Social enterprise - the fledgling fourth sector

By Chip Feiss

Is it possible that a whole new, distinct fourth sector is developing right before our eyes? The modern business world has up to now comprised the private for profit, public/ government and non-profit sectors. But today there is a blurring of the lines between these sectors. There is also a burgeoning global movement, known as social enterprise, which straddles all the other sectors.

But, first, if social enterprise is to become the new fourth sector it will need to overcome some structural challenges. The first is one of definition. The term “social enterprise” has been imbued with many different meanings and become associated with other catchphrases such as “sustainability”, “green” and “corporate social responsibility”.

I define it as a for-profit/non-profit or hybrid business, using private investment to work on common-good social problems.

Virtually daily there is news of another social enterprise initiative, as individuals and institutions such as business schools, where courses on social enterprise are among the most popular, explore alternative ways to create financial and social value. Those involved in launching these new enterprises clearly reject Milton Friedman’s perspective “that the social responsibility of business is to increase its profits”.

Although experiencing a huge upsurge in interest and visibility globally, social enterprise is still in its nascent stages. Today it can be characterised as a fragmented sector filled with many small-scale enterprises struggling with scale. Growth and scalability are important concerns for all businesses but maybe more so for social enterprise, in that the scope of the social problem(s) it is trying to solve is so large.

Innovative work is being done to reach scale,including the development of corporate structures, tax policy that considers the social benefit delivered by social enterprises, the design of systems to measure social value and impact, the creation of social capital markets for improved financing of social enterprises and the development of funding sources and investment instruments.

The establishment of social enterprise as a distinct, flourishing sector faces many challenges, but history is encouraging. Concerns over income inequality, environmental degradation and social justice have prompted people to search for and experiment with new ways to do business.

The recognition by many people of the failure of business and public policy to deal with these issues adequately has led, among other things, to the global proliferation of non-profit organisations. They have doubled in number in the US alone in the past 15 years.

This same awareness motivated people to align their investments better with their values and gave birth to socially responsible investing, which has also seen dramatic growth. In the UK, funds invested with a socially responsible focus have grown from £1bn to £764bn ($1,260bn, €897bn) in 12 years. The opportunity for social enterprise is huge. The Monitor Group estimates that this could be a $500bn-a-year sector within five to 10 years.

There are, of course, those who question the efficacy of social enterprise, including President Barack Obama’s economic adviser Larry Summers, who wrote: “It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.”

While I also believe it is hard to do well and/or good, I am encouraged by social enterprise, which appeals to a larger part of the human spirit and experience than some of the traditional business models.

Social enterprise is not meant to replace the other sectors but is another way of dealing with common social problems that have not been successfully addressed to date. Is it possible? When history collides with motivation and opportunity anything is possible.

Chip Feiss is a senior fellow at the Center for Business and Government at Harvard Kennedy School of Government

A new survey says YMCA has the most valuable nonprofit brand, followed by Salvation Army and United Way of America and American Red Cross, The New York Times reported June 23 (see charity brand story).

Life as a TARP wife

The wife of a big time financier whose firm has accepted billions in TARP funds has penned an article for Portfolio. “Confessions of a TARP wife” is all about her new “financial abstinence,” which no longer includes “multi-star Michelin hotspots.” The essay reads like a parody (as if cribbed from The Onion), but I think it was meant to be taken seriously.

“Choosing Versailles to host World War I peace negotiations could not have been more complicated than my attempt to select the perfect spot for our annual dinner.” Really? She’s now “shopping in her closet” because “God forbid someone catches me out in something new.” When she buys presents, she “has the package sent to their home. I don’t want to be spotted climbing into a taxi, laden with Bergdorf Goodman shopping bags.” So who is the mystery scribe? The New York Post has fingered her as Liz Peek, the 60-ish wife of Jeffrey Peek, whose CIT Group took $2.33 billion from the Troubled Assets Relief Program last fall. She declined to comment to the paper.  Source: FierceFinance’s Jim Kim.

Joel Kurtzman writes:  “I hope you find the attached annual update of the Opacity Index useful in your endeavors.” 

It is no surprise that risks have increased worldwide over the last year, as the latest release of the Opacity Index shows. The United States, in particular, has continued its fall from 4^th  place, when we began our analysis, to 13^th, place, in 2009, with continued downward momentum. This unprecedented decline is accounted for by regulatory and enforcement lapses. But equally important, the performance of boards of directors in the United States has failed to improve, despite rules stemming from Sarbanes-Oxley legislation which have now been in effect for quite some time. The demise of several major financial institutions is representative of poor board oversight and regulatory and enforcement laxity, among other things.  

On a positive note, the world in general has made progress with regard to the adoption of international accounting standards and some countries – notably China – have seen declines in corruption levels.  Best Regards,Joel Kurtzman

Kurtzman Group/Milken Institute  http://www.kurtzmangroup.com   

Read: “Global Edge: Using the Opacity Index to Manage the Risks of Cross Border Business,” Harvard Business School Press

SAM, the Zurich based sustainability investing specialist, and Dow Jones Indexes, have announced that Seligson & Co Fund Management has signed a license for the Dow Jones Sustainability Asia Pacific Index (DJSI Asia Pacific). This is the first index fund worldwide to track this new benchmark. The DJSI Asia Pacific was introduced earlier this year to track the sustainability leaders within the developed markets in Asia Pacific. The index includes the 20% most sustainable companies out of the largest 600 stocks in the region by free float market capitalization. The underlying SAM assessment covers a variety of issues such as corporate governance, risk management, branding, climate change mitigation, supply chain standards and human capital. The analysis reflects the growing importance investors attribute to sustainability criteria around the globe.“We are delighted to expand our existing relationship with Seligson and to see them add our new DJSI Asia Pacific to their offering. SAM and Dow Jones Indexes launched this benchmark earlier this year as the complementary piece in our joint index range to cover all three major investment regions. Finland is an exciting market for sustainability investing and we are delighted to provide Seligson with the benchmarks to tap into this opportunity.” said Alexander Barkawi, managing director, SAM Indexes. Further information:
SAM:
Alexander Barkawi, Managing Director, SAM Indexes
Phone +41 44 653 1801, E-mail: alex.barkawi@sam-group.com

Seligson & Co:
Ari Kaaro, Managing Director, Seligson & Co Fund Management Plc
Phone +358 9 6817 8217, E-mail: ari.kaaro@seligson.fi

By deploying corporate philanthropy dollars to tackle pressing social issues directly though customized programs at UCLA, Wharton, INSEAD and others, Johnson & Johnson’s initiatives go well beyond your father’s executive education.  

One of these customized programs at UCLA gives leaders of community-based organizations specialized management training to manage more effectively and strategically. The tools and skills these leaders acquire are more critical than ever as they wrestle with today’s unprecedented challenges, which could threaten not just the organizations’ abilities to serve communities but their very existence. From HIV/AIDS leaders in Africa to directors of Head Start agencies across the United States, UCLA has partnered with Johnson & Johnson for nearly two decades to give community leaders, health workers and others a big dose of entrepreneurial skills to enhance their organizations’ operations and impact. This proven model could herald a new era at the intersection of business, B-schools and society.   “True philanthropy must go beyond writing a check to make sustainable impact,” says Conrad Person, Director, Corporate Contributions at Johnson & Johnson.  “The sophisticated management tools this partnership offers benefit the organization longer than any grant could.” This novel idea is one manifestation of Johnson & Johnson’s overarching approach, which could be called “corporate philanthropic nurturer,” thanks to its deep and broad involvement in the many programs it designs or supports. It identified UCLA early on as the right partner, given its renowned expertise in social enterprise, particularly via its Price Center for Entrepreneurial Studies.  “The people we train through these partnerships have had no formal management education previously, but each oversees the equivalent of a small business – complete with the frustrations that come with operating an entrepreneurial venture, such as how to expand, get resources, and professionalize staff,” says Al Osborne, Senior Associate Dean at UCLA Anderson. Partnerships currently underway include:   Founded in 1991, the Head Start-Johnson & Johnson Management Fellows Program – the only such program of its kind – provides intensive training annually for Head Start directors and now boasts more than 1,100 graduates. An outgrowth of the Management Fellows Program, the UCLA/Johnson & Johnson Health Care Institute, was created in 2001 to train Head Start directors to educate and empower parents to treat everyday childhood ailments like fevers, colds and earaches at home. To date, the program has reached nearly 27,000 families nationwide, saving Medicaid millions of dollars annually in decreased ER/clinic visits, and continues to expand.       

The UCLA/Johnson & Johnson Health Care Executive Program trains leaders of community-based health care organizations, such as clinics providing care to the uninsured. The program has graduated more than 400 health care leaders since its founding in 2002.        Since its 2006 inception, the Johnson & Johnson/UCLA Management Development Institute for HIV/AIDS has worked with African universities to provide rigorous in-country management training to more than 250 leaders from organizations in Kenya and Ghana devoted to the care, treatment and support of those living with HIV/AIDS. “As a result of their experience, participants reshape their organizations and improve the quality of the services they provide, translating to real, tangible benefits to peoples’ lives around the world,” says Osborne.

Responsible Investor reports: Fund tenders for global and Asian corporate surveillance mandates.The €250bn ($322bn) Norwegian Government Pension Fund is looking to hire research companies to act as SRI internet detectives and identify if any of the 8,000 companies it invests in could be breaching its ethical guidelines. The fund, one of the world’s most active responsible investors, has put out two market tenders for continuous web-based ‘surveillance’ – one for monitoring global internet sources in English and Spanish on all companies in the fund’s global portfolio, the second to look at Mandarin and English sources specifically regarding companies in the fund’s portfolio with head offices in China, Hong Kong, Taiwan and Japan. The fund says it wants the surveillance providers to gather evidence on companies in its portfolio that may be involved in activities that contravene its strict ethical guidelines. Earlier this month, Responsible Investor reported that the fund had blacklisted two new companies, Canada’s Barrick Gold Corporation and Textron Inc in the US, for breaching its ethical codes. The fund sold shares worth NOK1,248m (€140m) in Barrick Gold, the world’s largest gold producer, because of concerns about environmental damage at the Porgera mine in Papua New Guinea, which is run by Porgera Joint Venture, in which Barrick Gold has a 95% stake.  Textron was excluded for links to the production of cluster bombs.The closing date for the tender is March 3. Link to ethical council site

We are facing 2009 with optimism that my long-predicted demise of “casino capitalism” is opening huge opportunities!  We find large constituencies in many countries who see these opportunities to

• reform global finance to serve people-centered sustainable development
• restore real productivity in homegrown, local, living economies
• reform monetary policies
• reduce greenhouse gas emissions and restore ecosystems
• accelerate the growth of the green economy and create new jobs

as I outlined in my keynote December 1^st at UNEP’s launch  of their Green Economy Initiative in Geneva (read more).

Another forecaster of the demise of “casino capitalism” is Nassim Taleb, author of The Black Swan with whom I have been corresponding on the need for the Nobel committee to de-link from the Bank of Sweden Prize in economics.  See his interview with Charlie Rose here.

Warmest Holiday Wishes to you all

Hazel

Ethical Markets Media, LLC

PO Box 5190, St. Augustine, FL  32085; Phone 904/829-3140,  Fax 904/826-0325

Visit www.EthicalMarkets.com  for the latest commentary on the crisis on Wall Street.

The holiday gift that everyone loves to hate may be just the thing to “re-gift” on Facebook this holiday season, providing support for those in need.

Two-pound fruitcake bricks will be given away through a PayPal application built on Facebook Platform by Tony Hawk, Jimmie Johnson, Yao Ming, Nicole Richie and Joel Madden, Ben Roethlisberger, and Fall Out Boy — to benefit their favorite charities.

Recipients will be invited via a personal video to contribute through PayPal to the charities and “re-gift” the fruitcake to friends and family all across the world.
The celebs sent out 10 virtual fruitcakes, the time-honored gift that no one wants, to ten friends on Facebook with a video message urging them to give back through PayPal or to simply re-gifting the fruitcakes to their friends for free to drive more awareness.

Everyone who re-gifts is featured on a map of the world that lets you track the fruitcake’s voyage around the globe – and you can see how much money each fruitcake has raised.

http://apps.facebook.com/regiftthefruitcake