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CSR or SE: Which is the better business approach or model?

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Mapping The Future

CSR or SE: Which is the better business approach or model?

05:00 AM August 07, 2017

In recent years, there has been a noticeable upsurge in the popularity of Social Enterprise (SE) as a business model. Proof of this is the mushrooming of conferences and awards held or conferred on SEs.

Some business gurus have even opined that SE is the eventual progression or metamorphosis of companies practicing Corporate Social Responsibility (CSR).

Is this really the case? Can SE supplant CSR as the future of business organizations? Is society better served by SEs than by CSR-compliant firms? Can we expect more SEs to blossom and thereby lessen the importance of CSR?

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Before we can deduce as to which is better between the two, there is a need to differentiate one from the other as well as point out each one’s attributes and shortcomings.

CSR has been defined in a variety of ways by various international organizations. But in its simplest terms, CSR is practiced by companies that are not only concerned with profit maximization (the focus of the stockholders) but also with societal well-being (the interest of the stakeholders, which include the owners of the firm plus the employees, customers, government, community, etc.). Also, CSR companies operate in ways that do not harm the environment because, in doing so, they ensure their own sustainability and that of our planet as well.

SEs, on the other hand, have been characterized by purists as business organizations whose primary reason for being is to serve society. They do generate profit but it is important to them only in so far as making the organization sustainable. They may be content with a return on capital of 10 percent or even less if this is enough to sustain their operation in the long run. This rate of return is more than adequate especially if the inflation rate is less than 5 percent as we have today.

Profit maximization is anathema to SEs.

How do we know for sure if a company is genuinely CSR-compliant? This is a tricky question for two reasons. First, because CSR is a voluntary act on the part of the company and thus is not subject to compliance regulations. And second, companies are not required by regulators to comply with a standard CSR reporting system.

There are several CSR reporting tools available, such as the ISO 2600, that is useful in reporting a firm’s CSR activities; but again, compliance is voluntary. Although many companies are now incorporating their CSR accomplishments in their annual reports, they have a leeway on how to present those. It is therefore quite difficult to compare the CSR program of one company with that of another, and to conclude with certainty which of the two has a better CSR program with a greater impact on society.

Moreover, CSR is practiced mostly by big companies or those in the list of the Top 1,000 corporations. Given that more than 95 percent of companies are classified as micro, small, and medium enterprises (MSMEs), the majority may not even be aware of the term CSR.

How about the SEs? Is there a system or an accreditation formula that we can use to vet if a company is a genuine SE? None. A company can falsely claim that it is an SE and get away with it without any sanction or penalty. For as long as the company is not violating any law or regulation and dutifully pays its taxes, it can proclaim itself as a SE.

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To be fair about this issue, there is actually no government incentive available to SEs, be it monetary or otherwise. It makes no difference at all for a company to be known as a SE unless it is after recognition or what is called psychic income.

There is, however, a SE category that has a well-defined criteria or qualification requirement. As a matter of fact, it is probably the oldest and best model of a SE. It is none other than the cooperative.

The original concept of putting up a cooperative is to serve its members. While it is not prohibited or discouraged for a cooperative to generate income per se, the profit motive is only at the outer fringes of its goals. The benefits from a cooperative can be in the form of the price discounts that members enjoy when they buy their requirements in bulk as a result of the pooling of the members’ funds. The pooled funds can also be extended as credit to the members at affordable rates. In addition, they receive patronage refund for the products and services they use. Many cooperatives also provide for the providential needs of their members during times of emergency.

The simplest way to differentiate CSR company from a SE is to look at the profit motive. The former’s main goal is to maximize profit though it seeks to balance this pursuit by addressing the interests of the other Ps of people (society) and planet (environment), hence the development of the triple bottom line concept. SE, on the other hand, is the exact opposite. Its main concern is to help society. Profit is secondary and is useful only in the sense that it can provide sustainability to its operation.

With the clear differentiation of the two business models or approaches, it is easy to conclude that SE is better than CSR. A business organization with a profit motive can in no way outshine one that is inherently generous to a fault by prioritizing society’s need as its raison d’etre.

If SE is the better business model, how come there are few of them in operation?

While non-CSR compliant companies predominate the business landscape, more and more of them are starting to gravitate toward CSR rather than evolve into a SE.

The most likely explanation is that the strength of a SE is also its weakness. SE’s noble objective is difficult to put into practice. Only a few individuals would be willing to put the welfare of society ahead of their own. Most of the budding and experienced businessmen and entrepreneurs are still struggling to bring out the so-called better angels of their nature. For now, CSR is the more doable proposition notwithstanding its imperfections.

In the final analysis, however, it is not a question of which is better between CSR and SE. Both benefit society.

The more CSR and SE practitioners we have, the better. Perhaps, the more important consideration is to make sure that companies practice these business models as honestly and as truthfully as possible.

To do otherwise is to make a mockery of their good intentions and give credence to the view that what they do is nothing more than an elaborate corporate public relations.

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