Will Social Entrepreneurs Build a Sustainable Future?

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Social entrepreneurship is a hot topic these days. Last week, I was in a meeting discussing the University of Virginia’s efforts in educating students about the concept. As these conversations often do, it quickly devolved into a debate about “what exactly is social entrepreneurship?”

A colleague of mine from the College of Arts and Sciences passionately argued that social entrepreneurship is about creating societal value, in contrast to traditional for-profit businesses that merely capture private value. He continued by editorializing on the evils of business, the failures of capitalism, and the promise of social entrepreneurism to correct these ills.

This argument does not hold up to scrutiny. Traditional for-profit ventures, with nary a “social” bent, benefit society. They deliver products and services that improve consumer welfare, they create jobs, they advance economic growth by purchasing goods and services, and they generate capital that may be invested in other productive activities. Facebook and General Electric create societal value, just as non-profit organizations do. And, just as some for-profit ventures violate their social contract and ultimately destroy value, some non-profits are inefficient, wasteful, or even duplicitous.

Yet, social entrepreneurs are different. They appear to be motivated by a different set of factors than other entrepreneurs. My colleague, Jeff York, and I have found that social norms around environmentalism have a larger impact on the entry rates of entrepreneurs into subsectors of cleantech than on the entry rates of incumbent firms diversifying into the subsector. Many questions remain: Do environmentally-motivated entrepreneurs remain in business longer than purely profit-motivated entrepreneurs? Are environmentally-motivated entrepreneurs more or less efficient? Are they more or less innovative? Are they more or less successful?

What is becoming evident is that the legal structure of a venture matters less than we thought. The important question may not be “for-profit” versus “non-profit”, but what is the mission of the enterprise? There are many interesting efforts in social entrepreneurship that are organized as for-profit ventures with an explicit social objective. As but one example, Husk Power Systems (incubated at the University of Virgina) is a for-profit venture dedicated to rural electrification in poor regions of the world with sustainable technology.

In recent years, I’ve become intrigued with the notion that entrepreneurs can be effective agents for addressing our sustainability challenges – perhaps even more effective than established businesses. Scholars have long focused their attention on the incentives for established businesses to reduce their environmental impact – how to internalize their negative externalities, in economics parlance. The promise of entrepreneurship is that these incentives may create market opportunities that are captured, not by those who created the problems in the first place, but by enterprising entrepreneurs, unburdened by history, who can devise new sustainable technologies and business models. Does the motivation of these environmental entrepreneurs matter – whether to simply make money or to save the world?

Mission is the corporate expression of that motivation. Mission and values define an enterprise’s opportunities and often constrain the actions the enterprise is willing to undertake. Patagonia founder Yvon Chouinard is an example of a for-profit entrepreneur who has chosen to pursue sustainability objectives; these shape his actions just as they would if he were leading a nonprofit. The mission is important because I suspect that narrow private economic incentives are not currently sufficient to motivate entrepreneurs on a scale necessary to address our sustainability challenges. It will likely take entrepreneurs who are motivated by more than just the bottom line.

My aforementioned colleague from the College of Arts and Sciences, in the heat of our exchange, argued that business is amoral. I actually could not agree more – not immoral, but amoral. It’s not that businesses have no moral standards, but that the moral standards may differ across businesses. Social entrepreneurs may simply be entrepreneurs of another name, yet their existence highlights the role that values play in creating sustainable ventures.

 

Michael Lenox is the Samuel L. Slover Professor of Business at the University of Virginia’s Darden School of Business where he serves as Associate Dean and Executive Director of the Batten Institute for Entrepreneurship and Innovation. He also is a founder and President for the multiple-university Alliance for Research on Corporate Sustainability.

  • http://www.delphi.ca/ Mike Gerbis

    Michael, I enjoyed your article and appreciate your perspective.  On one hand I fully agree that the values (particularly of the shareholders and leadership) of an organization define how it acts and what it accomplishes, whether or not it is for profit or not-for-profit.  This is particularly true for privately held companies such as ours, which is driven by the mission to have fun while changing the world for the better…Influencing positive change and not just being financially responsible to shareholders, but being responsible to all my stakeholders is critical to our success.

    On the other hand, individual values play a much smaller role in defining how a publicly owned company operates…For example, while many CEOs of Fortune 500 companies likely believe that children should not be slaves, our rivers should not be polluted and local farmers should get a fair price for their produce, we have seen time and time again where companies operate in direct conflict with these and many other values…In fact, our current economic/financial system tends to solely operate in a manner that maximizes profit at the expense of the social and environmental fibres that hold us together as a society.  It is not malice or a lack of values or morals of the CEO, the leadership team or the employees, but rather a flawed system…something I will not elaborate on as Paul Hawkins (in his book Ecology of Commerce) and others have analyzed, described and proven through a multitude of examples.

    Thus, changing the economic/financial paradigm, or as one colleague of mine put it – “The Grand Narrative”, under which we operate needs to change…That change will not come easily, but as environmental (e.g. climate change, toxins) and social (lack of access to water, increasing food prices) pressures mount, I believe strongly that we will be forced to course correct or face stignificant consequences.  The environmental and social fibres that we are degrading are like the strong strands that hold up a spider web…you can only break so many of those fibres before the web collapses upon itself. 

    Creating truly sustainable enterprises, empowering and educating people, and investing in our communities is the “match” with the social and environmental needs that we as a society must meet.

    Mike Gerbis, CEO
    The Delphi Group (www.delphi.ca)

     

  • http://www.facebook.com/todd.a.lehman Todd Lehman

    Wow, very well written.  And a great concept as well.  The mission is entirely where it’s at for any type of organization.  If you have sustainability written into your framework, then business naysayers will have nothing to say.

    One example, as part of my organization, we interviewed a store manager who has one of the healthiest and greenest stores in the community.  As a business naysayer, I would not want business to expand, but as a sustainability advocate, I say we need as many of these stores as possible if we are to survive into the future.

    Thanks,
    Todd Lehman