BUSINESS ETHICS AND SOCIAL RESPONSIBILITY

HAND-OUT #8

SOCIAL ENTERPRISE – is defined as a business model with the objective of solving social issues and problems while
providing goods and services.
- It is driven by a cause or purpose as well as the need to address an issue or purpose as well as the need to address an
issue or problem.
- One common thing about social enterprises is that profit is not their first priority

PRINCIPLES OF SOCIAL ENTERPRISE

Seven principles of social enterprise guide social entrepreneurs in achieving their objectives and broaden their impact on
their beneficiaries:
1. MOTIVATED BY A CAUSE – a social enterprise does not aim to maximize profit but rather solve or overcome certain
issues on health, education, technology access, environment, or poverty.
2. FINANCIAL AND ECONOMIC SUSTAINABILITY IN THE LONG TERM – since the purpose is to solve a certain
problem, the enterprise has to ensure that it can attain financial stability in the long term. It should be financially
stable to sustain its worthwhile projects.
3. NO DIVIDEND FOR INVESTORS – since a social enterprise does not seek to maximize profit, investors expect a
return only on the actual amount they have put in.
4. PROFITS GENERATED REMAIN – when investments are returned to the investors, whatever profits generated
remain in the company for expansion or improvement of operations.
5. SENSITIVE TO GENDER AND ENVIRONMENTAL ISSUES – the social enterprise operates ethically by ensuring no
gender discrimination and providing eco-friendly products and services.
6. EMPLOYEES ARE TREATED FAIRLY – the workforce is well-taken care of through fair wages and benefits and
better working conditions.
7. JOY IN EVERY TASK – a social enterprise that strives to work for a cause does it with pleasure.

SOCIAL BUSINESS MODELS

A social business model is a framework that a social enterprise follows to fulfill its mission and maintain its financial
stability.

Kim Alter defined nine types of business models which social entrepreneurs can use in order to achieve their goals and
objectives. The nine social business models are the following:
1. ENTREPRENEUR SUPPORT MODEL – the social enterprise provides support services to entrepreneurs who would
like to embark on their own endeavors. Support services like consulting, training and other technical services are
provided to help clients grow their business.
2. MARKET INTERMEDIARY MODEL – the social enterprise using this model generally guides those struggling to gain
markets to sell their products. It buys the products of the clients and sells them in other market at a mark-up. The
revenue on the mark-up supports the operations of the social enterprise.
3. EMPLOYMENT MODEL – social enterprises that adopt this model help clients look for jobs and provide them with
training for these jobs. Other services include transitional housing services and mental health services. Transitional
housing services are opportunities given to those who need a safe and supportive environment and who would like
to start anew because of trauma, or those who are considered social outcasts. The target recipients are the disabled,
homeless, ex-convicts, and others who have difficulty finding employment. They get their revenue from the products
and services they offer.
4. FEE-FOR-SERVICE MODEL – this is the most common business model used by social enterprises. They charge clients
with a certain fee for services rendered like hospitals, schools and museums.
5. LOW-INCOME CLIENT MODEL – in this particular model, social enterprises charge fees but they concentrate on low-
income customers. Since the revenue comes from sales, the business has to keep operating costs low to be financially
sustainable.
6. COOPERATIVE MODEL – this is also a very popular social business model. The cooperative charges a membership
fee and provide a number of services to members, who also run its operations. The members combine their
resources, including revenue, to purchase goods and services, provide credit (loan), and others.
7. MARKET LINKAGE MODEL – this model connect their clients to markets where they can sell their products. The
social enterprise acts as a broker to help a small producer access a big market. Thus, the social enterprise facilitates
the producer-customer relationship.
8. SERVICE SUBSIDIZATION MODEL – social enterprises using this model sell products and services and use the
proceeds to subsidize their social enterprises.
9. ORGANIZATIONAL SUPPORT MODEL – in this model, a social enterprise sells products and services and the
revenue generated is used to fund an organization which runs the program that the social enterprise supports.
Example: foundation put-up by a big corporation wherein the portion of the revenue used to finance the foundation
or CSR.
METHODS OF INCOME GENERATION

The main goal of social entrepreneurs is to implement widespread improvements in society. However, a social
entrepreneur must still be financially capable to succeed in his or her cause. A social enterprise can achieve its goals
through different methods in income generation. They are the following:

FEE-FOR-SERVICE – social enterprises charge fees to clients for services rendered such as museums, rural clinics, and
microfinance services.

PRODUCTS – social enterprises sell products and earn income through mark up or commission from reselling of
products.

SERVICES – skills or expertise can be offered by social enterprises in exchange for a fee.

MEMBERSHIP DUES – social enterprises which operate through membership collect fees in exchange for newsletters,
discounts, insurance, and subsidized trainings, among other services.

TANGIBLE ASSETS – social enterprises can generate income by renting or leasing their idle offices or vehicles to other
nonprofit organizations.

INTANGIBLE ASSETS – income is generated by leveraging intangible assets like reputation, relationships or brand. One
example is a well-known university that obtains funding for science and technology research from information
technology companies

INVESTMENT – income can be taken from interests on savings deposits, bonds, etc.

TYPES OF SOCIAL ENTERPRISES

There are 9 types of social enterprises categorized according to their mission or purpose, ownership, accountability, and
management setup.

1. COMMUNITY ENTERPRISES – serve particular communities. Usually, there are community representatives who
comprise the board of directors of the social enterprise.
2. SOCIAL FIRMS – help people renew their support networks and assist them in finding jobs, particularly those who
are disabled and have experienced trauma and mental health problems.
3. COOPERATIVES – are formed, organized, and controlled by the members themselves who contribute or invest
capital for the benefit of the members.
4. CREDIT UNIONS – are financial institutions that assist by providing savings and loan facilities to the inhabitants of
the community.
5. COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS – provide loans and other investment facilities to small
business and start-up social enterprises.
6. DEVELOPMENT TRUSTS – seek to build a community through the management of property like housing.
7. PUBLIC SECTOR SPIN-OUTS – deliver basic services previously provided by the public sector organizations.
8. TRADING ARMS OF CHARITIES – are formed to assist the parent organization in social services.
9. FAIR TRADE ORGANIZATIONS – ensure that small producers like farmers get a fair price for their produce.