A New Kind of Company
Johanna Mair ([email protected]) and Ernesto Noboa ([email protected]), “The Emergence of Social Enterprises and Their Place in the New Organizational Landscape,” IESE Business School Working Paper Number 523, October 2003. Click here.
The term “social enterprise” is a relatively recent addition to the business lexicon. It describes organizations that embrace business principles to achieve a social mission, rather than solely to maximize profit. In a sense, social enterprises blur the divide between traditional for-profit, not-for-profit, and public sectors. But to date, a satisfactory classification for these new types of organizations has proved elusive. In this paper, Johanna Mair, assistant professor of general management at the Spanish business school IESE in Barcelona, and Ernesto Noboa, a doctoral candidate at IESE, examine the social enterprise phenomenon and offer their own organizational taxonomy.
The social enterprise, they argue, is a “hybrid” business form, which gives it a number of advantages over traditional for-profit organizations in making social goals a centerpiece of its business model. Like for-profit businesses, social enterprises seek to be financially self-reliant. But unlike commercial enterprises, they do not have shareholders so they can use any surplus profit they generate to further their social mission. Because social enterprises don’t have the same kind of profit-maximizing imperative as for-profit enterprises and have an “explicit mission to benefit the community and a specific group of disadvantaged citizens,” the authors say, social enterprises play a unique role in channeling resources to create jobs, promote local development, and achieve other societal benefits. Professor Mair and Mr. Noboa conclude that social enterprises are an original and highly complex type of organization within the nonprofit sector.
Pioneer Human Services of Seattle, Wash., illustrates this well. The company provides jobs, housing, training, and other services to a work force of 700 past criminal offenders and substance abusers. These people are placed in jobs at a series of businesses owned by Pioneer, including a light metal fabricator that is Boeing Company’s sole supplier of sheet-metal liners. They are also employed at a downtown Seattle hotel. Pioneer’s annual revenue is about $50 million.
Professor Mair’s and Mr. Noboa’s research also adds to the work of Barry Bozeman, a professor of public policy at Georgia Institute of Technology (Georgia Tech), who reexamined the taxonomy of enterprises by categorizing organizations according to their exposure to certain political and economic factors. So, for example, aerospace firms, which are heavily reliant on government contracts, are more vulnerable to political influence than commercial firms that answer primarily to the marketplace.
Professor Mair and Mr. Noboa build on this taxonomy by adding a third dimension they call social authority. Social authority reflects the extent to which an organization’s effectiveness is dependent on such factors as its reputation and public trust. A small nonprofit, funded by donations from individuals, for example, must be far more concerned with its social reputation than a purely commercial enterprise. By this measure, the authors say, social enterprises bear less social responsibility than pure nonprofits, and face considerably more pressure to make positive contributions to society than corporations. At the same time, they also occupy a new middle ground between nonprofit and for-profit enterprises when it comes to economic and public authority. This is a valuable insight because it repositions social enterprises from the margins of commercial life to its center.
As all organizations come under increasing pressure to be more accountable to multiple stakeholders, social enterprises, which must carefully balance social, political, and economic concerns, have much to offer.
Des Dearlove ([email protected]) is a business writer based in the U.K. Mr. Dearlove is the author of a number of management books and a regular contributor to