Corporate capital for social enterprises
In his latest article on SocialEdge, ClearlySo CEO Rodney Schwartz discussed the possitive effects corporate capital can have for the sector. You can join in the discussion here. Alternatively, we've included the full text below. Hope you enjoy it and, as always, all comments are welcome.
I had intended to write about corporate capital coming into our sector in the last Social Edge post, but events intervened and I posted on Rupert Murdoch and the phone hacking scandal which gripped the UK, where I live. Now, as I sit down to write, there has been a week of riots, the seriousness of which we have not seen for decades. That's quite a few precedent breaking events for one summer. Nevertheless, I shall resist temptation. Should any of you wish to read a post on the riots and the consequences for our sector, please let me know.
It is a rare meeting I have with a government official or functionary which does not eventually turn to the subject of "getting more capital into "˜the sector.'" I find there is now obsessive interest in this subject, in London, Brussels, the USA and elsewhere. As ClearlySo is an intermediary in the sector this should and does feel like good news.
For a social economy to take hold, financial resources are essential. Yet the conversation then turns to whether the funds should come from financial institutions, individual or high new worth investors (HNWIs). Rarely does the corporate sector get a mention.
The world's largest corporations are awash with cash. Let's consider Apple Inc., which earlier this month became the world's top company by market capitalisation. It earned $7.3 billion after tax in the quarter ended 25 June, 2011 and reported cash of over $12 billion, with another $16 billion in marketable short term securities and no debt. While Apple may be unique, it is not alone. Many large companies have been paying down debt, issuing equity and harvesting cash. Whereas governments are struggling, banks are wobbling again and individuals continue to feel the pinch, large corporations all over the world are in rude financial health.
Could they be the answer? Like HNWIs, they are able to contribute expertise and human capital in addition to their financial might. But unlike angel investors (see a related Social Edge post) they move very slowly before making financial investments. How can this be accelerated?
Corporations have another powerful way of helping the social enterprise (SE) sector: they can engage with SEs in a commercial relationship, providing contracts which generate revenues. Unlike capital investments, social enterprises must provide goods and services in order to fulfil these contracts, but this commerce can be continuous, as opposed to "one-off". In this way they help SEs professionalize.
But what of the downsides?
Is securing corporate capital a dangerous step down a slippery slope, imperiling social and ethical missions?
If social enterprises trade with corporates, should this commerce be on normal terms, or should SEs expect to be favoured? If the latter, does this undermine the goal of making the sector properly sustainable?
And what about corporate objectives? How much should social enterprises know about their corporate partners? Are some companies simply inappropriate to engage with (e.g. armaments manufacturers)?
Irrespective of the risks, I think this is a source we cannot ignore.