Lawrence Nicholson | The value of social capital

Consider the following comments:

“My father wants me to contribute to the family-owned business. I am not sure how I can do that because I have no money, or what he calls capital.”

“I am not even sure I want to be part of the business, I have my own profession anyway.”

“Maybe you can contribute other capital, other than what you refer to as financial capital.”

“Other capital ... what do you mean?”

“Given your high profile, connections and widespread network, you might be able to contribute some social capital.”

“Really! What is that?”

They are extracts from conversations with family members of FOBs, or family-owned businesses. The truth is that one’s contribution to the business is usually measured exclusively by their financial input. Many FOBs believe that it’s nonsensical to talk about any capital input except cash, that is, ‘money to spend’; no more, no less. By taking this position, FOBs could be limiting the contribution of children, cousins and other members of the family business.

But what is this social capital ‘thingy’, some might ask.

TYPES OF CAPITAL

We can start from the position that capital is not money, but the tool needed by the business to enhance the production process. In this regard, we can talk about different types of capital, such as financial, economic, human and social.

Not to worry, no attempt is being made here to delve into the details and nuances of, say, financial and economic capital. Suffice it to say that it could prove useful for businesses to have an understanding of the difference between the two.

Financial capital for the business refers to the monetary assets – equity and debt – required to provide the agreed goods and services; while economic capital refers to the amount of resources a business needs to overcome the risks that it takes.

Of course, I could cause some economists to cringe by twinning the two, by stating that economic/financial capital refers to the amount of financial resources a company needs to absorb potential losses due to the risks and uncertainties within its operations. The debate is heating up!

What cannot be disputed is that the overall financial health of a business is more than the financial capital or the money in the business. For example, is there any value placed on human capital?

Human capital of the business refers to the collection of resources or stock of skills that individuals possess, and which contribute productive activities to the business. Many refer to human capital as the intrinsic productive capabilities of the employees – including experience, skills and talents – and can be enhanced through continuing education and professional development seminars.

Are FOBs investing enough in human capital? Of course, there was a time when the mere mention of the term ‘human capital’ would be rejected by some historians because it evoked the cruelty of slavery. Space does not allow for such a debate.

IGNORED AND UNDERUTILISED

I think FOBs are ignoring and underutilising the value of social capital. For many, it might be a case of being in a state of ignorance regarding the value of social capital in the overall health of the business. But what is this social capital?

There are varied definitions and perspectives of social capital, thus there is no consensus on a definition for social capital, for substantive and ideological reasons. From as early as 1916, Lyda Hanifan referred to what we now call social capital as “those tangible assets [that] count for most in the daily lives of people: namely, goodwill, fellowship, sympathy and social intercourse among the individuals and families who make up a social unit”.

At the basic level, social capital is about having access to resources that are linked to social relationships of different forms – friends, customers, community, family and neighbours. Expressed another way, social refers to a set of shared values or resources, fostered through social networks and social connections, which allow individuals to work together in a group or business to effectively achieve a common purpose.

Access to these resources is dependent on the structure of the networks and the nature of the relationships.

The question for FOBs is: how well are you using the networks, connections and social relationships of family members, friends and interests groups of the business to enhance the productive process of the business?

Conversations with many FOBs in Jamaica suggest that there is little place for family members who are not available to work in the business or able to contribute financially to the business. It might be time for FOBs to include, as part of their annual strategy, ways in which family members, and friends of the business, can use their social networks, connections and social relationships to enhance the productive processes.

FOBs have an advantage in optimising the value social capital. By the mere tenets of social capital, it can be concluded that FOBs are primarily geared to gain from it.

Characteristics of FOBs that will facilitate the maximising of social capital in enhancing the productive processes include the potential to be a tightly knit unit, having a set of shared and common value systems, having naturally formed social networks and deep familial relationships.

Alas, these characteristics are not always present in many FOBs. All is not lost, however. They can start the rebuilding process today. Jamaica will benefit from this!

More anon.

Lawrence Nicholson, PhD, is a senior lecturer at the Mona School of Business & Management, University of the West Indies, author of Understanding the Caribbean Enterprise: Insights from MSMEs and Family-Owned Businesses and a director of the RJRGLEANER Communications Group. Email: lawrence.n.08@gmail.com