to their company won’t let second-rate products go out the door. Instead of being forced to stock shelves (a job that can be easily automated), they educate themselves about the products available in their stores. Instead of being menial manual labour, they become advocates for quality products that are both sustainable and economically sound.

Having a guaranteed livable income also means that they will have more disposable income, and will likely increase their social determinants of health. They will be able to access healthier foods, which will increase their overall health, which will allow them to work more readily, which will in turn increase their income and help them improve their housing conditions, and so on, and so on, and so on.

Of course there may be people who choose not to work and to take advantage of the system to their own benefit. I firmly believe that these people would be few and far between, largely because people all have their own passions and the vast majority of them would do those things that they are passionate about and that bring them joy.

What kind of discoveries could we make in science, technology, engineering, arts, and math if we freed people from the burden of work to focus on the things they are passionate about? What beautiful art or music have we missed out on because someone was toiling in a warehouse or stocking retail shelves? How has science been held back because someone was forced to take a job just to keep food on their table.

When employees are paid well, and given the freedom to engage in their passions, companies will naturally make the transition from profit-driven enterprises to social enterprises. They will do so because their employees will find the places where they can make the most difference and drag the company kicking and screaming into those places.

Because people won’t be beholden to a single employer, they will go to the places that energize and excite them. If companies are quick enough to change, then they can reap the benefits of becoming a social enterprise, but first they must let go of the singular focus on profits.

When a company focuses on income equality and improving the social determinants of health for its employees and communities, it will change the way their workforce interacts with their customers – bringing about a more passionate and engaged community.

When a company practices effective governance of resources, employees and customers will support that company in unexpected and exciting ways.

When a company behaves in environmentally sustainable and resilient ways, they begin to see the long-term picture of a world beyond themselves and their immediate profit sheet.

When a company practices all three of these things, they have the capacity to change the world.

There are entire generations of people my age and younger who are actively looking for companies to be leaders in enacting social change. We want to support companies that are working to make the world a better place. We want to lift up people around us, the same way we want to be lifted up so that everyone has a better life. We’re not against profit, we’re against obscene profit that benefits only a very few people.

At the end of the day, we want our money to go towards social enterprise in all its forms. We don’t want it to simply be recycled into the pockets of a select few over and over and over again.

If you feel like this hits close to home, in either a good way or a bad way, I would love to hear your thoughts on this. Leave me a comment, or send me a message. I always encourage healthy debate on anything I write.

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