Social Innovation Pioneers

The Connection Between Business Ethics and Socially Innovative Business

The difference between Corporate Social Responsibility (CSR) and Socially Innovative Business is exactly that. Corporate comes first in CSR before social responsibility while social innovation comes first before business in socially innovative businesses. Know how business ethics is strongly linked to socially innovative businesses and serves as a part of their growth story rather than a perceived hindrance.

Social Innovation Pioneers
Social Innovation Pioneers

Edesia, Braskem, Bloomberg Philanthropies, Sanergy and Peepoople.

These are just some of the names that are making major headway across the world by catering to diverse social problems and converting these problems into socially innovative businesses.

No, they are not companies that are doing plain old corporate social responsibility (CSR) activities, they are companies that have based their entire business model on catering to solving various social issues. That is what a socially innovative business is. To put it into perspective, it’s not about launching a new product which is made up of recycled material but about creating a product that is aimed at solving a social issue like lack of sanitation in many parts of the world.

Given the crucial role that business ethics plays in the organizational structure of a company and the way an organization conducts its business, it is important that the relationship between socially innovative businesses and business ethics be understood. The two share a contrasting relationship of sorts but at the same time socially innovative businesses stem from the very concept of morality and ethical values. The reason why the two concepts can be at loggerheads at times is because contrary to the popular belief that any organization that aims to achieve social objectives is said to be ethical, there is hardly any conclusive and empirical evidence that suggest the same. 

Many researchers have done in depth studies about the way ethics are practiced in a social enterprise and how the two concepts dwell with each other. Of the various studies done, one study conducted by Bull, M. et. Al from the University of Sheffield in the UK suggests that there are three main lens or conceptualizations through which social enterprises and their relations with business ethics can be looked at. 

The first conceptualization is the Economic perspective, which views social enterprises or socially innovative businesses as a private business that is more closely linked to profit making than achieving social objectives, yet it is primarily social in terms of its nature of operations. However, in recent times, according to Dart (2004), “social enterprises are blurring the boundaries between non-profit and profit.” So, what exactly is blurred and what are the concerns that social enterprises address is a question that has given rise to many arguments. (Dart, cited in Bull, M. et. Al, 2008).

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In recent times, the focus of social enterprises has been more towards a free market approach of functioning (Hulgard and Spear, 2006). and this has led to problems such as rise in self-interest, wanting to look at organizational benefits more than the cause of the people, materialistic values and temporary satisfaction. This is precisely where the concept of business ethics and socially innovative businesses contrast with each other. Primarily because if the business environment around a business is such that it needs such self-interest actions from them, then either they can cooperate voluntarily and stay in business or they can be easily overtaken by other companies in the market. 

In the ethical tension that lies between achieving and satisfying market requirements vs remaining dominantly ethical in business practices, most social enterprises fail at balancing the two ends of the spectrum. (Maitland, 1997). Although given the drift towards conformance to market requirements and behavior, there still exist companies that are driven by the social and ethical agenda, purely because of the good quality of ethical capital that exists in the company and the social lens that they view business through.

This brings us to the second conceptualization: social perspective of markets. The social perspective emphasizes on the building of social capital in the market. This social capital basically refers to local community level involvement in building trust and commitment and the focusses on building developed social networks that primarily aid business relations. The ethical emphasis of this perspective lies in ‘socio-rational’ thinking for taking business decisions, developing commitment and equity values for the community. (Drayton, 2005)

The social perspective takes into consideration a greater number of stakeholders including the non-financial parties that are affected by business decisions, as opposed to the economic lens. It gives space for human emotion and values. The research conducted by Spear (2001, 2006) hints that most organizations with this perspective of management are cooperatives that rely on networking, community trust-based relations and commitment for their business operations. “This helps them in the conservation and reproduction of natural capital that is human capital”. (Spear, 2006)

Having said that the building of social capital is of utmost importance in the social perspective of socially innovative businesses, it is quite alarming to see the continued drive and focus that is attached to these socially innovative businesses selecting a business model for operating in the market. If the primary purpose of a socially innovative business is social, then should they not look to conduct ordinary business operations? 

This was a key question that was and still is raised in business ethics theory for social enterprises. An interesting dynamic was introduced here by Leadbeater, who suggests that social capital is simply “the network of relationships that underpins economic partnerships”. These networks and connections are based on principles of trust and shared values. (Leadbeater, 1997). So, these social networks are developed to eventually recognize business opportunities and use the connections to do successful ethical business and fulfill the aim of being a socially innovative and responsible business. This is however the broad framework of how things under the social lens work, but in depth research on the topic is still on and researchers are still trying to find a middle ground between the market requirements and social requirements of doing ethical business.

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A key segment of building social capital is the building of ethical capital, which is most often considered a subset of social capital and is the third perspective of looking at socially innovative businesses. Ethical capital in summary is “the investments and institutional arrangements that may be governed by ethical norms of accountability, transparency, reciprocity and fairness towards both human and non-human sentiments.” (Gupta et. Al, 2003). This concept is growing in importance and the effects of this though process can be seen in the market, with people leaving jobs that no longer value their individual contribution and do not operate to achieve growth of human and ethical capital. Majority of the people are increasingly dissatisfied with the corporate lifestyle. Rather as Tim Smitt suggests, “corporate life as we know it, is going to be dead in 30 years of time”. (Bull M, et. Al, 2008). Despite the contentions made on the current state of market behavior that emphasizes a push towards the neo classical economic paradigm of business operations, it is essential to recognize that all is not lost yet. The fact that people are recognizing the need for ethical capital and the importance of having a moral code of conduct in a business, is a step closer on the ladder towards achieving successful implementation of business ethics in socially innovative businesses.

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