How social enterprises are bridging the trust gap

Bob Doherty, head of the business school at Liverpool Hope University, told how social enterprises are transforming the lives of farmers in developing countries, when he addressed a Greencoat Forum on ‘the role of social entrepreneurship in tackling poverty’ on 17 May.

He was speaking in IofC’s London centre alongside Gavin McGillivray, head of the Private Sector Department at the UK’s Department for International Development (DFID), and Tania Ellis, a specialist in social business trends and author of The New Pioneers.

Doherty had worked with two fair trade farmer-owned social enterprises—Liberation nuts and Divine Chocolate where he had been sales and marketing director for five years. His first visit to a remote farm in Ghana had had a profound effect on him, showing him how he could make a difference in the world, he said.

Divine Chocolate is 45 per cent owned by a farmers’ cooperative in Ghana —the Kuapa Kokoo Farmers Union—and works in partnership with London-based Twin Trading. Its unique ownership structure allows the farmers to be involved in decision-making and marketing. ‘The farmers can see themselves in the product and they are proud of it,’ Doherty said. It was a ‘bean to bar’ story.

Profits are invested in development projects including community infrastructure, healthcare, and clean water. There were other benefits too: Ghana’s population is composed mainly of small farm holders living in village communities; young people try to escape their fate of becoming cocoa farmers by migrating to cities. The development of the cocoa market in a fairer way encourages them to stay.

Liberation is 42 per cent owned by nut producing cooperatives on three continents. Doherty said that this wide network of partners gives the enterprise a strong position on the supply chain. It also allows the people involved to exchange information about pricing and product quality. And their partnership with Twin Trading encourages them to work further on quality.

This had two consequences: first, the whole sector is changed, including the behaviour of consumers, raising the level of quality that they expect; secondly, the added value generated by the brand itself goes to the farmers as share owners in the enterprise.

He emphasised the need for ‘getting the investors right’. Food retail was concentrated in a few mainstream supermarkets, which already had market leaders in the products that Divine and Liberation were offering. It was hard for fair trade companies to get bank loans due to the highly competitive nature of these markets.

Fair trade social enterprises, Doherty said, therefore needed to develop quality brands that appealed to consumers. It was important to work with investors who shared the mission of trade justice such as Comic Relief and Twin Trading, ready to back this process. 

Doherty highlighted the importance of consumer activists and campaign organisations such as Christian Aid in promoting fair trade. Social enterprises also had to be commercially sustainable.

McGillivray defined social enterprises as ventures that generate both social and commercial returns. He said that trust was fundamentally important in such projects and appreciated IofC’s emphasis on trustbuilding.

Social enterprise backers included members of cooperatives, consumers and investors looking to get more than just money. He emphasised that successful social enterprises needed stable and conflict-free host countries, with a functioning state and administration, educated youth and decent infrastructures. These were tremendous challenges for poor countries, which often lacked electricity, clean water and roads.

DFID invested public capital to reduce the risk created by lack of infrastructures. ‘We spend a lot on building effective and functioning public services and education.’ This was the role of the Private Infrastructure Development Group, publicly capitalised but privately run. He affirmed that the leading UK political parties were all committed to raising development aid to 0.7 per cent of GDP, as promised at the 2005 Gleneagles summit. And thanks to the 2002 International Development Act, the British aid budget is entirely committed to the alleviation of poverty, without being tied to business contracts.

‘We encourage big and medium companies to do business in ways that benefit poor people. It’s about making the markets work for the poor, helping them train their people, building their capacity and reaching out.’

Change in mentalities

‘The financial downturn has widened the trust gap between business and people,’ asserted Tania Ellis. Bridging this gap had encouraged companies to invest more in their social dimension, ‘allying sustainability and meaning’, she said.

Ellis said that in the 1980s most companies operated with only one bottom line and only few talked about corporate responsibility.

But changes in mentalities, prominent in the hippy culture of the 1960s and 1970s, had evolved to create a critical mass of people who put values such as ethics, responsibility, sustainability and meaning at the centrestage. This social megatrend—a global consciousness movement—has triggered big changes in business and elsewhere. ‘A lot of people want to make a difference, get involved in NGOs [Non-Governmental Organisations] and voluntary work or simply change their buying habits. The number of NGOs has exploded.’ These changes put pressure on companies to act responsibly, thanks to the increasing number of conscious consumers and investors.

‘Companies realise they need to operate with more than one bottom line and integrate social and environmental issues as part of their business strategies,’ Ellis said. ‘Profit is still the main motivation but the way to make a profit is changing.’

Equally, entrepreneurs with a social mission had realised they could apply business disciplines to their aims, she said. Social entrepreneurs could inspire big companies to support fair trade. When big companies buy smaller fair trade enterprises, these additions act like Trojan horses within the new owner and influence it from the inside. This had been the case with, for example, L’Oreal’s purchase of The Body Shop.  

Doherty said that fair trade was ‘a market response by consumers disagreeing with the rules of the profit-only game.’ The social sector was now a third alternative, along with the public and private sectors, which ‘reconfigures the value chain’. The next step for social enterprises was to keep adding value in the country of origin and develop local markets, as well as global ones. So did this require a change in the economic system? McGillivray replied, ‘There is plenty of good work to be done in the system as it is.’   

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