One of the biggest struggles in the social enterprise industry is the fact that it is still in its infancy. Thus, although remarkable new ideas and enterprises are entering the space by the day, there remains a significant lack of tangible examples and standards in place to clearly define which people and enterprises fit into the realm of social enterprise.

Why is this a problem? Because ambiguity about where the lines of that community are drawn leave unmistakable room for exploitation.

How do we clear the noise? I think we can look to other industries to observe comparable events, challenges, and solutions for a young movement. The environmental movement for example, has been plagued by the same exploitation of labels by individuals and companies only pursuing shallow campaigns and capitalizing on the resources laid out for truly green firms.

In the last few years, countless instances of "green-washing" and companies skirting real environmental action have occurred and are still occurring. As the environmental movement develops, so does the clarity and understanding on which companies are pursuing real agendas. In addition to that, there is growing structure in both the regulatory and funding bodies resulting in more limited opportunities to exploit the system. Over time, I think the same stability will grow with the social enterprise sector.

We can borrow lessons and guidelines from the environmental movement in order to make people more cognizant and aware of genuine social purpose businesses.

In 2007, Scot Case of TerraChoice Environmental Marketing released a report denouncing The Six Sins of Greenwashing – the act of being environmentally oriented on a false or shallow level. The report delves into the most common types of greenwashing to help the general public make more educated and rationalized classifications.

If we read these rules in the context of social enterprise, there is a significant amount of overlap. So here goes:

The Six Sins of Social Enterprise in Name Only (adapted from Scot Case’s Six Sins of Greenwashing):

1. The Sin of the Hidden Tradeoff - Much like a glittering generality, this sin involves presenting a person, product, firm, or service as social by highlighting a single social attribute. For example, an investment that touts a single social factor such as job creation cannot be classified in the same range as a deal with a wholly integrated social mission.
2. The Sin of No Proof - As the name suggests, this sin refers to making claims that have no evidence to back them up. Over time, standardized metrics and a common language will be created, making it more evident when social enterprises are not making a measurable impact.
3. The Sin of Vagueness - This sin involves feel-good language that’s so vague as to be meaningless. For instance, there is a growing trend in the private sector to publish CSR reports that do not contain specified goals or practices.
4. The Sin of Irrelevance - Making a claim that’s truthful but unimportant or unhelpful.
5. The Sin of Lesser of Two Evils - In the social enterprise context, this relates to a greater yet relevant debate on who can list on a social investment exchange. Can tobacco companies that train and employ marginalized people be considered social enterprises?
6. The Sin of Fibbing - This really doesn’t require much of an explanation.

A quick case study can help us begin applying these six sins and viewing companies in a more objective light. Compartamos Banco is a microfinance firm that is sweeping the low-income Mexican market, successfully debuting with an IPO of $400M in 2007. Its stated mission revolves around people, passion, and responsibility and thus far, Compartamos has achieved a tremendous number of success stories.

So what’s wrong? While Compartamos does extend loans to the poor, its primary focus holds profit above community, leading to actions such as loans being extended at annualized interest rates of over 100%. This approach has sparked a wave of controversy to observers within and outside of the social finance community.

What are your thoughts on the Compartamos example? Here are a couple links to kick-start the discussion:

• PRO: Hear Carlos Daniel, one of the co-CEO’s, talk about the Compartamos approach
• CON: Nobel Prize-winning microfinance pioneer Muhammad Yunus’s views on Compartamos

Photo credit: http://www.flickr.com/photos/reinante/4189687803/

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