Saturday, April 26, 2008

Dr. Yunus and Social Business

Dear Colleagues

It is great that Dr. Yunus has put Social Business on the front page of newspapers, into TV news stories and much more into the mainstream of economic discussion. Dr. Yunus's accomplishment in building microcredit in Bangladesh and being recognized for this with a Nobel Peace Prize was remarkable ... and now broadening the development dialog to include social business is another incredible important move.

But as Dr. Yunus recognizes, talking about social business and actually being a social business are not one and the same. He points out that the system of accountancy and the analysis that is done in modern capitalist society assumes that people are very one dimensional ... that everything is about profit and stockholder value. In fact, this is far from the case, and almost everyone is very much more complex and value much more than monetary wealth. But the accountancy metrics being used do not reflect what is needed to assess performance of a social business ... or even to validate that the enterprise is, in fact, a social business.

The development of Community Impact Accountancy (CIA) originated with work done on the analysis of relief and development sector performance in the 1980s. CIA takes the basic logic of GAAP style corporate accounting, but uses the community as the consolidating entity, and uses social value as a component of the entity's balance sheet. This system will serve very well to provide performance metrics for social business and can be used in Dr. Yunus's vision of a Social Business stock market.

The CIA system has the potential for universal application as a means for the public to start holding economic entities accountable for their impact on society ... with CIA the public can now be heard as a stakeholder that matters.

Observations about this are welcomed.


Peter Burgess

Monday, April 7, 2008

What is a social business?

Dear Colleagues

There is a lot of discussion around the question "What is a social business?"

Most of this discussion is inconclusive, in large part because the issues are usually being talked about in something of a vacuum. There is a need for metrics, and the needed metrics are usually not available.

In fact, the metrics that might describe social business are not well defined, and to the extent that they exist at all are rarely applied in practical situations. With this lack of metrics ... the discussion tends to generalities.

Tr-Ac-Net is in the process of developing a system of Social Benefit Accountancy (SBA) which can be applied to a social business situation and will help to determine what is a social business and what is not. Part of the value of SBA is that it helps to give some capacity for nuance ... because what might be a valuable social business in one context may simply be wasting money in another setting, and all sorts of subtle variances that change the character of the entity.

At some level, the goal is to have an ability to document what something IS ... and then separately decide what to call it. It is likely that there will be a very wide range of characteristics that are both subtle in difference and important in difference ... all covering a range of types of social business ... and some not being social business at all. But the driver of this is going to be what the entity IS, before it gets a name.


Peter Burgess

Thursday, February 7, 2008

Grameen and Danone Yogurt

Dear Colleagues

Grameen and Dr. Yunus are well known because of the success of microcredit ... but they go way beyond microcredit in their initiatives to create a socio-economic framework for progress that serves all of society.

Social business has been identified as a key missing link in the market oriented capital market economic system. Social business seeks to recover costs and to maximize social benefit in contrast to a profit maximizing business that seeks to recover costs and the maximize corporate profit and stockholder value.

Social business and profit maximizing business have an interest in cost effectiveness, efficiency and productivity. This is the basis for their sustainability and their performance.

Grameen is cooperating with the Danone company in France to produce and distribute a yogurt product in Bangladesh. The business has been optimized in Bangladesh to serve social objectives, including being sustainable and improving child nutrition. It is progressing well.

Meanwhile the Danone management in France have addressed the conflictingf requirements of profit maximizing stockholders with the social objectives of the Danone operations in Bangladesh. The solution has been to make the Danone social business activities a separate company, and have that company quoted separately on the Paris stock exchange. Investors have a choice ... profit maximizing, or social benefit maximizing.

Is this working? Will it work in a broader context.

The jury is still out. But there is no question that the basic ideas are a step in the right direction. There are missing links, notably a framework for social accounting that captures the ides of social benefit in a manner that is reliable and verifiable. But this is a start, and some of this is very positive.

Stay tuned

Peter Burgess

Tuesday, January 1, 2008

What is Social Business?

Social Business is a business that aims to be commercial in order to be self sustaining, and judges its success by the amount of value that is created for society as a whole.

This idea is not new, but it was given a new prominence in a book by Mohammad Yunus called "Creating a World Without Poverty - Social Business and the Future of Capitalism" published in December 2007.

Tr-Ac-Net argues something different from Mohammad Yunus, but not incompatible. In the Yunus thesis there is a need for social business in order to fill a big gap in the prevailing market driven capitalist model, and with this Tr-Ac-Net is in agreement.

But Tr-Ac-Net considers the prevailing techniques for the analysis of business are in need of drastic reform. The value of a business is almost solely driven by the present profit and the potential for future profit, completely ignoring the impact of the business on the commons and society as a whole. In due course it is expected that consumers will pay more attention to these matters, and in time this will impact sales and profits. Tr-Ac-Net argues that these changes will come about when there is more systemic measurement of impact on the commons and on society ... and that this system of measurement needs to be a strong track in parallel with social business.

More on this as the blog matures.


Peter Burgess
The Tr-Ac-Net Organization