Last Friday, I had the great opportunity to present at the UC-Irvine Business Law as Public Interest Law Symposium. I was very happy to talk about microfinance and my course, Law of Microfinance, but I tried to put microfinance in the broader context of social entrepreneurship.

In talking about social entrepreneurship, I tried to distinguish it from the study of and advocacy for corporate social responsibility. To be honest, I've just never gotten that excited about teaching or writing in the area of CSR. But, I am excited about social entrepreneurship, a term I will use here to describe corporations whose primary product seeks to help solve a current social problem. So, here are some comparisons:

1. CSR focuses on companies that make widgets, but who do so in an enlightened way; Social entrepreneurship envisions companies that make a completely different kind of widget. If I advocate CSR, then I like companies who are just ordinary for-profit companies making everyday products for average consumers. In fact, most of the companies who are heralded for "good CSR" make products for rich people or at least premium products that are a splurge for the average person: Ben & Jerry's ice cream; Burt's Bees; Toms shoes. In making these products, which are more expensive than their competitors, they brand themselves as "giving back" or being enlightened to employees, communities or the environment. These companies don't seem to be losing money by "doing well and doing good," though their profit margins arguably might be lower than otherwise.

Social entrepreneurs start for-profit companies in a sphere usually inhabited only by not-for-profits and try to do something that can't be done by NGOs because of capital scarcity or knowhow scarcity. Social E's make a different kind of widget that isn't needed by rich people, but by the needy: affordable clean  water, light sources, hygiene products, sanitation, etc.

2.  CSR works with a perceived tension between shareholders (who presumably want profits) and stakeholders (employees, communities, environment); SE focuses on the client/customer.  SE isn't about selling something and giving a percentage of that to "the needy" or having great benefits of employees or trying to have "green" office buildings.  SE seeks to fill true needs of the needy at an affordable cost.  I have no reason to believe that the founder of Toms shoes isn't an amazing person.  And, he may be laughing that he's convinced young women that it's hip to buy extremely low-cost shoes at a high multiple of that cost so that an identical pair can be given to poor children in foreign countries.  SE tries to figure out how to make a shoe that a poor child can buy for $1.

3.  For shareholders interested in social investing, CSR is fine, but it has no pre-commitment device at all.  To avoid "mission drift," then investing in a company that has as its business plan "doing good," not "doing well and doing good, seems better."  If you invest in a company that says it makes "everyday clothing with a conscience" or food "sourced locally" or "free trade" coffee, you have very little recourse if the company decides that this way is too expensive and so changes course.  If you invest in a company that is producing low-cost filtration systems to sell clean water at very low cost to communities in Africa, then that company is probably not going to start selling cosmetics in the Western World.  Mission drift is easy when a company is making mainstream products, with a non-legal commitment to do so in an enlightened way.  In an SE company, mission drift would be the same as a tectonic shift.

4.  CSR seems to harnass public opinions and preferences to reform profit-seeking corporations; SE seeks to harnass profit-seeking capital to reform problems the public ignores. 

Corporate Governance, Social Entrepreneurship | Bookmark

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