The Destructive Search for Purity over Results

Punishing Profit and the Pointless Pursuit of Purity

Recently ClearlySo, the business of which I am CEO, hosted an event. One of the speakers was the Chief Executive of Justgiving (I was once its Chair), the leader in charitable giving over the internet.

At the end of the presentation a questioner rose. “How can you sleep at night earning all those profits from the charity sector?” he asked.

Justgiving charges charities 4-5% of donations received and a small monthly fee (£15). The story of the business and its beginnings can be seen here. Since inception it has raised over $1 billion from 12 million people, making it the largest player—in fact, larger than all its competitors combined (that includes Kiva at $100+ million, Global Giving at $38 million and many more).

It is true that Justgiving charges, but this compares with the 10-20% charities spend on fundraising—quite a cost savings! Moreover, Justgiving estimates that perhaps 30% of what passes through its site is new money, in other words cash that would not have gone to the charities. For this amount, at over $300 million, there is much more than a 5-15% savings.

Yet folks would prefer to focus on the reports that the company earned £2-3 million of profits. This followed many early years of losses, supported only by repeated capital injections by angel investors. The fact that the questioner made millions as a hedge fund manager, an industry which has generated arguably zero or negative value to society makes the whole situation rather bizarre.

Somehow we allow those who pursue profit maximisation at all costs free rein, but those social businesses who seek balance, but perhaps make some profit or return to shareholders, we subject to scorn.

I think it is actually the profit motive which has helped Justgiving remain focused and become successful, which I argued in an Alliance Magazine piece in 2006.

· Is it possible that sometimes the social business model, which allows for profits, yields both better social AND financial impact?

· Why do we insist on the sector’s self-flagellation? What does that say about us?

· Is this stubborn insistence on purity, a theme which I also challenged Muhammad Yunus about in his book on social business in a previous Social Edge post, doing real damage to our sector by making some afraid to take the plunge for fear of the criticism they will face should they try to take something out of it?

· Does this insistence also mean that social enterprise remains an exclusive club of the exceptionally pure or those rich enough (or have rich enough spouses) not to care about financial reward?

· What on earth do we do about sickeningly sanctimonious hedge fund managers?

Join Rod Schwartz, CEO of ClearlySo, in this very important conversation.

MidiBerry

Quite a title you’ve chosen there, Rod!

And quite a list of questions.

Here’s my two cents:

"Is it possible that sometimes the social business model, which allows for profits, yields both better social AND financial impact?"

Better than what?

"Why do we insist on the sector’s self-flagellation?"

Do we? Who’s the ‘we’ in this question?"

What does that say about us?

Not sure because I don’t know which ‘us’ we might be referring to here

"Is this stubborn insistence on purity, a theme which I also challenged Muhammad Yunus about in his book on social business in a previous Social Edge post, doing real damage to our sector by making some afraid to take the plunge for fear of the criticism they will face should they try to take something out of it?"

If some are afraid to take some plunge because of someone else’s insistence on purity then they may not be the stuff of which social entrepreneurs are made. If it’s their own insistence on purity that stops them taking some plunge, then maybe it wasn’t the plunge for them anyway. What do you think?

"Does this insistence also mean that social enterprise remains an exclusive club of the exceptionally pure or those rich enough (or have rich enough spouses) not to care about financial reward?"

The social enterprise world I inhabit is made up of all shapes and sizes of folk and looks nothing to me like an exclusive club, although I’m guessing there is an exclusive club element here as in most sectors of society. Some people enjoy exclusivity and perhaps it may not stop them being effective at whatever their social enterprise is all about.

"What on earth do we do about sickeningly sanctimonious hedge fund managers?"

Ouch, sounds as if this guy or girl got under your skin, Rod. I’m sorry about that. I find it really tough when that kind of dynamic happens on my turf. Most of all because, when I get hot under the collar as a reaction, it usually means I’ve got an internal conflict going on. I think I must have dealt with my own inner ‘sanctimonious hedge fund manager’ enough over recent years not to feel sickened or put up or down by any of them, but there are plenty of other characters around and waiting in the wings for me to do personal inner battle with.

I could suggest a whole bunch of things but most of all, since I won a bottle of champagne on a New Year flight when heading off to work in South Africa for a month on New Year’s Eve, I’m trying to keep the new year’s resolution which won me the bubbles of joy well to the top of the list: "laugh at myself and the craziness of the world quite a lot". The work was tough but it went well and the bubbles we drank were a treat

All the best,

Midi
- Rod Schwartz
  
  Quite a title you’ve chosen there, Rod!
  
  Dear Midi
  
  Thanks for your comment
  
  In fact, I think yours is the single best comment on social edge I have ever received–thought provoking, challenging and fun
  
  I am back late from a dinner but did not want to keep you waiting too long
  
  let me answer these all in order
  
  1) "Better than what"–better than pure ‘for profit’ companies, or than oure social enterprises
  
  2) who is the we who self-flagellates"–the sector, it contauns many parties who seem to constantly check the morals and ethics of the rest–like a religious cult which is constantly subjecting its members to an persistent re-test
  
  3) "who is us"–the same us as in 2) above. the us writers like us refer to when it suits our convenience. Frequently they are a straw horse we seek to knock down–in this case, the us is us, those who write about the socent sector
  
  4) "ifsome are afriad to take the plunge…."–It is not their own insistence on purity–by this yardtsick I agree, they would not be the right people. That they fear what others will say makes them human, although I accept your point that they need to be of steely stuff. I believe that many well-intentioned people are surprised by the venom they confront when they decide they will start social enterprises where hair-sirts are not the corporate uniform. We (that word again) seem to judge those trying to tick several boxes harsh;ly while in our society, we give pure profiy-maximizers free reirn.
  
  5) "exclusive club"–yeah, I agree. All groups have some of these features.
  
  6) "he got under your skin, Rod". Yeah he did. I was surprised by that, because I thought he would be a garden variety jerk. I surprised myself with how he was. The sort of person I thought I left behind when I left the financial industry in 1997. My reaction to my renewed acquaintance with this type surprised me.
  
  7) "laugh at myself and enjoy the bubbles". what can I say? I am jealous of the peace winning the prize has brought you. But it is great advice–thank you for sharing, as Americans like to say
  
  rod
  - MidiBerry
    
    Quite a title you’ve chosen there, Rod!
    
    Oh, thanks so much for clarifying, Rod. Glad you enjoyed reading what I wrote. And backatcha babe, ‘as (some) Americans like to say’!
    
    Some further thoughts:
    
    1 ""Better than what"–better than pure ‘for profit’ companies, or than oure social enterprises"
    
    I guess I see the world through a pluralist lens and you perhaps more through either/or? These are different perspectives, that lead to different preferences and outcomes. I do want things to change in the world and these days try to keep my own focus on whatever I see works in the service of (my version of) equity, kindness and justice. For some entrepreneurs, it’s perhaps a purist struggle and for others it’s about profit. It’s just not my task to judge/seek to change hearts and minds of purists and/or profiteers. I’m here to work with those who will partner for change in whatever mechanism fits their path in the world. It just does not feed my soul to spend energy ranking different types of enterprise in a ‘better than’ ‘worse than’ way.
    
    I think a key thing about ‘social entrepreneurship’ is that it is both social and entrepreneurial. You can behave entrepreneurially in a non-profit organization, and you can behave non-entrepreneurially in a for-profit company. And as another poster pointed out, it’s all been going on for longer than the name.
    
    I personally like working for a world that balances both/and but I really do think there is a place for all types of for-profit only, non-profit and mixed bag. It’s horses for courses in the work I do: for example, one of the challenges I face is to identify that moment when it is time to encourage a grassroots non-profit in Rwanda traditionally focused primarily on education and human rights to start to think in terms of extending itself into a profit-making mindset in its vocational training and income generating activities.
    
    That’s where flexibility of legal mechanisms allowed by government becomes so key, since these can create conditions for success and / or block progress. It’s so exciting to see silo mentalities come down and the legal and financial ground shift beneath our feet in some countries and even explore where we can encourage this shift further by advocacy in the wider field.
    
    2 "who is the we who self-flagellates"–the sector, it contauns many parties who seem to constantly check the morals and ethics of the rest–like a religious cult which is constantly subjecting its members to an persistent re-test"
    
    Um, Rod I just don’t see ours as a uniform sector. I think there’s a huge diversity of people engaged in social entrepreneurship. I’ve been part of this sector since the age of 20 and i can’t remember ever insisting on self-flagellation. I’m quite happy to work alongside self-flagellators if doing that turns them on and to action, but I don’t plan on wearing any hairshirts myself, if only because they look remarkably itchy and uncomfortable to me.
    
    3 " "who is us"–the same us as in 2) above. the us writers like us refer to when it suits our convenience. Frequently they are a straw horse we seek to knock down–in this case, the us is us, those who write about the socent sector" Can’t think of anything useful to say here
    
    4 "I believe that many well-intentioned people are surprised by the venom they confront when they decide they will start social enterprises".
    
    My view is that venom usually spills out from places and people rooted in fear and insecurity, and maybe sanctimony also comes from there too. I do think that learning how to avoid/ignore/defuse psychic attack in any form and any/ situation is certainly a key tool for our times. So instead of hairshirts, maybe donning teflon suits might help..? And maybe that is part of the growth path for people – to learn to toughen up and stop taking things personally?
    
    5.
    
    6. I like the surprise – there’s something interesting and exciting about it, I reckon, Rod. My path has recently taken a surprising turn as I seem to be heading back after a significant gap toward some of those corporate moguls with and to whom I used to consult. A kind of coming full spiral and also a growing personal / collective edge. As I muse on this, I’m now suddenly wanting to encourage you to ‘embrace your inner and outer hedge fund manager’!
    
    7. Raising a glass to us both and everyone else participating in the discussion. I’ve really enjoyed reading all the posts. Thanks
    
    Midi
  - MidiBerry
    
    Quite a title you’ve chosen there, Rod!
    
    Oh, thanks so much for clarifying, Rod. Glad you enjoyed reading what I wrote. And backatcha babe, ‘as (some) Americans and Welshwomen like to say’!
    
    Some further thoughts:
    
    1 ""Better than what"–better than pure ‘for profit’ companies, or than oure social enterprises"
    
    I guess I see the world through a pluralist lens and you perhaps more through either/or? These are different perspectives, that lead to different preferences and outcomes. I do want things to change in the world and these days try to keep my own focus on whatever I see works in the service of (my version of) equity, kindness and justice. For some entrepreneurs, it’s perhaps a purist struggle and for others it’s about profit. It’s just not my task to judge/seek to change hearts and minds of purists and/or profiteers. I’m here to work with those who will partner for change in whatever mechanism fits their path in the world. It just does not feed my soul to spend energy ranking different types of enterprise in a ‘better than’ ‘worse than’ way.
    
    I think a key thing about ‘social entrepreneurship’ is that it is both social and entrepreneurial. You can behave entrepreneurially in a non-profit organization, and you can behave non-entrepreneurially in a for-profit company. And as another poster pointed out, it’s all been going on for longer than the name.
    
    I personally like working for a world that balances both/and but I really do think there is a place for all types of for-profit only, non-profit and mixed bag. It’s horses for courses in the work I do: for example, one of the challenges I face is to identify that moment when it is time to encourage a grassroots non-profit in Rwanda traditionally focused primarily on education and human rights to start to think in terms of extending itself into a profit-making mindset in its vocational training and income generating activities.
    
    That’s where flexibility of legal mechanisms allowed by government becomes so key, since these can create conditions for success and / or block progress. It’s so exciting to see silo mentalities come down and the legal and financial ground shift beneath our feet in some countries and even explore where we can encourage this shift further by advocacy in the wider field.
    
    2 "who is the we who self-flagellates"–the sector, it contauns many parties who seem to constantly check the morals and ethics of the rest–like a religious cult which is constantly subjecting its members to an persistent re-test"
    
    Um, Rod I just don’t see ours as a uniform sector. I think there’s a huge diversity of people engaged in social entrepreneurship. I’ve been part of this sector since the age of 20 and i can’t remember ever insisting on self-flagellation. I’m quite happy to work alongside self-flagellators if doing that turns them on and to action, but I don’t plan on wearing any hairshirts myself, if only because they look remarkably itchy and uncomfortable to me.
    
    3 " "who is us"–the same us as in 2) above. the us writers like us refer to when it suits our convenience. Frequently they are a straw horse we seek to knock down–in this case, the us is us, those who write about the socent sector" Can’t think of anything useful to say here
    
    4 "I believe that many well-intentioned people are surprised by the venom they confront when they decide they will start social enterprises".
    
    My view is that venom usually spills out from places and people rooted in fear and insecurity, and maybe sanctimony also comes from there too. I do think that learning how to avoid/ignore/defuse psychic attack in any form and any/ situation is certainly a key tool for our times. So instead of hairshirts, maybe donning teflon suits might help..? And maybe that is part of the growth path for people – to learn to toughen up and stop taking things personally?
    
    5.
    
    6. I like the surprise – there’s something interesting and exciting about it, I reckon, Rod. My path has recently taken a surprising turn as I seem to be heading back after a significant gap toward some of those corporate moguls with and to whom I used to consult. A kind of coming full spiral and also a growing personal / collective edge. As I muse on this, I’m now suddenly wanting to encourage you to ‘embrace your inner and outer hedge fund manager’!
    
    7. Raising a glass to us both and everyone else participating in the discussion. I’ve really enjoyed reading all the posts. Thanks
    
    Midi
    - Rod Schwartz
      
      Quite a title you’ve chosen there, Rod!
      
      dear midi
      
      Thanks again for another thought provoking and considered comment
      
      People like you make posting for social edge a pleasure and a privilege
      
      Once more, in order:
      
      1) I agree–horses for courses
      
      2) when I read your answer to this one, I see by your comment that you have been involved since you were 20– there is no way to explore that further without being impolite
      
      As to self flagellators, that is OK, I guess, my concern is where others are expected to do likewise. But you are right, the sector is not uniform–and we totally agree on hair shirts!
      
      3) ah yes, nothing like a suitable straw horse to knock down
      
      4) agree, sign me up for a large
      
      5) !
      
      6) never managed a hedge fund but many were my clients. I love the notion of embracing the many parts of myself, what I actually am. I hope you do not charge for this "socedge therapy". I am however finding that I am coming back to some familiar places. Also, encountering an eternal recurrence.
      
      7) just about to board a plane to NYC
      
      I would like to raise that glass to you all–midi, especially you for kicking things off so well
      
      Rod
    - Rod Schwartz
      
      Quite a title you’ve chosen there, Rod!
      
      midi
      
      Do welsh women actually say "backatcha babe"?
      
      Rod
- Rod Schwartz
  
  Quite a title you’ve chosen there, Rod!
  
  Midi–glad you liked the title
  
  rod
Jem Bendell

Ownership and Profits Matter to Social Outcomes

Who gives those "who pursue profit maximisation at all costs free rein"? The centuries of labour activism, and subsequent regulation, the decades of environmentalist and human rights activism, and subsequent regulation, and the last twenty years of stakeholder engagement for corporate responsibility doesnt have anything to do with giving business free rein. Its important to mention here because it is these very communities of people who gave prominence to concept of social enterprise. i.e. people who are now called social entrepreneurs existed throughout time but they get called "social entrepreneurs" today because of the work of people coming from the corporate responsibility, social development, etc, spaces.

Second, we should never see either organisational ownership or business profits as value neutral. If a non profit organisation is using entreprise skills and approaches to address a social issue, then that is better than a for profit enterprise. Why? One reason is because with a non profit ownership model the surplus is then reinvested in the organisations purpose. But another key reason is because the extraction of surplus from a process to give to shareholders (i.e. the definition of profit) adds to economic inequality, which adds to social problems. Much research now demonstrates that link. Even the IMF has outlined the link between economic inequality and financial crises, the latter of which has had a major negative impact on social provision in many countries.

The oversight of economic inequality in the corporate responsibility and social enterprise fields was the subject on an article colleagues and I published in the Journal of Corporate Citizenship last year. Info is available from: http://www.lifeworth.com/consult/2010/09/inequalit/

The profit issue is just one dimension of organisational governance – who owns an organisation and for what purpose, and how accountable is the organisation to its stakeholders and, in particular in this instance, its intended beneficiaries. The importance of organisational governance for serving social change was highlighted recently by changes at the organisation AccountAbility. http://www.lifeworth.com/…/
- Rod Schwartz
  
  Ownership and Profits Matter to Social Outcomes
  
  Dear Jern
  
  Thanks for your comments
  
  It is true that there is a growing body of reserach that suggests that income inequality is problematic–there are many ways to deal wit that; like the taxations system
  
  That still begs the question of whether or not the added boost in social and economic value which may arise in certain cases, BECAUSE there are incentives to be realized, may mean that whether or not the non-profit enterprise is on same basis morally superior, as you suggest, it is practically inferior
  
  Thanks very much for your interesting links as well
  
  regards, rod
  - Jem Bendell
    
    Ownership and Profits Matter to Social Outcomes
    
    Thx Rod
    
    When you say "incentives" do you mean the incentive to gain a return on investment (for investors), or a higher return than a salary (for entrepreneurs)? If so, are you saying that the financial incentive is key to a) the amount of funds made available and b) the effort that staff put in to their public-minded work?
    
    If so, I disagree with (b), as it depends on the individual and Ive experienced more dedication to the goals of the organisation from staff/activist of non profit organisations than private ones. A lack of resources and overwork may mean their efficacy is reduced, but thats another issue. If you are working flat out because its a private enterprise presenting you with greater potential financial rewards, then fine, but lets not dress this up as anything else.
    
    I agree with you on (a) as there is so much more private capital than philanthropic giving. So the question becomes one of quantity not quality – where the social change being sought is an issue of quantity of social provision, then private capital is important, when a business model can be found, which is not always the case (or, if it can be found it may not be the best way of tackling the problem). But if quantity isnt such an issue, such as for activist campaigns, lobbying, advocacy, etc, then private capital is problematic.
    
    On the question of taxation and inequality, are you paying taxes in the countries where the donated funds are going? Probably not, that would be far too complicated. So your own tax bill doesnt offset how your for-profit business model increases inequality by more than if you were not-for-profit and recycling all funds into the expansion of operations for the intended beneficiaries. It may seem churlish to mention such things at this stage, but when your business makes you a millionaire, it may become clearer?
    
    Thx, Jem
    
    @jembendell
    - Rod Schwartz
      
      Ownership and Profits Matter to Social Outcomes
      
      dear jern
      
      Thanks again for your challenging comment
      
      What I was referring to was the incentives available to entrepreneurs
      
      The distinction between salary and capital value growth leaves open many questions, because one person’s salary is another’s indulgence
      
      To deal with the thrust of your point, let me say that I thoroughly accept the idea that many people will work hard even if there is no financial incentive. They do so for a myriad of reasons. I do also some that some people ( here I would include myself, so as not to pretend otherwise) seek multiple rewards in a single task. For me, I like to tick four boxes: social, intellectual, financial and personal (I.e. Working with people I .really like)
      
      As to your point on taxation, that is an intriguing one
      
      If I understand correctly, you are saying that taxes may not be paid in a country where inequality is being increased because of your activities
      
      I guess this is true and part of operating across borders
      
      Not sure how to address this
      
      Thais again, jern
      
      Regards, rod
- Terry Hallman
  
  Ownership and Profits Matter to Social Outcomes
  
  Regarding inequality, this just in:
  
  "It’s the inequality, stupid."
  
  http://bit.ly/gxmcXO
  - Rod Schwartz
    
    Ownership and Profits Matter to Social Outcomes
    
    Terry
    
    Thanks for being so concise!!
    
    regards, rod
Lakshmi Narayana

Profit Maximiztion Vs MInimization?

In every process or activity, profit should be part of it as the process of activity should enhance its capacities with sustainability. Now the question come either profit should be maximum or minimum with respect to the cause for which it is meant. The discussion should be focused more towards the people or the society rather than the level of percentage of profit. Every business is done by the people for the people. If people are not there,no one can do business. It comes to the optimization between the product, customer and the profit (PCP).

In the case of Business activity, the component of profit should be after doing the best for its employees, shareholders and other stakeholders both directly and through its sound corporate social responsibility (CSR). The product or service should be simple, flexible and cost effective with better affordability by the targeted groups it is meant. The profit should be the business by the people and for the people (BPP) rather the business for the business (BB). An element of humanity and concern of the people should always gain priority. This process or business leads sustainability and quality.

In the case of business with the society, the profit is meant for building the capacities with matching resources for the sustainability of the business for the people. It should be by the people and for the people. In this case, the targeted groups should be the managers of their own development or rehabilitation and the service providers or the funding agencies or government should be the facilitators only.

In both the case, the component of profit should exist and the question is how much? The profit will be higher in the first case than the second one dealing with the society. As long as the process is transparent with participation of the stakeholders and aiming for the development of the people and the society, then every one welcomes the business either it is with product or with the society. The focus should be more on the objectives and impact of the business rather than purely on its profit component.

I am with the government and the community with the focus on empowerment of the people for leading better living with sustainability and quality of life (QOL) in general and more particularity with the persons with disabilities. It only needs to create barrier free environment for the real inclusion at all levels with dignity and equality as a right.

Looking forward..

with thanks
- Rod Schwartz
  
  Profit Maximiztion Vs MInimization?
  
  Dear Lakshmi
  
  Thanks for your comment
  
  You do raise alot of issues, but I doubt I can do them all justice
  
  Certainly your taxonomy of business, people and profit are new to me–food for thought
  
  Where we absolutely agree is on the importance of transparency
  
  Without this so much can and will come unstuck
  
  And in terms of enhancing QOL and people leading more sustainable lives–who could possibly disagree
  
  Thanks again, rod
Rod Schwartz

amazing replies

Friends

I have written many posts for Social Edge and these are probably the best three replies I have ever received

Please give me a day or so to do them justice with a proper answer

regards, rod
Conor O’Phelan

On the Defense

"Why do we insist on the sector’s self-flagellation? What does it say about us?"

I blame this on the swindlers of the world that used our sector to cheat the system and pass funds. It only takes a few bad apples to ruin it for the rest. It’s practically become a guilty until proven innocent situation.

On taking the plunge…

I agree with Midi that those afraid to make the jump, probably wouldn’t cut it in the sector. However, the insistence on purity doesn’t make life any easier those of us. I’ve only been at it myself for a just over a year and constantly face criticism, both friendly and seriously questioning my motives.
- Rod Schwartz
  
  On the Defense
  
  Dear Conor
  
  Thanks for your comment
  
  I do not think that there are many swindlers using the socent sector to cheat
  
  Call me naive, but I think this is rare
  
  When we get a bad name it is nromally because we fail to execute well, or deliver as we should
  
  That we are guilty until proven innocent, feels too strong an assertion
  
  It does feel like social entrepreneurs get judged by sometimes unfairly high standards–even by other social entrepreneurs!
  
  There is much I agree with Midi about
  
  However, fear of taking the jump feels normal
  
  I certainly delayed and procrastinated endlessly (perhaps I am just cowardly by nature?)
  
  As to having so many people question your motives, you need to both:
  
  a) change your friends, and
  
  b) ignore the rest
  
  good luck, Conor and thanks again
  
  rod
  - Ben Parkinson
    
    On the Defense
    
    I don’t really agree with this.
    
    Most supposed social enterprises in the UK are false. They are large and formed from the public sector, who seemed to have a need to apply for funding in addition to what they were already receiving as core funding. These separate social enterprises are run by ex-public-sector workers, who have less a socially-aware mindset than a risk-averse one.
    
    The other effect of the formation of these organisations – it grates to call them social enterprises – is the dilution of what it means to run a social enterprise. The passion, the selfless behaviour, the volunteering, the world-changing nature of social enterprise has been transformed into something stale, different and rather boring, while government hails these as fresh and cost effective.
    
    As far as a charitable giving organisation becoming successful and then sitting on its laurels and letting the dollars roll in. Sorry, but this is not maximising social impact and these organisations should relinquish any thought that they are doing their best to create a better world. If they are tired and have lost their passion or simply been wooed by the profits they received, then perhaps they should leave and go back to traditional enterprise. We don’t need disillusioned change makers. They are perhaps not swindlers, but even Mr Museveny in Uganda had ideals once…
Richard Patey

Profit Is Good

Great discussion you’ve got going Rodney. I would answer a resounding ‘yes’ to your question on whether (social) business models create greater social impact than charitable vehicles. The reasoning is that their social impact is scalable.

Example: You could raise $100k to spend once on giving children in need in the developing world a pair of shoes. Or you could set up / scale up a (social) business such as Tom’s Shoes which ‘For every pair you purchase, TOMS will give a pair of shoes to a child in need. One for One’.

Profit maximisation is always the bottom line reason that any business exists. Where social business differs, and is far more enlightening, is that this profit is an enabler to creating positive social impact. By selling more they benefit the world more. There is no competition between their financial and social aims if they are a true (social) business.

And you can’t scale without an equity structure which is why the traditional ltd by shares foundation will always be the greatest enabler to social change.
- Jem Bendell
  
  Profit Is Good
  
  Should the women’s associations that promote the welfare, rights and wellbeing of the workers making those shoes become for-profit organisations? Where’s the business model? Where’s the scale potential? Who should "own" such an association other than the people who are coming together to improve their rights?
  
  If such associations are successful might they get higher wages and afford their own products and be less dependent on the rich who decide they want to help a bit, after maximising profits? Thats whats happening right now in many parts of the world, thankfully. And the experience of 60 years of development assistance, from groups like Oxfam, is that it is economic and political systems that create poverty, so seeing social problems only through the lens of making more stuff for people is somewhat limiting.
  
  My point is you generalise in the extreme. Whether forms of ownership and financing are the best or not depends on the social change activity being undertaken.
  
  You are not the only one on this page to seem to seek such generalisations; Im wondering why people want to do that. Is it marketing?
  
  http://twitter.com/jembendell
  - Rod Schwartz
    
    Profit Is Good
    
    dear jern
    
    Thanks again for your follow up
    
    Not sure I follow all your points
    
    Definitely age that making more stuff is not the "be all and end all"
    
    Also recognise and seek greater diversity in models; in terms of funding, ownership, etc
    
    Lastly, delighted we are moving out of the phase where the way we have done international aid is coming to an end
    
    Thanks for all you comments, jern
    
    Rod
- Rod Schwartz
  
  Profit Is Good
  
  dear richard
  
  Thanks for your very kind words and for your reply
  
  Last night, from my hotel room i wrote you a long reply
  
  I hit save but my wifi went off
  
  I am too cross to try to write the whole thing again
  
  I am grateful for your intervention but would say a few things:
  
  First, social businesses MAY create more impact, but not always
  
  As I said to midi, I am in the "horses for courses" camp
  
  Second, tom’s shoes is a great example
  
  Most social businesses, like most businesses, go bust, however
  
  Third, scale may be desirable or not
  
  It is up to the entrepreneur involved
  
  Where having a social business Model does help achieve scale is when the enterprise needs to raise capital–there is simply more available in the mainstream Market
  
  So if you want to scale and require capital, a social business model may be suitable
  
  Lastly, this profit maximisation mantra is a particularly American one, in my experience–there is even case law in the USA to support this view
  
  In the uk, where I now live, there is no similar imperative
  
  Stakeholders can take a more balanced view, so long as they are transparent about it
  
  I hope this answers some of your points, and I am very grateful to you for having made them so powerfully
  
  Kind regards, rod
Ben Wiener

In support of for-profit / for-beneit (“B Corp”) ventures

Great discussion. I will add my “two cents” in the form of two short points (so each one is actually worth around one cent….)

1. I was recently present at a speech by a President of a major philanthropy to a group of young social entrepreneurs (many of whom were pursuing new ventures without regard to competitive advantage or business model), but just because they had a cause they personally believed in). He noted that investing in social entrepreneurialism was now “in vogue” for large foundations like his, just as XYZ was in vogue five years ago and ABC was in vogue ten years ago etc. Everyone clapped enthusiastically. I raised my hand and asked – what happens when the Next Big Thing is in vogue? He responded – well I guess we will stop funding social entrepreneurs, and only the strong will survive. Lesson One: social entrepreneurial ventures NEED to think about sustainability, not be ashamed of pursuing it – whether that means generating some type of operating profit or otherwise having a business model, to make sure they can simply stay alive and keep pursuing their vision.

2. The “B Corp” concept is on the rise in the US and is an interesting model – see http://www.bcorporation.net. This is a new type of legal entity that is a for-profit company, so it’s not a non-profit – but has a stated social benefit and must achieve some third-party certification in that regard. Interestingly there’s no tax or other direct financial benefit to being a B Corp – yet tons of companies are going for certification as we speak. I personally am a shareholder in two new companies that are planning to apply. So there’s an emerging model (at least in the US) for a benefit-society-but-generate-profits approach to private enterprise which is refreshing and exciting.
- Jeff Mowatt
  
  In support of for-profit / for-beneit (“B Corp”) ventures
  
  Ben, Here’s our example from the UK. Profit for social benefit.
  
  http://people-centered.net/About.aspx
  - Rod Schwartz
    
    In support of for-profit / for-beneit (“B Corp”) ventures
    
    jeff
    
    Thanks, as ever
    
    Rod
- Rod Schwartz
  
  In support of for-profit / for-beneit (“B Corp”) ventures
  
  ben
  
  Thank you for your insightful comment–spot on!
  
  Your first lesson is vital
  
  Without sustainability there is nothing
  
  Organisations which relied too heavily on grants or public sources are now finding this, to their dismay
  
  As to the B Corp, it is a model we are familiar with
  
  I think that in Europe, where there is a less rigid demarcation between for-profit and not for profit, it has been less necessary
  
  Also some Europeans seem to find this model an especially American structure
  
  Here, the need to focus solely on profit max, as a for profit, or the restrictions on not for profits are much lighter
  
  In any event, there will in time be benefits for such registrations
  
  I suspect we will find that foundations will be encouraged to back such enterprises, and not be limited to charities or not for profits
  
  Thanks so much for your intervention, Ben
  
  Regards, rod
jo davidson

power to the people

Congrats on your BBC appearance and the alliteration in your opening sentence, hey I hope it’s not a competition for the best reply Rod?

To your last question, what on earth do we do about sanctimonious a–holes who elevate themselves self-servingly when they ‘profit handsomely from their success’ and failure (like examples from the recent citizen bailout of the casino financial system with private bonuses a priority over grassroots growth to the economy etc,) the remedy to this historical hangover might be to first identify falsehoods over what constitutes self-esteem.

The fact that there was what seemed like a distorted response from a hedge fund manager goes to show like Midi said, everyone has to wage their own personal inner battles (which most people do quite early in life which is also influenced by cultural constraint, role models, media etc.) Not sure if you’ve seen the movie Madagascar but he sounds like a character King Julian, a lemur-type with a big crown and a disregard for anything that doesn’t affect him personally eg, everything else is a cynical distraction from him, a garden variety ‘straw horse we seek to knock down’ the idea that he alone is responsible for his own success in jungle law.

But as far as the corporate uniform goes, I agree ‘citizens can and will drive corporate behaviour’ in new narratives and like Keynes predicted ‘there will be great changes in the code of morals’ a seismic shift in deeper values. For challenges bigger than business, the unlevel playing field between nonprofit and for-profit can be fixed when profit facilitates development, then it’s mutually applicable whether wholesale or through coinvesting etc. I agree too privately held companies who do good, even though they turn a profit qualify as a social enterprise, for generating social benefits. But I like what you said in your earlier blog, that business is not the sole answer either in terms of rethinking social enterprise as ‘profit seeking companies do not always grow faster or perform better.’

When it comes to creating capital structures for the practicality of sustainability, it’s obvious there has to be flexibility (for steady income streams in applying market-based solutions.) I think the thing people have a problem with is profit maximization, when profit trumps all other consideration then the destructive search for purity, could be because of a number of things including the surprising length of time it’s taken to define what a social enterprise is. I think having deeper values than personal gain is what defines a social enterprise.

I also agree with lifting the profit taboo, because narrowing the definition’s focus lessens the scale, reach and impact. Profit with a purpose is a beautiful thing so what if an organization is turning a profit to do social good, where’s the problem?

it’s the wave of the future right?
- Jeff Mowatt
  
  power to the people
  
  I’ve attracted 600 people over the past 3 years to the group on Linkedin for Social Business and For Benefit Corporations. A few have interest enough to engage, the rest for all I know could be hedge fund managers looking for ways to dress themselves.
  
  There’s another group Profit With Purpose who haven’t let me join yet.
  
  Profit as Jo says trumps all, it’s alo point 18 in our manifesto:
  
  "Modifying the output of capitalism is the only method available to resolving the problem of capitalism where numbers trumped people – at the hands of people trained toward profit represented only by numbers and currencies rather than human beings. Profit rules, people are expendable commodities represented by numbers. The solution, and only solution, is to modify that output, measuring profit in terms of real human beings instead of numbers."
  
  Now though we ourselves may be aimed at maximisation of social return, that doesn’t have to be inflicted on investors should they care to collaborate, for example.
  
  http://www.axiomnews.ca/gennews/966
  
  Deeper values, ethics as we see it, that begins and ends with whether we consider it ethical for profit to be maximised to the point that some are considered disposable.
  
  http://socialbusiness.socia…e-centered-economics_5.html
- Rod Schwartz
  
  power to the people
  
  hey jo
  
  Coming from someone who always gives thoughtful and interesting replies your plea falls on deaf ears
  
  This is the sort of competition I love, and you normally win anyway;-)
  
  I need to start my day here in NYC (visiting) but will reply soon
  
  Best, rod
Keith Wyatt

Purity over results

I totally agree with Rod. If a business isn’t sustainable then it isn’t a business and the social aims go out of the window anyway! The social enterprise sector does seem frightened of the word profit which is why we use ‘surplus’! It seems more acceptable.
- Rod Schwartz
  
  Purity over results
  
  Hey Keith
  
  Thanks for your comment
  
  I have returned from NYC–still a bit jet-lagged
  
  While I have been building up the ocurage to reply to Jo, I saw your reply
  
  Perhaps I should reply to your comment first
  
  What is not sustainable simply becomes nothing, whether it was a business, enterprise, endeavour or whatever
  
  and you are absolutely right–surplus feels like a word used to ease the pain of what is actually a profit
  
  The way we turn language into what is acceptable rarely has a good consequence–thanks for bringing this to my attention
  
  From this point forward I shall always call what is left over at the end a profit
  
  all the best, Keith
  
  rod
Cheryl Mahoney

Lowering Barriers to Giving

Fascinating discussion, and good to hear this viewpoint. I think it’s important too to remember that the ultimate goal is to lower barriers to giving, and get money to the places that need it. The internet, and sites that aggregate opportunities to give, are wonderful resources–but that percentage taken can also be viewed as a barrier, which discourages people who want to get as much money as possible to their cause. Another option is to refrain from taking money on donations, and earn money in another way. UniversalGiving is a social entrepreneurship–we have a public service which charges no fees and takes no percentages, and a separate, revenue-generating service.

As mentioned, it is a balance–and interesting to see the different ways organizations find to balance!
- Rod Schwartz
  
  Lowering Barriers to Giving
  
  Dear Cheryl
  
  Thanks for your reply
  
  I appreciate there are free ways to give
  
  One of the points I was alluding to was that sometimes the cheapest wasy my not be the most effective overall
  
  regards, rod
Laurinda

Why the rise of the SE arena?

Hi Rod interesting topic as always.

Putting a spanner in the wheels … and playing devil’s advocate. )

Fluctuating between the for-profit and for-benefit arena most of my life I have asked myself the questions:

1. why am I in the SE arena and always have been (even before it had a label:-)).

2. why have I pursued a mixed formula – as hybrid.

3. why the NEED is there?

We are living in a very complex world where the drive for profit maximisation for a "few shareholders" at all cost is causing negative impacts on the society at large.

It is a fact that these profit drivers has resulted in an increase in corruptive relationships – the "I also want a piece of the pie" syndrome – corruption / fraud, etc. … often masked as an effective "negotiation" tool that results in lower taxes, contracts that bypassed normal tender procedures, or any other direct benefit to the interested parties that leads to maximisation of profits.

In addition this pursuit for profits means that governments have less disposal income to look after the needs of its people … and has led to financial bail-outs (with an efty price) to future generations.

Why … SE’s and other non-profits are taking on the once only role played by governments?

Coming back to your topic:

Maybe … because there is a need … we have to use the system to beat the system … and hopefully create a more fair system in the process?

Laurinda Seabra

http://www.empowerment-gateway.com

http://www.isupportlagos.com
Roland Catellier

Pointless Pursuit of Purity ????

Pointless Purity???Why use the veil social entrepreneur to tap the huge market of venture capitalist to make huge unethical profits for your self and your investors. Just because the world has awaken to this huge untapped market.For centuries smart capitalist have exploited the poor and needy with no qualms of making profits.Why in today market do we need to use a veil of righteousness to make profits. And label our capitalist venture as a social enterprise?

Should the questions be :

  what is our intention ?

  does social / economic inequality play a role in this equation?

  is it ok to make multi millions of income , live in luxury under the guise of raising the living standards of poor , are we just capitalist or do we want to appear as do good’ers.?

I recently had a chance to see analytics of the social conversations of ” social enterprise” the main topic of this subject is money.

Capitalism at it worst is part of the problem /cause of social inequality. Is there room to such a thing as social capitalism ?

Should the question be ?

What is a equitable profit ? or ROI?
Mark Emanuelson

Profit is good

Profitable social enterprises provide a value that is recognized in the market and sustainable long term. Profit attracts capital that can drive further growth and acceleration of the social mission. Social entrepreneurs can look to the private sector for reference models of highly successful, scalable businesses that deliver social value.
Anna Lownes

better to tell the truth

I think everyone has made some valid points. I think that a lot of companies that just because a company is ‘not for profit’ does not necessarily mean that it is pure, as some people simply use that as a mask and a way to get out of certain obligations and liabilities (taxes, the accusations that come with being a for-profit social venture, etc)

That said I think that transparency is important. Making a profit is not necessarily a bad thing and is certainly important for maintaining a business. What good is a company if it cannot support itself? It may be doing all the good in the world, but if eventually it is going to go bust, then why don’t they restructure themselves in a more sustainable way? If that means earning a profit, so be it. What’s important is that they do the right things with those profits, and also that they are transparent with where that money is going.

Also, let’s face it, some people may want to invest in a good cause but may also want some return on investment. If they have endless money to give to a good cause, that’s great, but that’s not everyone. Also, a ROI might not be so bad. It might actually encourage people to invest in a socially responsible company over another that is not socially responsible. It can be a form of incentive. What matters is what the company is doing. If it’s a wishy-washy cause and not much information is available then we have reason to be suspect. But if they are doing the right thing, profit is good because it will help the company last, and hopefully they will gain more money and more investments over time, and in turn, do more good for others.

Someone gave the TOM’S shoes example. They are appealing to consumers first in order to do their good deed. So, someone has to buy a pair of shoes in order for them to give one to a child in need. BUT, without making profit from every pair of shoes sold, they would not be able to MAKE the shoes that they then GIVE to the child. So, in a way, the consumers who buy TOM’s shoes (which have now become fashionable, anyway) are, in a way, the investors in the business. Their ROI is the shoes they own, and a child gets a pair as well. But without this profit, the TOM’S model simply would not work, because truly, how many investors would invest in a business that just makes shoes to give to kids? There are already so many organizations out there who collect shoes and reuse them or donate them, which is probably much more cost effective than making them new.

So, ultimately, if the company is ethical, then I do not think that earning profit is a bad thing.
Manuela Voicila

shame on Profit

dear Rod,

I take great pleasure in reading your posts (I enjoyed the one on Muhamad Yunnus)

I do not have a challanging question, as I have often asked myself (too many times) the same questions, and after a few times and some rebellious answers, the only thought I can come up is : we will continue to think this way until we, as society will stop the ‘Us and Them’ paradigm, as in "profit OR not-profit’

And I prefer to do things the way I think I can bring my own contribution to society, believing and being idealistic and thinking that I can really make the world a better place

I am not sure I can succeed, but I’m determined to try hard enough.

warmest regards.

Manuela Voicila

http://www.allberry.ro