Four Ways to Boost Social Business in Large Companies
By Benoît Bonello and Angélina Lamy
The companies’ societal commitment is progressing but not yet at the challenge level. The ecological and social emergency does not allow us to wait for the capitalistic revival. But first solutions do exist, compatible with the rules of current capitalism, to act now and on a large scale.
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The companies’ societal commitment is progressing but not yet at the challenge level. The ecological and social emergency does not allow us to wait for the capitalistic revival. But first solutions do exist, compatible with the rules of current capitalism, to act now and on a large scale. In Western countries, mistrust towards large companies is real and growing. However, since the 1970s, companies have been moving away from the caricatured vision of Milton Friedman (for whom "a company's only responsibility is to increase its profits") towards taking into account their social and environmental impacts. Over the past 50 years, companies' commitment to society has grown and is increasingly becoming part of their core business. From patronage, around the company's activities, to the raison d'être, the companies' commitment has been structured and intensified over the years. And these different forms of engagement are cumulative and consolidate the global impact of the company.
Reducing their negative impacts is not enough, and companies know that. A few pioneering companies began to think about how to use their core business to boost their positive effects, and it is generally by collaborating with social entrepreneurs. In France for example, La Banque Postale is working with the social enterprise Crésus to train its bank advisers in preventing their customers from becoming too indebted. Vinci is developing social Joint-Ventures with integration structures such as ARES or the ID'EES Group to create "social subcontracting" in connection with its businesses; Essilor is seeking to make its products, notably its eyeglasses, accessible to underprivileged populations ("Bottom of the Pyramid") and SUEZ is partnering with social entrepreneurs in the areas of re-employment or food waste to develop new services complementary to its offer.
It is a fact that the societal commitment of large companies in Western countries has never been stronger. But all those positive impact projects, as exciting and innovative as they may be, remain modest in size. Most of the time, they are pilot projects with a much lower budget than the "priority" investments that these companies make elsewhere. And it is the case for a simple reason: companies are not mandated and are not structurally steered to solve the problems that threaten the survival of humanity. How, therefore, can companies be allowed to deploy their impact solutions right away without being confronted with a demand for immediate profitability?
Ideas to combine different management horizons
Idea n°1: "Collaborate with companies in the same industry"
One idea emerging today in some sectors is to lead sector-based initiatives or a coalition of actors in the same value chain. Indeed, if an ecosystem is mobilized to solve a problem on which its members have leverage, this can make it possible to provide a largescale solution in a short time and create a new paradigm for the market. This is what two recent initiatives to fight against ocean plastification are trying to demonstrate: the "New Plastics Economy Global Commitment" of the Ellen McArthur Foundation and the "Alliance to End Plastic Waste" launched by a group of multinationals in the plastics industry. The New Plastics Economy Global Commitment involves more than 250 companies representing more than 20% of all plastic packaging produced worldwide. They commit to communicate about quantified and reviewed targets every 18 months to show the path towards the elimination of single-use packaging and 100% reusable, recycled, or composted packaging by 2025. Some 30 companies linked to the plastics industry (petrochemicals, packaging, recycling) are leading The Alliance to End Plastic Waste. Those companies have committed to contribute more than 1 billion dollars to implement solutions to reduce and manage plastic waste and promote their recycling in a circular economy.
Idea n°2: "Create 'impact industries' within companies"
A second idea would be to encourage companies that have technologies or skills with a high potential for positive impact, to create branches of activity dedicated to impact, i.e. without seeking short-term profit. They could raise funds from foundations or impact funds to apply their solutions to the world's most pressing problems now. Let's take, for example, the case of plastic waste in the ocean: 8 rivers in Asia and 2 in Africa discharge about 90% of the plastic that ends up in the oceans. This is due to the lack of waste collection and sorting in these regions and the high flow of these large rivers. Leading multinationals in the environmental sector today have all the technological solutions and know-how to solve the problem: they set up and operate waste collection, sorting and treatment systems all over the world, build purification plants and sanitation systems in many cities, etc. Those multinationals could implement "impact industries" whose only objective would be to accelerate now the deployment of circular economy solutions and access to essential services (access to water, sanitation and waste collection and recovery) in countries or sectors of activity where they cannot invest because of their traditional short-term profitability requirements. These "impact sectors" would use their know-how, technologies, and employees. But the structure would not be financially consolidated, so as not to affect the overall profitability of the company. Moreover, other types of investors will finance those structures (such as foundations, impact funds, public subsidies, crowdfunding...), and they would commit to reinvesting their eventual profits following the principles of social business set out by Muhammad Yunus.
Idea n°3: "Patronage as a funding source for impact projects"
Through their foundations, companies invest "at a loss" in promising projects in terms of social or environmental impact. This patronage has thus enabled associations to get started, to prove their impact, and to build subsequently, when applicable, a sustainable economic model allowing "traditional" investors to invest in these structures. Why not duplicate this logic in the company itself, for impact projects? Why not use patronage, considering it as abudget dedicated to non-repayable funds to finance general interest projects in line with the company's core business? To finance a technological innovation that would make it possible to resolve the issue of access to water, for example, or products or services adapted to the needs of disadvantaged populations? Once the impact and economic sustainability of these projects are proven, the company can deploy them. Of course, the conditions for moving from financing through patronage to a project implemented by the company are to explain it to keep the main objective of patronage: financing projects of general interest. Thus, patronage would make it possible to finance social innovation as R&D.
Idea n°4: "Shareholder Foundations"
Finally, the last track we propose focuses on the leverage that foundations and philanthropy/sponsorship can represent. This sector is growing in financial power with "Super Foundations". Their budgets are more significant than some countries (or international organisations) and their potential in the future is promising given the growth of billionaires in the world (rising between 2,000 and 2018 from 470 to 2,754 for a cumulative volume of 9200 billion dollars). In our opinion, foundations can contribute to innovation at the limits of capitalism in three ways.
On the one hand, by playing a much more active role as shareholder activists in their investments. Today, the Bill & Melinda Gates Foundation is endowed with more than $65 billion. It operates in a segmented way between its health philanthropy and its asset management, where it invests in traditional businesses to generate income. The Bill & Melinda Gates Foundation is a major contributor to the fight against AIDS in Africa. Still, it is also a shareholder in Abbott, a pharmaceutical company that maintains high prices for its antiretroviral drugs for at least 20 years (with a 59 % margin). Why can't they, as a shareholder, adopt an active strategy by asking Abbott to drastically reduce its prices in some developing countries to treat more people?
In the same vein, some non-profit foundations own companies through ownership of the whole or part of the shares (and the majority of the voting rights and/or blocking minority). They are called "Shareholder Foundations", a model that is widespread in Northern Europe. There are more than 3,000 Shareholder Foundations, the most famous being Lego, Ikea, and Carlsberg. In Denmark, all companies owned by foundations account for 10% of the national wealth. The shareholder foundation has two objectives: to secure the capital of a company, particularly a family business, in the face of a takeover risk, and to perpetuate its shares in the public interest. As a stable shareholder, the foundation, by definition, places the company on a long-term footing and gives it a potential for action in the general interest that is radically greater than for listed companies. Besides, each year the "Shareholder Foundation" is faced with an important choice: how much should be invested in the company's development and how much should be devoted to the foundation to finance these actions of general interest? In any case, this model of corporate governance and transmission would benefit from being known and developed, particularly in France (Prophil Study).
The ecological and social emergency does not allow us to wait for the renewal of capitalism. We must be pragmatic and deal with the most powerful actors, including companies that are among the most promising, to implement quickly and, on a large scale, solutions to the most pressing societal problems. However, to unleash their firepower and become real agents of change, they will have to show will and creativity.
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This text comes from a series of articles published on LinkedIn. It is devoted to the urgent need to reinvent the liberal model and the potential role of companies in helping to meet the significant challenges facing our societies.
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