'Social' Stock Exchange
Gone are the days of conventional capitalism. This is the age of social enterprise.
While companies have existed in some shape or form since the early 1700s, the idea of shareholder supremacy is relatively new.
In his landmark book, Capitalism and Freedom (1962), economist Milton Friedman advanced the theory of shareholder primacy which says that "corporations have no higher purpose than maximizing profits for their shareholders."
Today, finance folks believe that this is how the world has always run, but that's far from the truth. This system is only 50-odd years old.
Some capitalists from America enshrined the doctrines of Friedman, and the world never looked back. Corporations boasted of being 'shareholders-first.' All financial decisions were taken keeping profit and shareholders’ wealth maximisation at the core.
Now, it looks like things are changing.
The pandemic has shown us that the need of the hour is to prioritise social returns over financial returns. We need to maximise social impact.
Don't get us wrong. We are not saying profits are bad. Just that there are enterprises that see profits (or financial sustainability, as they like to call it) as a means, rather than an end. Social enterprises. Run by brave-hearts, who sweat and toil for a worthy cause.
But often, because of the lack of a structured ecosystem, these social enterprises in our country face difficulties in raising funds. 'Impact investors' (those who believe in creating social impact through their investments) also find it difficult to assess the impact of social initiatives that companies drive due to lack of standard evaluation structures.
This is where the idea of a Social Stock Exchange (SSE) comes into the picture.
SEBI has come up with a draft policy on Social Stock Exchange (SSE), where both, for-profit social enterprises (FPEs) and not-for-profit organisations (NPO) can list their securities to raise funds (be it debt, equity or mutual fund like units).
"India’s economic imperative is to feed, clothe, educate, and empower more than a billion people. It cannot expect to accomplish this lofty objective on the strength of conventional commercial capital alone."
Hence, the need for social capital - to de-prioritise shareholder's returns, and focus on enhancing social impact. Had conventional capital been sufficient to uplift the masses, we wouldn't have 3 million NPOs working tirelessly to create an impact. These enterprises and organisations need adequate financial assistance and support to thrive.
The policy seeks to 'establish robust standards of social impact and financial reporting.' This will help boost investor confidence and make it easier for FPEs and NGOs to raise money. Moreover, social enterprises will now have to report a “Social Impact Scorecard” to enable reliable assessment of the reach and depth of their social initiatives.
The SSE is also uniquely poised to become an important component of India’s policy response to Covid-19. We desperately need our FPEs and NGOs to buckle up and support the suffering masses.
For example, through sourcing funds for NPOs from interested investors, SSE can enable relief needed by migrant workers. These NPOs and FPEs work very closely with the local authorities, and usually have a better grip on the situation on-ground.
At the core, SSE will encourage and develop an ecosystem to support the growth of social finance.
Hear, hear capitalists. Social finance. Repeat that till it sinks in.
Finance for a cause is here.
The spotlight is on social-entrepreneurs.
May the force be with us. ReadOn.
Noob's Corner
Stock Exchange allows investors to buy and sell shares of a company in a regulated and legitimate space. It makes sure that the buyer pays, and the seller delivers the shares. In India, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are the most popular stock exchanges.
Capitalism is an idea that promotes private control over trade and industry instead of them being controlled by a State (socialism believes in State's control). The fundamental belief is that trade and industry should be under private ownership, and for-profit (thereby creating a free-market economy, where demand and supply determine what is to be produced, rather than political or social ideologies). Friedman took this idea a step further and declared that the primary objective of a corporation or company was to make profits and increase shareholders' wealth. Any other objective would contradict the idea of a "free economy."
Thousands of readers get our daily updates directly on WhatsApp! 👇 Join now!