Doing well while doing good: A look inside social enterprises

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Yannick Stehr (YS): Hello and welcome to our Life & Legacy podcast series. In this episode, we are going to be discussing the phenomenon of Social social Enterprisesenterprises. We will talk about different types of Social social Enterprises, their structures and what developments in that space we see amongst our clients. 

My name is Yannick Stehr, and I am a senior Senior wealth Wealth adviser Advisor in the J.P. Morgan German team.  I am here today with Yisha Tang,…. senior Senior wealth Wealth adviser Advisor in the J.P. Morgan China team based in Singapore. Hi, Yisha!

Yisha Tang (YT): Hi Yannick! before Before we talk about Social social Enterprisesenterprises, I think we should first try to explain what a Social social Enterprise enterprise is. Most people will know that it is something in the middle between the capitalistic concept of making profits and the altruistic concept of doing good. It is a mission- driven business that uses business tools to address certain social, educational, and/or environmental issues. While there is probably no consensus on a clear definition, we do see a broad range of different types of social entrepreneurship.

YS: Yes, indeed there is a wide spectrum:

On the one end, we have classic non-profit organizations with entrepreneurial activities that serve the charitable causes; on the other end, we see big for-profit corporates with an ESG focus— – environment, social, governance— – that also might claim for themselves to be a social enterprise. And (as always) you have a huge area in between.

There is a huge debate existing who is “allowed” to call his or her company a Social social Enterpriseenterprise. Even though this is certainly a very subjective debate, let’s try to define a couple categories.

YT: OkOK, Yannick. Maybe let me start with the first category and you talk about the next.

YS: Deal.

YT: The first category are entities with a non-profit tax-exempt status. While their main funding sources are typically grants and donations, they may also generate some revenue from an entrepreneurial activity.

YS: Who falls under this category?

YT:  The first example that came up in my mind is the Girl Scouts and their cookie-sale program. The organization raises funds (partialypartially) from the sale of cookies. Another example would certainly be the online shop activities from organizations like Greenpeace.

YS: OkOK, another variation of this are the so- called Socially socially Responsible responsible Businessesbusinesses, which essentially want to do business “better” by benefiting the community and their employees and /or supporting the environment. This is probably the biggest group of social enterprises. Why don’t you give us some examples, Yisha?

YT: Yes, Yannick. Well, we have seen more and more of them getting the “certified B corporation” status, which is a private certification by a non profit network called the B Lab. In order to become a Certified B Corp., a company must be assessed according to an extensive framework focusing on social, environmental performance as well as governance.  Prominent examples are Aesop, Ben & Jerry, or Patagonia.

We have also seen a rise in this category in Asia. Companies are either voluntarily or encouraged by the government to be more socially responsible to help address environmental/social challenges that have arised in the last decades. For example, in China, the “common prosperity” policy is a signal to all the businesses in ChianChina, that in order to survive and thrive, they must become the force to solve social issues other than just focusing on the profitability— – Iin a way, the idea of a “B -cCorp”.  

But of course, this is again one way to be a socially responsible business. Why don’t you share with us another type, Yannick?

YS: Definitely. What we also see, is a model where the businesses direct some portion (or all) of their business profits towards charitable work. That means that the revenue- generating activities and charitable work are separated. A prominent example is Newman’s Own Foundation that uses 100% of profits for charitable purposes.

Another good example is Ecosia. Ecosia is a for-profit internet search engine like google Google, which uses all its profits to fight deforestation by planting trees throughout the world.

As all these business models seem contradictory to the capitalist concept of “shareholder primacy,” all of them use different legal structures or mechanisms to ensure that social or environmental concerns are the dominant driver of the venture.

Let’s take the case of Ecosia: To make sure that Ecosia’s commitment is never changed, the founder of Ecosia, Christian Kroll, used a rather complex structure with a golden share held by a foundation. No profit distribution, share sale or change of activity of Ecosia can be done without the consent of the foundation. The foundation in turn is bound by its constitution to use its voting right in line with the tree-planting purpose.

Just as a sidenote:

Christian Kroll is part of a group of enthusiasts in Germany that wants to implement a new corporate legal form that includes all the mechanisms— – no profit distribution, no change of purpose etc.— – in its legal provisions, and therefore does not require a rather complex structure like a golden share model. Let’s see if that new legal form will become reality.

But irrespective of the outcome: Traditional family businesses and new start-ups have one thing in common: None of them can ignore that society expects them to be some extend extent a social enterprise.

Yisha. , If if we have a traditional entrepreneur listing listening to us. , What what should be the takeaway?

YT:  We can see that there are certainly lots of options that allow traditional businesses to be empowered to serve the interests of all stakeholders (e.g., employees, suppliers, customers, communities, ecology) and do good to different extent.

Whether or whether not a traditional enterprise calls itself a social enterprise, the important point is that the commitment to all stakeholders’s interests has certainly become a pragmatic business decision. The ESG aspect is one of the two megatrends in companies (next to digitalization) that transforms the world economy. That means that aspects like reducing plastic, carbon dioxide or fighting inequality are becoming key competitive factors even for a traditional business.

YS: Yisha, just to give you an example. Just the other day, I came across a strategy paper of the French ski manufacturer Rossignol, and I was surprised that even such a traditional company dedicated themselves to ESG topics. They have strict plants to reduce their waste, and skis shall again be made out of wood from forests they planted (to avoid plastic). Furthermore, they dedicated themselves to make skiing more inclusive and make it accessible to more vulnerable groups of society, (i.e., the S of ESG).

YT: Yannick, is there also a case that you have observed among our clients as well?

YS: Yes, indeed. Just the other day, we had an entrepreneur who became our client after having selling his business. But as you know, … an entrepreneur never really stops being an entrepreneur! Soon after, he used the proceeds of the sale to start a new business. It was 100% clear to him the new enterprise should have an ESG focus and that a good portion of the profits should be used to support a good cause. The client ended up investing in an alternative energy start-up.

YT: So, Yannick, in client conversations like this one, what is the role of J.P. Morgan?

YS: Good question. I would say that we have a good overview of all these different types of social entrepreneurship, walk clients through the nuances, and share some practical experience of other entrepreneurs around the world.

We can also support them on ESG investments via the J.P. Morgan investment platform and on philanthropic engagement via our Philanthropy centerCentre.

So, whether you’re new to the space of social entrepreneurship or think your existing concept needs to be reviewed, please do not hesitate to reach out to your J.P. Morgan contact to see how we can help further!

YT: Thank you, Yannick. That brings us to the end of this episode.

We hope that you will join us for more upcoming episodes where J. P. Morgan Wealth Advisors will explore some of these issues in more detail. Thank you for listening to our wealth Wealth advisory Advisory series Series on topics of life and legacy.

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