Hack:
Enterprise Liberty: Entrepreneurs and genuine corporate social responsibility.
The entrepreneur is identified as in a position of being able to reduce or remove fiduciary duty. An enterprise, as described here, is distinct from a 'social enterprise' and might be a valuable part of the market mix. The management of such an enterprise is at liberty to focus on a higher prupose: generating value for the wider community.
Introduction
“I have never known much good done by those who affect to trade for the public good. It is an affectation, indeed, not common among merchants...” (Adam Smith 1776:p32)This quote of Adam Smith’s cuts to the heart of this essay and also most other discussions of corporate social responsibility; can a firm trade for the public good? In this essay fiduciary duty is identified as a prime mechanism for creating corporate social irresponsibility. Entrepreneurs are identified as having a role in allowing genuine CSR to emerge.
CSR is and fiduciary duty
A firm must generate a return on investment, in part to allow a healthy growing business, but ultimately to pay out to the owners of the equity. Attempting to maximise return on investment seems to be instrumental in motivating socially irresponsible actions of firms. Indeed there is a view that profit maximisation is a legal responsibility of the firm’s executives and to make an expenditure that does not maximise returns is akin to theft, as per the dominant American legal view .
A role for the entrepreneur
When the entrepreneur establishes a firm they are in the position to decide on the ownership structure and make the consequent resourcing decisions to decrease, or even remove, fiduciary duty to owners.
One might argue that no entrepreneur would start a firm but for profit motivation. This, however, is a dated view as there is a growing literature on ‘social entrepreneurs’; those entrepreneurs that start a firm to address a social problem. Probably anyone reading this can cite examples of entrepreneurs acting due to passion, obsession or purely because they are a ‘geek’.
So as the incentive to start an enterprise is not inherently linked to profit motivation it is argued here that resourcing becomes the dominant reason to sell equity. There are, however, routes to capital other than selling equity (and thus creating fiduciary duty). It is not the purpose here to review all the mechanisms such as loan funding, social lenders, grant makers, philanthropists etc. Rather we will accept that capital is available to non-equity firms and thus we can create the following matrix (Table 1) to delineate the nature of enterprises.
|
|
Equity? |
Private Gain? |
Social Purpose? |
Business Activity? |
|
Company |
Yes |
Yes |
- |
Yes |
|
Charity |
- |
- |
Yes |
- |
|
Social Enterprise - with equity |
Yes |
Reduced |
Yes |
Yes |
|
Social Enterprise - pure |
- |
- |
Yes |
Yes |
|
Something else? |
- |
- |
- |
Yes |
Table 1: For profit firms, charity, social enterprise and something else?
Discussion of whether CSR is inappropriate, profitable or impossible enters a new light in the instance of the ‘Something else?’ shown in Table 1. This phenomenon would be the initiation of a firm that seeks to do just what Adam Smith, in the starting quote, indicates is uncommon. The concept is of a firm that has been formed only to offer goods and services and has no fiduciary duty to owners, or responsibility to support a mission. For lack of a better term, the concept contained in the ‘something else’ row of Table 1 will be here referred to as ‘enterprise liberty’ or ‘liberated enterprise’ and may be a vehicle for genuine CSR.
An enterprise that has been liberated of its fiduciary duty could allow management/executives to focus on a higher purpose: serving the wider community rather than giving primacy to owners. This could allow the ethos of community and citizenship to become a central part of the culture of the firm.
You need to register in order to submit a comment.