Lessons in creative capitalism from the people at Google.
Recently Google announced it is setting aside one percent of its profit and equity -- up to $175 million over the next three years -- to "make the world a better place." At about the same time, Bill Gates gave a highly publicized speech to the World Economic Forum that called for a "creative capitalism" that uses market forces to fight global poverty. These are but two of the most visible examples of a new business strategy called social entrepreneurialism. It is a strategy that every business needs to consider to be relevant to today's complex world.
Social entrepreneurs use cutting-edge, innovative business methods to promote positive social change. While profit is still the primary yardstick for assessing business, social entrepreneurs also measure the extent to which business makes a positive impact on society. Traditional nonprofits and citizen groups have been mainly distinguished by their benevolent intent. In contrast, social entrepreneurs stand out by their pragmatic emphasis on getting results. Perhaps once it was enough to want to do good. Now it is necessary to do good in the most effective ways possible. Social entrepreneurs make a difference by applying original business strategies to doing good.
For example, Vikram Akula, the McKinsey alumnus who founded SKS Microfinance, has made microloans to villages in India, using sophisticated finance techniques and profit to promote social change for poor women. Also, Ashoka is a nonprofit that uses a social venture capital approach to support other social entrepreneurs. Its Changemakers program employs an open source strategy via an online platform to instigate "collaborative competitions." Just as open source proved to be an ingenious method for stimulating software development, now it is used to bring together the best minds to make a positive difference in the world.
The idea of social entrepreneurship has been around since the 1960s, becoming more popular in the 1990s. Anyone with a good memory for business and who has taken a course in business ethics will remember Milton Friedman's classic criticism of this idea in his 1970 New York Times Magazine article, "The Social Responsibility of Business is to Increase its Profits." Friedman argued that executives should not divert profit from stockholders to social causes. The primary reason is that the money belongs to the shareholders to spend as they see fit. But also Friedman claimed that business executives know how to run their businesses, not how to fix social problems. They should focus on what they know how to do.
There were good grounds for Friedman's concerns. For many years, business took a fairly thoughtless, mechanistic approach to corporate philanthropy. Executives routinely gave corporate grants to nonprofits in their own backyards, to the schools from which they recruited, to the cultural institutions on whose boards they sat. At some point, as business ethics became more institutionalized in corporate thinking, the more enlightened companies took care to align their business philanthropy with their strategic goals. In more recent years, this strategic philanthropy has begun to morph into diverse strategies for linking business and social interests. Social entrepreneurs are on the leading edge of imagining innovations that help both business and the world in which business operates.
Google's foray into social entrepreneurship really began four years ago when its founders Sergey Grin and Larry Page established Google.org, the philanthropic arm of the company. At that time, they predicted that one day Google.org would have a bigger impact on the world than the company that underwrote it. Today, Google.org identifies five initiatives where it intends to make a difference: 1) to develop renewable energy cheaper than coal; 2) to accelerate the commercialization of plug-in vehicles; 3) to predict and prevent emerging threats, like infectious disease and climate risk; 4) to inform and empower to improve public services; and, 5) to fuel the growth of small/medium-sized enterprises.
Some of what Google.org is doing resembles traditional corporate philanthropy. But in addition to the usual process of giving grants to worthy causes, Google is experimenting with more innovative tactics like investing in for-profit enterprises that advance Google's social agenda, or using Google's technology to promote positive change. Some of its methods, like using its political clout to lobby public officials for policy changes, might invite critical scrutiny. But perhaps most intriguing is Google's commitment to tapping the insights of its employees in its search for solutions. This commitment makes sense for both business and social reasons: Google's highly engaged and intelligent workforce is the envy of many. Drawing upon their ideas will not only promote better social innovations, it will strengthen the employees' identification with their company and nurture an overall climate of innovation that will benefit Google as well. This is a lesson for any company that seeks the best possible people and ideas.