In response to A4E and SEUK on the definitions debate

Earlier this month there was a fierce debate on the Guardian Social Enterprise Network prompted by A4E’s complaints that they’re no longer able to call themselves a ‘social purpose company’.  You can read the original article at ow.ly/dvwuH 

Here’s my response:

Firstly, I think sometimes we confuse social business with ethical business. Secondly, I think there’s too much focus on what a company ‘is’ (or claims to be) – and not enough on what it does.

Being an ethical company means doing business in the ‘right way’ – and being transparent about your business practices (supply chains, staff treatment, environmental responsibility, carbon emissions and – in the light of NewsCorp and Barclays amongst others – all staff operating in a legal and moral manner). It can be a cost but it is – and will only become more of – a competitive advantage. In this age of social media, unethical behaviour will unquestionably be found out and the cost of being ethical is less than the cost of the fall.

An ethical business can be any shape, any size, any constitution: an ethical start-up or an ethical multi-national. I have a hunch that as a company gets bigger – and shifts into public ownership – it’s harder to be ethical but not impossible. An ethical company may choose to gift a proportion of profits to a good cause but I would argue this is pretty low down the list of important best practice. 

Most importantly, there aren’t ‘ethical companies’ and ‘unethical companies’ – its a spectrum from very ethical to not at all ethical – with companies constantly moving up and down the spectrum.

Another spectrum is in social value creation. There are social purpose companies: companies who exist to do social good. I’d say these may also be any shape, any size, any constitution (and can be more or less ethical). Some may choose to gift (or in social enterprise terminology ‘reinvest’) profits to a good cause but I don’t feel this is an essential part of creating social value.

Equally, there are companies that are not ‘social purpose companies’ (ie delivering social value is not their sole or even principal purpose) but can still deliver huge social value. They might offer some products our services that create social value; they might have entire business units or departments that focus on creating shared value. That it’s not their sole focus doesn’t make the social value they create any less.

What’s important to me is that the social value captured by all of these grows: that new innovations help spread the impact further and deeper. There are just too many social problems out there for us to worry about what kind of organisation solves them. Nick is right to say most innovation comes from SMEs – the challenge is then to take that innovation and take it to scale where it can really impact on society. This might be through other larger organisations taking on the innovation (or acquiring the original company). Or it might be through the original company getting bigger

Therefore anything that restricts the ability of an organisation that creates social value to become sustainable and/or scale that value should be seen as a bad thing. I include in this anything that restricts a growing organisation’s ability to raise high-risk growth capital or to build healthy reserves.

Do I think private gain is ‘unsocial’? Absolutely not. Do I think it’s unethical? No. Do I think that remuneration for a CEO that is wildly out of line with the business performance (or their contribution to the business, in relation to other staff) is poor business practice? Yes. But that’s a matter for the board and the shareholders. Do I think government contracts that reward outputs over outcomes is poor commissioning? Yes, but that’s something for government to improve on.

I believe that personal reward that accurately reflects personal risk (from shareholders and entrepreneurs) is inherently a good thing. For most people (particularly those of us with children to feed and mortgages to pay), financial motivation drives performance and competition drives innovation. The profit motive attracts risk capital and risk-taking individuals that drive innovation.

If the goal is more, better, deeper, social value creation, the worst thing we can do is restrict the talent pool, focusing only on those that aren’t driven by personal financial reward.

So rather than endlessly debating definitions, fighting trademarks and enforcing organisations to overtly state what they ‘are’, why don’t we collectively design ways to (financially) incentivise anyone in the business of delivering social value to better demonstrate the genuine social value they create – and to make this a priority in commissioning. And, simultaneously, lets as a society work to ensure that all businesses of all shapes, sizes and business models are incentivised towards transparency and ethical business practices at all times.