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The Management Challenges Facing Social Enterprises

By Raymond Yim Chun-man
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In Hong Kong, profit often seems to be king. Thus non-governmental organizations (NGOs) and commercial entities that wish to develop social enterprises in an efficient way face many challenges. From my own experience with local non-profit, government, commercial and academic sectors, there seem to be many definitions of what social enterprises should be. My own definition of the term is that of enterprises able to meet a double bottom-line (i.e. both making profits and fulfilling corporate social goals). An ideal Hong Kong model could involve the four sectors of commercial, NGO, academic and government entities all collaborating to form a sustainable social enterprise, and perhaps winning an official 3E Award (standing for Empowerment + Enhancement = Entrepreneurship).

Corporate social responsibility in Hong Kong can be divided into two levels.

The basic level is fairly straightforward. It may involve companies establishing staff volunteer teams to make donations to NGOs in hopes of winning the “Caring Company Awards” offered by the Hong Kong Council of Social Services, or they may take part in green office programs to achieve the “Living Business Awards” offered by the Hong Kong & Shanghai Banking Corporation Ltd. When I assumed the role of general manager of a long-established (more than 30 years) traditional family business in 2006, I urged my managers and employees to seek awards from both of these sources. The process was stimulating and even attracted the chairman’s wife to the effort. Most impressive was the integration of long-serving and new staff to the task at hand. But I am quite confident there was no long-term impact on the business because, shortly afterward, office politics continued as usual. For some, this compares to experiences of the seed-money projects sponsored by the Hong Kong government to promote the development of social responsibility. In many cases, once NGOs use up their allotted two years of seed money, their socially-motivated ventures have closed, with things reverting to square one.

The next level requires companies to find how their businesses interact with society and how to integrate their business strategies with broader social goals. This is often involves that “double bottom line”. But these programs are sustainable only if they bring value to both company and society. I now serve as CEO on my own business—a re-engineering and China-business development consulting practice—and recently started a related venture called the Corporate Clinic Social Enterprise under the auspices of a church-directed NGO, the Methodist Centre. This project tries to apply legal, accounting and marketing approaches to socially-motivated organizations similar to those used to tackle business problems. However, it has special characteristics. First, most NGO staffers come from the underprivileged community. Second, profits earned are ploughed back into the business. Third, the clinic serves as the consulting arm of the Social Enterprise Incubation Centre that I founded earlier, which is now attached to the University of Hong Kong Social Sciences Research Centre. The present goal of the Corporate Clinic Social Enterprise is to help others fulfill their sense of social responsibility or corporate responsibility.

To make this venture sustainable and profitable, I am now working to co-ordinate the aforesaid mentioned four sectors to make the incubation a success. In the meantime, the Corporate Clinic Social Enterprise has already undertaken three projects. The first assignment is to inject more commercial elements into a government fund that was established to finance a graphic design social enterprise. The second project involves managing a car-cleaning enterprise that is a joint venture of an NGO and a leading car-cleaning company. The third task is to assist a government-aided social enterprise that supports newly-arrived immigrant women who serve the elderly and ill, hoping to make it self-sustaining after government seed money is used up in three years time.

From a risk management perspective, the primary problem without doubt is to integrate people trained as social workers with people trained in business. This does not imply that the two streams are incompatible, but they do have fundamentally different orientations. The most frequent complaint from NGOs that operate social enterprises concerns their difficulty in hiring qualified people to manage their businesses efficiently. As general secretary of an NGO, for example, I repeatedly face the challenge of dealing with directors who have only backgrounds in social work. That problem was acute when, some time ago, I served as business development manager for a particular NGO where the mindset of the typical supervisory social worker was far behind those of counterparts in the commercial world. For example, one female supervisor considered making profits to be a sin before God and considered me reckless and too business-oriented. Thus she complained that, within the “sheltered workshop” care was sacrificed for profit; the place was funded by the government and run by the NGO to employ handicapped persons to apply stamps and engage in simple packing tasks. She preferred that workers stayed there contentedly (that is, spend their whole lives in the sheltered workshop) rather try to face deadlines, benchmarks and goal-setting exercises of the outside world.

There are several reasons why social enterprises find it difficult to recruit skilled managers. The first reflects the labor market of Hong Kong – experienced managers can easily find jobs that offer higher salaries, and it is extremely unlikely that an NGO could pay enough to attract such managers and keep them. Nowadays some NGOs offer potential managers such low salaries that they have little financial incentive to stay if they prove to be good at their jobs. Therefore, most chief executives of NGOs are social workers with limited business experience. I was a rare exception to that rule when serving as general secretary of a church-related NGO from 2002 to 2004, an experience that served as a stepping stone to a more extensive social entrepreneurship career.

The ideal solution is to find candidates with both business and social service backgrounds, however difficult. Another possibility to have two chief executives who both report to the corporate boards, with one responsible for social services while the other directs normal business development—but that could raise issues of management authority.

The second reason involves the differently-oriented ideologies of “social work” and “business”. The prevailing atmosphere within Hong Kong non-profit organizations places more emphasis on social service than on business management. For example, managers who direct social enterprises often face the dilemma of having to lay off employees who are underperforming in order to preserve the overall well-being of the organization and its ability to meet broad social goals. But many NGOs operate like sheltered workshops, and find it almost a taboo to ask their managers to fire underperforming workers who come from under-privileged groups. For one thing, this puts the managers at risk of being accused of discrimination. At the same time, the laid-off workers might feel betrayed by the NGOs, which they assume operate according to standards different from those of mainline businesses. This happened in the United Kingdom, when REMPLOY, a firm that hires disabled people, closed 32 of its 83 factories so it could transfer resources from loss-making plants and thereby support even more disabled workers in mainstream jobs; the labor unions involved threatened a national industrial action.

Like other enterprises, social enterprises face the challenge of managing human resources effectively. One Hong Kong company that manages to do so is the Gingko House in Central District, a profitable business that employs the elderly to serve in a high-end French restaurant. Strictly speaking, it is not a social enterprise because both its owner and CEO emphasize they have what is first of all a commercial enterprise. At the same time, however, the owner is in fact also a successful social entrepreneur who deserves congratulations for winning a government Living Business Award for making her high end restaurant staffed by an underprivileged group a sustainable and profitable business. This presumably reflects the fact that she has a university degree in social work and more than 10 years experience as a social worker.

The third challenge facing social entrepreneurs involves finding markets and creating demand. With already-limited resources, most NGOs that operate social enterprises have no budgets for marketing or advertising their services and products. As a result, those that relied mainly on official seed money usually could not continue when the subsidies ran out, even though they did serve the unemployed for a short time. My own response to this, as a member of the Chartered Institute of Marketing (UK), was to create a marketing office within the previously-mentioned Social Enterprise Incubation Centre to help small and medium enterprises develop their own promotion and marketing services. The obstacles can be difficult and unusual; in one case a car-washing social enterprise that hired “hidden youths” (i.e. school dropouts and the unemployed) was confronted not by normal competition but by small triad gangs who “ran” a similar business. This situation ended only when the social enterprise involved, with the help of government and other established groups, managed to monopolize its small market sector.

But this example raises the question of fairness in a laissez-faire economy like that of Hong Kong, a problem that is less serious in a place like Singapore, according to a researcher from the University of Hong Kong, because the government there has more of a planned economy. One possible solution might be to encourage successful businesses to develop socially-responsible subsidiaries to their main commercial activities. One example involves a Hong Kong investor with a personal interest in homes for the elderly. He used his own capital to build such a home for older, underprivileged residents and staffed it with workers who also came from the underprivileged sector.

While talking to people in the commercial sector and other potential investors in social enterprises, yet another challenge emerged. Their most frequent question was: “Can I at least get back my capital?” That is the ultimate challenge of a social entrepreneur trying to meet the double bottom line—earning a profit while meeting a social goal. This makes the task of a social entrepreneur more difficult than that of either a strictly-business entrepreneur or a social service professional. But difficult does not mean impossible. For example, I am meeting with friends in the financial sector about the possibility of setting up a Social Enterprise Venture Capital Foundation to satisfy those potential donors’ requirements, though the results remain to be seen.

Overall, it seems clear that the best social enterprise model for Hong Kong is likely to be different from those in developing countries, or even western countries. Many social enterprises in the west are heavily subsidized by their governments. Should Hong Kong social enterprises be conducted under a similar policy? Do mainland Chinese businesses include any elements of social entrepreneurship? Such questions need further research.

Raymond Yim Chun-man is founder and honorary chief executive of the Social Enterprise Incubation Centre and an associate fellow of the University of Hong Kong Centre for Criminology. He has spent 27 years in the field of commercial services, including helping companies enter the China market and conduct corporate re-structuring and management audits. He sits on several NGO boards and is Chairman of the Methodist Church Benevolent Committee and honorary director of Hong Kong’s Methodist Centre and the Christian Prison Pastoral Association Limited.
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