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Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs by Muhammad Yunus

Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs

Muhammad Yunus

256 pages, PublicAffairs, 2010

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To change the world once is remarkable. A second attempt invites deification. But Muhammad Yunus, the founder of Grameen Bank and pioneer of microcredit, has embarked on yet another crusade: to foster a new kind of organization, the “social business.”

In his new book, Building Social Business, Yunus devotes many pages to narrowing down the existing definition of a social business—many people precede him in defining it, since the form first cropped up in the Victorian era—but he considers it a new form of economic organization that links a social, ethical, or environmental objective with a commercial or financial one. He also lays out a road map for how these new firms can grow and prosper. Indeed, I found much to admire here and in the man, whose work I have long respected.

The book is a refreshingly easy read. Yunus might have started life as a professor, but he certainly doesn’t write like an academic. Instead he fills his book with practical examples, tactics, ideas, and insights—especially in his chapter on launching a social business, where he repeatedly stresses the need for social business to be “at least as well managed as any profit-maximizing business” and notes the importance of speed, planning, regular reevaluation of plans, and understanding one’s market. He also provides many glimpses of the compelling genius behind Grameen Bank, which, together with Yunus, won the Nobel Peace Prize in 2006. We meet Yunus “the master salesman,” astutely aware of the brand he has created and its value—especially to large corporate partners. We peer into the mind of a visionary thinker who sees boundless possibilities and constantly enables and energizes those around him—he was one of the first to see the untapped potential of those living at the bottom of the pyramid. But we also gain access to the practical genius who understands that every long journey begins with “a small step.”

All that said, I was troubled by the book. One of Yunus’s core ideas—his definition of a social business—is simply too rigid and dogmatic; it may cause unintended harm to objectives Yunus holds dear. Too many organizations fall outside Yunus’s definition of a social business. He dismisses cooperatives founded in the United Kingdom in the mid-1800s, for instance, though many people, including me, consider them prime examples of social businesses. No, “[a cooperative is] not … social business,” he writes. “Some people think that a social business is a kind of nonprofit organization. This is not correct.” But the highly successful and well-known Ben & Jerry’s and The Body Shop aren’t social businesses either, according to Yunus. Yet I am certain that The Body Shop’s founders, Anita and Gordon Roddick, saw it very much as a social business. And should Yunus’s definition influence tax policy, some social businesses would lose out.

Yunus would also exclude the Ethical Property Company, a U.K. firm lending only to social change organizations—even though it works hard to strike the right balance between shareholders, clients, and staff interests. Isn’t this balance precisely what we should encourage in our currently unbalanced economy? JustGiving, a profit-seeking social business that facilitates charitable giving, would be out, too—even though it has proven more successful in raising money for charity (more than £500 million) than all its competitors combined. So are we to ignore the benefit of this firm’s contribution and strike it from the roster, merely because it also generates returns for its management, staff , and equity investors? Perhaps this incentive has helped bring about the social benefi ts. And the results should still matter.

Yunus’s definition of social business does not withstand scrutiny, either. He includes large corporate partners who have created social business joint ventures with Grameen merely because they receive no direct financial return (not even 1 percent—a Yunus rule). But to suggest that they get no financial reward is misleading. They receive substantial corporate social responsibility benefits (an expenditure thus avoided), and one partner, the French company Veolia Water, even derives substantial research and development and market research benefits from its work. I do not begrudge Veolia these gains and am delighted that they work with Grameen, but let us not pretend that these returns differ in any substantive way from dividends, interest, or capital gains. Huge multinational corporations can also forgo current income on certain investments, but struggling social enterprises may need to raise capital from investors who insist upon a fi nancial return. Why penalize these organizations merely because they lack Yunus’s exceptional access to large corporations?

Furthermore, Yunus’s brand of social business allows profits to be earned, but only if totally owned by the poor. But he doesn’t say how poor these “poor” must be, and isn’t clear about what happens if the social business succeeds and the owners become less poor. Are these social businesses then disqualified? There is some problem with a model when success leads to disqualification.

My last objection to Yunus’s definition: His limitations will severely constrain activity and discourage innovation. By insisting only on nil-return-seeking capital, he greatly restricts the available capital sources. This handicaps those of us who seek to encourage more capital into the sector. Even without Yunus’s rules, the pool seems far too small—why on earth should we further limit the capital available to them?

My company, ClearlySo, seeks to build a broad church within the sector—not to exclude the many wonderful and innovative ventures on what feel like technicalities. Perhaps that is why I take such umbrage at Yunus’s definition. Still, I consider the book a vital contribution to the exploration of social business.


Rodney Schwartz is CEO of ClearlySo, an online marketplace for social business and enterprise, commerce, and investment. He is the main author of ClearlySo’s “Social Business Blog” and lectures on social finance at the University of Oxford’s Saïd Business School. He also advises leading U.K. social businesses and enterprises, sits on the board of the Ethical Property Company, and is chairman of Green Thing. He served as chairman of JustGiving from 2003 to 2006.

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COMMENTS

  • Rod, I am in the Impact Investment Space as well and I totally agree in optimizing the benefits to stakeholders. At the same time, considering that any social enterprise venture entails risk there should be a commensurate return: environmental, social and also financial return otherwise there is no way to scale and take on highly risky but major breakthrough projects.

  • Lina Bowden's avatar

    BY Lina Bowden

    ON December 24, 2010 08:42 AM

    I liked reading your post and point of view and I understand the concern you share over limiting the definition of social enterprise, however, I believe Yunus is trying to stifle profiteering of business under the guise of doing good. Yes, there are many profit—focused businesses with good intentions such as yours but there are also many that will abuse the label.

  • BY Jax Wechsler from UTS

    ON October 31, 2011 11:48 PM

    I agree that Yunnus definition of social business is troubling. I am writing a masters on a related topic and am struggling to find a term for the group I am interested in. I am researching people who are creating innovative businesses that address a social or environmental problem AND are financially sustainable i.e. they can be motivated by profit AS WELL as social benefit and they MUST NOT rely on public or external funding. What would you call such a group? With the changing values of consumers there is a ripe space for creating businesses/services which have social benefit. Look at car sharing and P2P businesses for example. I feel there is a growing movement for these types of businesses but I have no idea what to call these entrepreneurs! Any ideas?

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