The Social Enterprise: A Model for Shared Value

April 28, 2015 by

shutterstock_174875942In competitive business, a “race to the bottom” can appear unavoidable. Oftentimes, businesses do not know how to get around the race to offer products or services at the lowest possible price. But this model can have negative effects. Prioritizing merely low prices as a supplier or purchaser has been known to contradict ethical and sustainable business practices.

So how can businesses be motivated to abandon a lowest cost model?

For some firms, understanding sustainability as integral to financial success has come about organically. Thirty years ago, the Brundtland Report helped trigger a shift in business thinking. It demonstrated that development decisions weren’t sufficiently considering environmental resources and limits. Environmental issues became the foundation of the early sustainability movement across business sectors. An entire set of environmentally aware consumers and businesses came into being.

A variety of influences, or even a push from consumers, will lead some firms to add a social consideration to their sustainability efforts. The now famous consumer boycotts of NIKE, for example, pushed the company to review its social responsibility and transparency. Today, companies and researchers consider NIKE to be a prime case study and a sustainability leader.

Whatever the motivation, the harsh dichotomy between social or financial goals is disappearing. New models of shared value that create financial and social value are emerging. And, an often smaller, more humble type of business is proving to be particularly exemplary in applying this model: the social enterprise.

A Valuable Contribution

Michael Porter and Mark Kramer of Harvard Business School made a major contribution to this effort by introducing shared value about ten years ago. Shared value, as a management principle, “focuses on identifying and expanding the connections between societal and economic progress.”

Opportunities to contribute to social value through a business supply chain can include buying from local businesses, considering living wages of employees and incorporating Fair Trade products.

Sharing is Caring: Social Enterprises and Shared Value

Social enterprises put shared value into their core. These community-based businesses sell goods or services in the marketplace to achieve a social, cultural or environmental purpose; they reinvest their profits to maximize their “social mission.”

Social enterprises strive to achieve a shared value return on investment of both social impact and financial sustainability. The defining aspect of a social enterprise is not its specific corporate form, but rather the practice of prioritizing community benefits and social impact in favour of private profit or shareholder returns. Models of incorporation for social enterprises can include non-profits (with or without charitable status), community service co-operatives, hybrid corporations with caps on dividend and asset distribution and for-profits owned by non-profits.

Specific ways that social enterprises prioritize community contributions can take many forms. For Mosaic, a non-profit that supports the integration and inclusion of new Canadians, that way is operating a translation and interpretation business service. In Vancouver, commercial janitorial services, The Cleaning Solution, provides employment for persons with mental health issues.

Whether the social enterprise is creating employment for youth and persons with barriers or championing cultural diversity, ultimately the business sees the shared value in responding to social needs.

Decisions made by social enterprises are creating positive ripples within the environment and communities. If enough firms begin to adopt the practices of social enterprises or include them in their value chain then it can move us from a marketplace merely about the economics of business transactions and into a marketplace that is pivotal in transforming and building healthy communities.

About the Author

David LePage is a Founding Member & Chair of the Social Enterprise Council of Canada. He is also a Principal with Accelerating Social Impact (ASI), one of Canada’s first Community Contribution Corporations, a for-profit business with an entrenched social mission and a legal limit on dividend distribution. He is a partner in the recent launch of Buy Social Canada.

With more than 35 years of experience in non-profit and social enterprise sectors, David has led efforts to expand development and training for such enterprises across Canada.

For more information visit buysocialcanada.ca and socialenterprisecanada.ca.

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