July 1, 2009

Social Enterprise Rising

Social enterprise holds great promise to solve some of the world's most pressing social and economic challenges. Here, we trace its history and looks towards the future at and beyond the School.

Kimberly Kinchen

Social enterprise holds great promise to solve some of the world's most pressing social and economic challenges. Here, we trace its history and looks towards the future at and beyond the School.

In the mid-1970s, at the height of that decade’s recession, New York City’s fiscal outlook had become so precarious that Mayor Abraham “Abe” Beame pleaded for federal funds to avert bankruptcy. Beame’s pleas were met with President Gerald Ford’s insistence that he would veto any federal bailout, and Ford’s response prompted that legendary New York Daily News headline: FORD TO CITY: DROP DEAD.

Professor Ray Horton, who had worked with the city government on urban labor policy, took a leave of absence in 1975 and agreed, at Beame’s invitation, to head the city of New York’s Temporary Commission on City Finances, which was charged with identifying solutions to the city’s enormous financial problems.

It was a risky move for the yet-to-be-tenured professor. But the invitation offered a chance to leave a mark on the history of the city. “It was an opportunity,” Horton says, “to understand the city’s finances and management and to figure out what to do to get its long-term future stabilized.

“One major conclusion I drew from that experience was that the city of New York was horribly managed and that it could use the talents of people with Columbia MBAs.”

Horton returned to the School in 1977, with tenure, and lobbied Dean Boris Yavitz, PhD ’64, to start a program in public and nonprofit management that would prepare students for careers in New York City’s government. (Horton would keep a hand in municipal matters, first as director of research for the Citizen’s Budget Commission beginning in 1983 and subsequently as its president, from 1988 until he stepped down when, a decade later, he was asked to chair the School’s Management Division.)

In 1981, the Public and Non-Profit Management Program launched. Its early years saw Horton paying periodic visits to the dean’s office—then John C. “Sandy” Burton—trying to convince him it was worth running a course that only had 10 or 12 students signed up. “It was a sweat-equity operation for a long time. Dean Meyer Feldberg ’65 (who started in 1989) provided TA support for 10 hours a week, so there was very little programmatic activity beyond me teaching a few courses to a few students and counseling students about internships and job opportunities in the city’s public and nonprofit sectors.”

This didn’t bother Horton. “I never had any lofty ambitions,” he says. “To me, the Public and Nonprofit Management Program was a niche program designed to help 20 to 25 students a year to find good jobs they otherwise probably wouldn’t have found.” But the program continued its slow, steady expansion, and by the late 1990s it was serving about 50 students a year.

In 2000, with the support of Dean Feldberg, Horton renamed the program the Social Enterprise Program (SEP) and set out to offer courses and programming that would reach more students than only those who sought careers in the public and nonprofit sectors. “Men and women of business,” Horton explains, “have as much if not more potential to make the world a better place than those who work in the ’nonbusiness’ sector.”

The broader definition of the program, the addition of more courses and new programming, and events of the times resulted in a huge increase in student interest.

Horton attributes much of the sudden proliferation to a few key developments. “I think,” he says, “that the Enron and Tyco scandals had a big impact on how business schools viewed their leadership and ethics training.”

September 11, 2001, also, had an enormous impact, Horton says. “Many of our students spent a few years on Wall Street before coming to the School. They saw 9/11 firsthand, and people began to think more about making sure their lives contributed to society.”

These key developments spurred new interest in some long-standing innovations that had been slow to catch on. Microfinance had been around since the first Grameen Bank microloan experiments in the 1970s. Socially responsible investment (SRI) portfolios first sprang up in the 1920s when evangelical Protestants created a fund that eschewed investment in liquor and tobacco companies. After the antiapartheid divestment campaigns of the 1980s, many large universities established formal SRI committees, and institutional investors have increasingly offered similar investment products.

The Vermont ice cream company Ben & Jerry’s, founded in 1978, had become ubiquitous by the early 1990s and inspired many new social enterprises, as the ventures came to be known. These ventures made a commitment to create social value on the way to the bottom line, either by donating a portion of their net profit to nonprofits or by pledging to support values-based business practices, such as ensuring that all ingredients are organic or that fair labor practices are followed when work is outsourced.

The nonprofit sector had also grown, with employment in the field increasing 30 percent between 1977 and 2001. And increasingly, nonprofits had begun to look to revenue generating opportunities to help fund some of their services.

As students developed an ever-more expansive vision of what existing models could become, they were less and less likely to believe that they had to choose among the public, private and nonprofit sectors to embrace doing social good as a career path.

Today the program serves upwards of 450 students annually, supporting three related student clubs, a social venture competition and an annual conference, among other activities. Professor Ray Fisman, formerly research director of the SEP and Horton’s successor as the director of the SEP, attributes its more recent success to a benevolent confluence. “It’s partly a function of wonderful students and the magnificent job Ray [Horton] has done, and those two things feed on themselves,” says Fisman, the Lambert Family Professor of Social Enterprise and a Bernstein Faculty Leader.

Programming has expanded to reflect the breadth of student interests. Initiatives include a summer-fellowship program, which supports student work that creates social or environmental value; pro bono consulting projects, which pair teams of MBA students with small businesses or nonprofits; and loan assistance for students who take jobs fulfilling unmet needs in the nonprofit or government sector.

As corporate governance has received greater attention in recent years (the School’s new core curriculum features a corporate governance module), so too has nonprofit board governance. The Nonprofit Board Leadership Program was developed to train MBA students to serve on nonprofit boards. Administered by the SEP with support from students, the program pairs MBAs with mentors on nonprofit boards.

“I find there is a steep learning curve for some business executives,” says Lise Strickler ’86, a member of the SEP’s advisory board. “It takes a while [for business executives] to understand how to best get things accomplished in the nonprofit world. By gaining board experience during graduate school, MBAs have a much deeper understanding of how to add value to organizations they are involved with.”

Horton suggests that the environment is perhaps the central issue that will shape social enterprise in years to come. “Students are realizing,” he says, “we can’t continue to behave the same way we have been with respect to the environment and that unless institutions, including businesses, fundamentally change their ways, our standard of living will be appreciably diminished.” Geoffrey Heal, the Paul Garrett Professor of Public Policy and Business Responsibility and a Bernstein Faculty Leader, offered a New Directions in Energy Markets course last spring. One hundred forty students clamored for admission to the 70-seat course.

Interest in international development, too, has skyrocketed. In 2008, a group of students founded a nonprofit, Microlumbia, which identifies and secures financing for microfinance organizations around the world and coordinates teams of MBA student consultants. The SEP has also seen burgeoning interest in private equity investing with social impact and small- and medium-enterprise development. (Almost half of summer internships supported by the SEP are with international projects.)

Skeptics often contend that social enterprises are too ambitious or idealistic, that firms that strive too hard to meet the triple bottom line will meet no bottom line or that nonprofits have overestimated the potential and the skill required to generate revenue outside the usual bounds of grant making. But advocates point out that the field is still relatively young, that successes abound and that less robust ideas will be superseded by better ideas.

Horton also believes that the ideas- and innovation-friendly nature of social enterprise will increasingly attract talent as MBAs become more inclined to consider a nonprofit or a new social venture over more traditional career paths. “Many businesses,” he says, “are, frankly, not used to having entrepreneurially minded young people.”

The variety of SEP programming at the School seems to bear out Horton’s notion that, in a decade or two, social enterprise is likely to be integrated into every aspect of the MBA curriculum. And, Fisman points out, the times may demand it. “There is a reckoning going on around what we do in business schools and what we teach our students,” he says. “So I’m very hopeful that this will feed into the interest at business schools, and Columbia specifically.”

Last February’s annual Social Enterprise Program reception was cast as a tribute to Horton as he wound down his time leading the SEP. David del Ser Bartolome ’08 explained how he had once sought Horton out.

“I asked Ray to compare the civil rights revolution he lived through to one that we need today in a world of entrenched poverty, climate change and extreme inequality. He responded that back then the problems and the issue and the injustices were clear. And the solutions were also clear. Today the issues are global, nuanced, hard to grasp, with no easy or obvious enemy to rally against. So we’re in a corner in a way.

“But there was also hope in his words. He said that the men and women looking for a solution today are more practical, more diverse and, crucially, much better educated.”

Fortunately, the rise of social enterprise has nurtured a generation of MBAs that is better prepared than any before it to find and implement innovative responses to the challenges that these times will bring.

The Social Enterprise Program is interested in hearing from alumni who want to connect on topics under the umbrella of social enterprise, including green business, nonprofit boards and international development. To get involved, e-mail socialenterprise@gsb.columbia.edu. To learn more, visit www.gsb.columbia.edu/socialenterprise.

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