Why entrepreneurs are good for all, what India can teach the US and how to get that altruistic tingle

Oldie entrepreneurial value

Social entrepreneurs are all the rage. They are well-minded people who use the instruments of business to further their social or environmental goals. Hurrah for them, for sure. But spare a thought for the old-fashioned version of the same. What do traditional entrepreneurs contribute? Is it all bottom-line money grabbing, or are there some societal positives to be derived from orthodox entrepreneurship? Plenty, as it happens.

First in line comes employment. True entrepreneurs – that is, men and women who create economic activity in spaces where none previously existed – are job generators. Likewise with the provision of high quality goods and services. Both arguably lead to higher living standards.

The author of this paper turns to US history to make the point. Since 1850, life expectancy for Americans has risen from below 50 years to 78 years today. Advances in public health and medicine partly account for the increase. But entrepreneurial breakthroughs played their part too. Take the railroad. Almost single-handedly, it facilitated the rise of large-scale national companies. These in turn allowed for the widespread purchase of new and better goods and services. Factory-made clothing and refrigerated foodstuffs are two such life-enhancing offshoots.

The same lessons are evident today. Bill Gates (as the entrepreneur, not the philanthropist) provides the classic case study. His dogged pursuit of a vision of personal computing has revolutionised global work patterns, communication and personal relationships. According to recent research entrepreneurs capture only about 2% of the surplus value they create. The remainder is passed on to society in the form of jobs, wages and value. So hats off to the jobbing entrepreneur.

“All Entrepreneurship is Social” by Carl Schramm, in Stanford Social Innovation Review, spring 2010.

India’s sages

The United States is not what it was. Even in the run-up to the financial collapse of 2008, the US corporate sector wasn’t having a great decade. In absolute terms, the growth rate of the world’s superpower came in at 1.8% a year during the 2000s. That places it 14th in the world on per capita gross national product.

So what to do? Keep thrashing the old model of profit/share price maximisation, or dare to tinker with the “American way” of corporate capitalism? The authors of this fascinating paper argue the latter.

And where to look? None other than India. A corporate non-starter until economic reforms in 1991, India’s private sector has recently begun picking up speed. Large India corporations such as Reliance, Icici and Infosys are a force to be reckoned with, both at home and internationally.

Indian companies genuinely believe in gaining ground by giving back, the authors argue. The paper highlights at least four distinctive qualities of Indian companies. Most important is the role they give to “social mission”. (A lengthy list of examples is provided.) The second aspect is related: investment in human capital. Unlike US firms, corporate India looks to build from within rather than buy from outside. Innovation through trial and error, an aptitude born of scarce resources, marks the third distinctive characteristic.

Last but not least is their “unique approach” to business strategy. This centres on innovation in companies’ value chains, a rejection of the growth-through-merger model and the search for better ways to serve existing customers (rather than relying on the endless quest for new opportunities).

Not all Indian companies may be meeting these lofty goals, but there are enough to make the “India Way” worthy of closer examination.

“The India Way: Lessons for the US” by Peter Cappelli et al, Academy of Management Perspectives, May 2010. See also: “Leadership Lessons from India”, Harvard Business Review, March 2010.

Individual-centric inquiry

A new avenue of academic interrogation is opening up. With the institutional rationale for corporate responsibility well covered, interest in individual motivation appears to be growing. As an introduction to the latest scholarship on the psychology of pro-social behaviour, readers would do well to cast their eye over this paper’s initial summary. Take giving, for example. Is it all about altruism, or is there an element of ego-massaging there too? Statistic: 1% of donations are anonymous. Therein lies your answer.

What follows is a three-part discussion of the drivers of responsible business. The first part covers familiar ground: the adoption of a more long-term perspective by firms. The latter two, however, are notable for bringing the individuals to the fore: investors, consumers and interested parties in the first case (delegating the exercise of responsible behaviour on behalf of stakeholders); and employees in the second (“insider-initiated corporate philanthropy”).

Individual-led corporate responsibility is not mono-causal. It owes its origins to a “complex set of motives”: intrinsic altruism, material incentives (defined by law and taxes) and social or self-esteem concerns. These are all mutually interdependent. Policymakers and social activists (and company managers, surely?), the paper argues, must have a good understanding of these interactions in order to properly harness people’s desire to behave “prosocially”.

“Individual and Corporate Social Responsibility” by Jean Tirole and Roland Bénabou, Feem Working Paper No 23, March 2010.

Campus news

Liz Maw, executive director of campus-based corporate responsibility advocacy group Net Impact, has been named a 2010 Young Global Leader by the World Economic Forum.

The Principles for Responsible Management Education, an initiative backed by the UN Global Compact, has adopted a governance framework. The framework sets parameters for the PRME’s leadership bodies: its steering committee, secretariat and global forum.

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