Bringing a Business Approach to Doing Good

Bringing a Business Approach to Doing Good

A job is better than a handout. Here’s the ‘social enterprise’ way to put people to work.

By George R. Roberts in the Wall Street Journal

As co-founder of Kohlberg Kravis Roberts & Co. ( KKR ), I use data to understand untapped potential in a business. Similarly, data can be used to help unlock potential in communities across the U.S. Despite declining unemployment, millions of Americans who could be put to work are trapped outside the labor market. Yet, as with an underperforming company, there are effective and proven strategies that can help them realize their potential.

Stigmas and limited skills that would prepare them for jobs plague many of these potential workers on the margins of society, including homeless people; young adults disconnected from work and school; and those formerly incarcerated, or suffering from addiction, mental illness or other disabilities. Some are single adults or veterans; others are parents with children.

However, striking new evidence shows that a business model called social enterprise can provide these people with training, support and work. Social enterprises leverage a business approach to address a social mission, making improvements in human and environmental well-being, rather than maximizing profits for external stakeholders. These businesses earn and reinvest their revenue to provide more people with jobs that build skills and a career path. Social-enterprise businesses represent several industries, including construction, maintenance, landscaping, manufacturing and electronic-waste recycling, among others, providing both jobs and training in these fields.

I founded the Roberts Enterprise Development Fund (REDF) in 1997 to fund not-for-profit endeavors that would provide training and entry-level jobs for the chronically unemployed. The organization stuck with it, learned, adapted and improved. Over the past 18 years, REDF-invested enterprises have placed more than 9,500 Californians in jobs. REDF is not alone—today, social enterprises hire and provide hope for hundreds of thousands.

Starting in 2011, the federal government’s Social Innovation Fund chose REDF to expand the model and study whether it works and is worth the investment. To that end, REDF commissioned the research firm Mathematica Policy Research to conduct a rigorous, first-of-its-kind study. Just released, the Mathematica Jobs Study evaluated seven social enterprises in California, including Chrysalis, which has several business lines including street cleaning, facilities management and front-desk staffing, and Hope Builders, a general-contracting company.

One year after accepting a social-enterprise job, the study reported, workers were more likely to have stable employment either in a social enterprise or with another employer, and had greater economic self-sufficiency and more life stability. Before employment, a quarter of the people in the study had never had a job, and 85% were homeless or lived in unstable housing, such as shelters, hotels, or with friends or family. One year later, 62% were working; on average their monthly work income increased by 268%, their income from government benefits was reduced to 24% from 71%. Also, the number of people owning or renting a home throughout the year tripled.

The Mathematica study also shows that social enterprise delivers a positive return on investment for society. For every $100,000 invested, the return is $223,000, including savings to taxpayers with reduced public benefits and avoided incarceration, and social-enterprise business revenues and workers’ incomes.

At KKR, when we identify a strategy that works, we try to share it across our portfolio and industries. At REDF, we have a similar goal, but before we try to expand the power of social enterprise to help the long-term unemployed, we first need to ensure that workers are really better off in accepting entry-level jobs. The Mathematica study found that, on average, workers were poorer by $165 after one year. This was in part because wages didn’t rise quickly enough to cover increased housing and other costs. Employers can help these new workers by making sure that they receive training for greater opportunity and upward mobility.

But we must also ensure that government policies don’t unintentionally undermine work. When someone who has been out of work starts a job, he loses housing and other benefits, regardless of wages. A job should help relieve financial hardships, not create new ones; the “benefits cliff” is a major disincentive to gainful employment. One possible solution: Expand the earned-income tax credit that provides tax relief for low-income working parents of minor children, making it available to individuals who don’t have children. This type of change would provide an important incentive to work, and can be made federally or by individual states.

When more people contribute their talents to the economy, everyone wins. More capital is needed to help fuel this effort, and to that end I urge my colleagues in the business community to partner with these social enterprises through their supply chain and hiring practices to make them and the people they employ as successful as possible.

Mr. Roberts is co-founder and co-CEO of Kohlberg Kravis Roberts & Co. (KKR), and chairman of the Roberts Enterprise Development Fund board of directors.