Seungchul Seo September 5, 2011 Presentation at SK 경영경제연구소

Understanding Social Enterprise Approach and Its PotentialAn Emerging Strategy for Creating and Scaling Social Impact Seungchul Seo September 5, 2011 Presentation at SK경영경제연구소

Key Questions • What is the definition of Social Enterprise? • How is SE different from NPO/NGO and business? • How do SEs create social impact? • What should be done to nurture SEs and amplify their social impact? • What are the implications for SK Group?

SE bridges and fills the gaps of Govt, Business and Civil Society • Government failure • Slow and inflexible • Limited by national boundaries Government Social enterprise Civil Society Business • Market failure • Short-sighted • Limited reliable resources • Under-developed system

How is “Social Enterprise” defined? A Social Enterprise is… • “a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners” Department of Trade and Industry (UK) • “an organization or venture that achieves its primary social or environmental mission using business methods… Social enterprises build a more just, sustainable world by applying market-based strategies to today's social problems” Social Enterprise Alliance (US)

SE’s defining characteristics & key success criteria Sustain-ability Key Success Criteria (4Ss) Systemic change Speed Scalability Social impact 1st Defining Characteristics Market-based strategy Broader accountability

SE represents alternative approach to advance social values Social Enterprise Business Civil Society Government

SE addresses market failure where externalities exist Price Supply Welfare loss External Benefit Consumer Surplus Producer Surplus Social Demand Private Demand Quantity

3 sources of SE’s social impact Price 1. Offer goods/services to the marginalized to meet their needs e.g. Process innovation; Subsidization Supply w/o SE Supply w/ SE External Benefit Consumer Surplus Producer Surplus Social Demand 3. Expand market & internalize externalities through social innovation Private Demand e.g. Advocacy & Sensitization; Subsidization 2. Distribute & reinvest PS fairly and equitably Quantity

A multitude of business models are available to SE Source: Virtue Ventures (Retrieved Sept 1, 2011, from http://www.marsdd.com/entrepreneurs-toolkit/articles/social-enterprise-business-models)

SE’s social impact creation is not limited to employment Beneficiary as actor Entrepreneur Support Market linkage Cooperative Market intermediary Employment Low High Degree of innovation required Organizational support Service subsidization Beneficiary’s role Fee-for- service Low-income client Beneficiary as client

SE has great potential, but is still at a fledgling state What can be done to nurture SEs and amplify their social impact?

Business sector’s evolution has been enabled by nurturing ecosystem Investment bank Auditor Stock market VC Rating agency Company A Supplier Distributor Retailer Advertising agency Recruiting agency Business lawyer Management consultant Regulator News media Research services

Creation of SE ecosystem encourages social innovation + Rogue company Good company • Designate low-profit high-social impact business as SE • Build nurturing ecosystem • Attract migration to SE category • Leave donation pool to those NPOs in the filed with no revenue generation potential • Support high-potential SE’s “graduation” to ordinary good company Low-profit company A SE A B - + Social return B Immediately to be ejected NPO/NGO Financial return C -

But it is unrealistic to try to develop entire ecosystem for SE all at once Efforts should be focused at first on the most critical piece of ecosystem

Designing money flow is the key • Money flow = Blood flow • Right financial mechanisms can catalyze the evolution of ecosystem • Allow merit-based resource allocation • Ensure accountability • Accommodate diverse values and promote diverse approaches

Impact investment cycle Mobilize resources to provide growth capital for SE Inform investors of the social impact their money has created Reward investors in proportion to their contribution to social impact

Impact investment seeks for both financial and social return Financial return Ordinary investment Impact investment Social return Charity donation / grants

Impact investing filed is evolving fast globally Investment fund Market platform Microfinance Impact measurement Non-profit For-profit

SE’s process of social impact creation must be evaluated Input Output Outcome Value Efficiency Effectiveness Relevance Sustainability & Scalability

Critical question How can SK Group’s CSR activity maximize its social impact?

Doing everything is the worst strategy Don’t try to boil the ocean! Strategy is about making a razor-sharp focus on the most important by giving up the less important

Clarifying intended impact and theory of change is a starting point Source: Bridgespan Group (Retrieved Sept 1, 2011, from http://www.civicpartnerships.org/docs/home/07OLEPresentations/Jeff%20Bradach/070523-KSP-Bradach%20-%20CA%20Wellness%20Fnd%20Conf.ppt)

Resources should be allocated according to expected contribution Source: Bridgespan Group (Retrieved Sept 1, 2011, from http://www.civicpartnerships.org/docs/home/07OLEPresentations/Jeff%20Bradach/070523-KSP-Bradach%20-%20CA%20Wellness%20Fnd%20Conf.ppt)

Strategy idea to contribute to the devt of SE ecosystem Create a closed fund to invest in SE Open the fund to accredited investors Reorganize as mutual funds Float shares on a social capital market • Start with narrower focus • Industry & Issue area • Geographic area • Develop a framework for internal evaluation & resource allocation • Start building networks of: • Potential investees • Institutional & individual investors • Regulators • Other impact investment practitioners (e.g. IIX Asia) • Invite institutional investors to invest as LP • Increase the number of investees • Refine monitoring/auditing & impact assessment system • Open the impact assessment data to the public & invite feedback • Obtain required license from financial regulators • Open the fund to individual investors • Link the payout not only to individual investee’s financial return but also to social impact • IPO on Impact Investment Exchange Asia in Singapore • Alternatively, create a social capital market in Korea

Thank you for your attention URL: http://www.convisage.com Twitter: @sc_seo

Seungchul Seo September 5, 2011 Presentation at SK 경영경제연구소