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Social enterprise

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Social enterprises are social mission driven organizations which apply market-based strategies to achieve a social purpose. The movement includes both non-profits that use business models to pursue their mission and for-profits whose primary purposes are social. Their aim – to accomplish targets that are social and/or environmental as well as financial – is often referred to as the triple bottom line. Many commercial businesses would consider themselves to have social objectives, but social enterprises are distinctive because their social or environmental purpose remains central to their operation.

Rather than maximizing shareholder value, the main aim of social enterprises is to generate profit to further their social and or environmental goals. This can be accomplished through a variety of ways and depends on the structure of the social enterprise. The profit from a business could be used to support a social aim, such as funding the programming of a non-profit organization. Moreover, a business could accomplish its social aim through its operation by employing individuals from disadvantaged backgrounds or lending to micro-businesses that have difficulty in securing investment from mainstream lenders.

The Social Enterprise World Forum was established in 2008 to provide an opportunity for social enterprise leaders and practitioners from around the world to collaborate in support of social enterprise development. To date over 1500 people have attended the annual world forums, these have been held in Edinburgh (2008), Melbourne (2009) and San Francisco (2010). The 2011 World Forum is being held in Johannesburg and the SEWF steering group is receiving expressions of interest for the 2012 World Forum to be held in Asia.

In Australia

The forms social enterprises can take and the industries they operate in are so many and various that it has always been a challenge to define, find and count social enterprises. In 2009 Social Traders partnered with the Australian Centre for Philanthropy and Nonprofit Studies (ACPNS) at Queensland University of Technology to define social enterprise and, for the first time in Australia, to identify and map the social enterprise sector: its scope, its variety of forms, its reasons for trading, its financial dimensions, and the individuals and communities social enterprises aim to benefit.

This Finding Australia’s Social Enterprise Sector project produced its final report in June 2010. The project was led by Associate Professor Jo Barraket, Australia’s leading social enterprise academic.

One of the key features of this Australian research is its intention to define social enterprise in a way that was informed by and made sense to those working in or with social enterprises.

The research design therefore included workshops to explore and test what social enterprise managers, researchers, and relevant policy makers meant by the term ‘social enterprise’. This was the resulting definition:

Social enterprises are organisations that:

a. Are led by an economic, social, cultural, or environmental mission consistent with a public or community benefit;

b. Trade to fulfil their mission;

c. Derive a substantial portion of their income from trade; and

d. Reinvest the majority of their profit/surplus in the fulfilment of their mission.

In North America

The Social Enterprise Alliance(SEA), based in the USA, defines a “social enterprise” as “an organization or venture that advances its primary social or environmental mission using business methods.”

SEA advocates for the social enterprise field, acts as a hub of information and education for its members, and promotes the continued growth of this vibrant sector. Every year, the Social Enterprise Alliance puts together the largest gathering of leaders representing enterprising non-profits, fair trade, digital inclusion, micro-finance, for-benefit companies, and others pursuing a social or environmental mission using market-driven approaches. The event is known as the Social Enterprise Summit.

Much of the field in North America has been driven by thinking from REDF (formerly the Roberts Enterprise Development Fund; http://www.redf.org/), which pioneered Social Return on Investment Analysis in connection with funding numerous social enterprises in the San Francisco region. Working Assets, a San Francisco-based company, created a model of social enterprise through its mobile, credit card and long distance services that automatically generate donations to progressive organizations when customers use its services. Other leading North American examples of social enterprise include Greyston Bakery (which produces ingredients for Ben & Jerry's ice cream) and Housing Works in New York, Rubicon Programs in California and Kidslink in Ontario. Another leading organization in the social enterprise field is Community Wealth Ventures (http://www.communitywealth.com/), which is the largest social enterprise consulting firm in the country.

The Social Enterprise Reporter (http://sereporter.com) covers news for and about nonprofit entrepreneurs in North America.

In India

In India, a social enterprise may be a non-profit Non-governmental organization(NGO), often registered as a Society under Indian Societies Registration Act, 1860, a Trust registered under various Indian State Trust Acts or a Section 25 Company registered under Indian Companies Act, 1956.[1] India has around 1-2 million NGOs, including number of religious organizations, religious trust, like Temples, Mosque and Gurudwara associations etc., who are not deemed as Social Enterprises.

A social enterprise in India is primarily NGOs, who raise funds through some services (often fund raising events and community activities) and occasionally products. Despite this, in India the term, Social Enterprise is not widely used, instead terms like NGOs and NPOs (Non-profit organizations) are used, where these kind of organizations are legally allowed to raise fund for non-business activities. Child Rights and You and Youth United, are such examples of Social Enterprise, who raise funds through their services, fund raising activities (organizing events, donations, and grants) or sometimes products, to further their social and environmental goals.

In Kenya

In Kenya many NGOs, use business models to improve lives of people mainly in rural Kenya. An example of this is RISE KENYA [1] that runs project to mitigate climate change in the semi arid Eastern Province of Kenya. They also run weaving projects where by women who would traditionally engage in weaving make products that are marketed in the capital city Nairobi and in over seas markets of Europe and America.

In Europe

The best established European research network in the field, EMES, works with a more articulated definition - a Weberian 'ideal type' rather than a prescriptive definition - which relies on nine fuzzy criteria:

Economic criteria:

1. continuous activity of the production and/or sale of goods and services (rather than predominantly advisory or grant-giving functions).

2. a high level of autonomy: social enterprises are created voluntarily by groups of citizens and are managed by them, and not directly or indirectly by public authorities or private companies, even if they may benefit from grants and donations. Their shareholders have the right to participate ('voice') and to leave the organisation ('exit').

3. a significant economic risk: the financial viability of social enterprises depends on the efforts of their members, who have the responsibility of ensuring adequate financial resources, unlike most public institutions.

4. social enterprises' activities require a minimum number of paid workers, although, like traditional non-profit organisations, social enterprises may combine financial and non-financial resources, voluntary and paid work.

Social criteria:

5. an explicit aim of community benefit: one of the principal aims of social enterprises is to serve the community or a specific group of people. To the same end, they also promote a sense of social responsibility at local level.

6. citizen initiative: social enterprises are the result of collective dynamics involving people belonging to a community or to a group that shares a certain need or aim. They must maintain this dimension in one form or another.

7. decision making not based on capital ownership: this generally means the principle of 'one member, one vote', or at least a voting power not based on capital shares. Although capital owners in social enterprises play an important role, decision-making rights are shared with other shareholders.

8. participatory character, involving those affected by the activity: the users of social enterprises' services are represented and participate in their structures. In many cases one of the objectives is to strengthen democracy at local level through economic activity.

9. limited distribution of profit: social enterprises include organisations that totally prohibit profit distribution as well as organisations such as co-operatives, which may distribute their profit only to a limited degree, thus avoiding profit maximising behaviour.

Ongoing research work characterises social enterprises as often having multiple objectives, multiple stakeholders and multiple sources of funding. However their objectives tend to fall into three categories:

  • integration of disadvantaged people through work (work integration social enterprises or WISEs)
  • provision of social, community and environmental services
  • ethical trading such as fair trade

Despite, and sometimes in contradiction to, such academic work, the term social enterprise is being picked up and used in different ways in various European countries:

Czech Republic

In the Czech Republic a working party stemming from the development partnerships in the EQUAL programme agreed on the following distinctions (April 2008):

Social economy

It is a complex of autonomous private activities realized by different types of organizations that have the aim to serve their members or local community first of all by doing business. The social economy is oriented on solving issues of unemployment, social coherence and local development. It is created and developed on the base of concept of triple bottom line – economic, social and environmental benefits. Social economy enables citizens to get involved actively in the regional development. Making profit/surplus is desirable, however is not a primary goal. Contingent profit is used in preference for development of activities of organization and for the needs of local community. Internal relations in the social enterprises are headed to the maximum involvement of members/employees in decision-making and self-management while external relations strengthen social capital. Legal form of social economy entities is not decisive – what is crucial is observing public benefit aims as listed in the articles. Subjects of the social economy are social enterprises and organizations supporting their work in the areas of education, consulting and financing.

Social entrepreneurship

Social entrepreneurship develops independent business activities and is active on the market in order to solve issues of employment, social coherence and local development. Its activities support solidarity, social inclusion and growth of social capital mainly on local level with the maximum respect of sustainable development.

Social enterprise

Social enterprise means "a subject of social entrepreneurship", i.e. legal entity or its part or a natural person which fulfils principles of the social enterprise; social enterprise must have appropriate trade license.
The above mentioned definitions stem from the four basic principles which should be followed by all social enterprises. Standards with a commentary were settled for each principle. These standards were settled as the minimum so that they should be observed by all legal entities and all types of social enterprises. Specific types of enterprises, that are undergoing pilot verification within CIP EQUAL projects and that are already functioning in the Czech Republic, are social firms employing seriously disadvantaged target groups, and municipal social cooperatives as a suitable form of entrepreneurship with the view of development of local communities and microregions.
The legal form a social enterprise takes is not important, however they must be subject of private law. According to the existing legal system, they can function in a form of cooperatives, civic associations, public benefit associations, church legal entities, Ltd., stock companies and sole traders. Budgetary organizations and municipalities should not be social enterprises as they are not autonomous - they are parts of public administration.
Social entrepreneurship is defined very broadly. Beside employment of the people disadvantaged at the labour market it also includes organizations providing public benefit services in the area of social inclusion and local development including environmental activities, individuals from the disadvantaged groups active in business and also complementary activities of NGOs destined to reinvest profit into the main public benefit activity of an organization. Social entrepreneurship defined in such a wide way should not be directly bound to legal benefits and financial support because the concept of social entrepreneurship might be then threatened by misuse and disintegration. Conditions of eventual legal and financial support should be discussed by experts.

Finland

In Finland a law was passed in 2004 that defines a social enterprise as being any sort of enterprise that is entered on the relevant register and at least 30% of whose employees are disabled or long-term unemployed. As of March 2007, 91 such enterprises had been registered, the largest with 50 employees. In the UK the more specific term "social firm" is used to distinguish such "integration enterprises";

Italy

Italy passed a law in 2005 on imprese sociali, to which the government has given form and definition by Legislative Decree, 24 March 2006, no. 155 Under Italian law a social enterprise is a private entity that provides social utility goods and services, acting for the common interest and not for profit. The first general aspect that has to be highlighted is that a social enterprise is neither a new legal form, nor a new type of organization, but a legal category in which all eligible organizations may be included, regardless of their internal organizational structure. Therefore, the eligible organizations could in theory be cooperatives (i.e. employee-, producer-, or customer-owned firms), investor-owned firms (i.e. business corporations), or traditional nonprofit organizations (i.e. associations and foundations). This is the so-called principle of “neutrality of the legal forms” adopted by the Italian law. Hence, social enterprise is like a legal “brand” that all eligible organizations can obtain and use in the marketplace. The requirements are: - being a private organization; - performing an entrepreneurial activity of production of social utility goods and services (The Law prescribes that this must be the main activity, that is, it has to account for at least 70% of the total income of the organization); - acting for the common interest and not for profit. In order to be defined as a social enterprise, an organization needs to simultaneously possess all these attributes.

United Kingdom

The original use of the term social enterprise was first developed by Freer Spreckley in 1978, and later included in a publication called Social Audit – A Management Tool for Co-operative Working published in 1981 by Beechwood College. In the original publication the term social enterprise was developed to describe an organisation that uses Social Audit. Freer went on to describe a social enterprise as:[2]

An enterprise that is owned by those who work in it and/or reside in a given locality, is governed by registered social as well as commercial aims and objectives and run co-operatively may be termed a social enterprise. Traditionally, 'capital hires labour' with the overriding emphasis on making a 'profit' over and above any benefit either to the business itself or the workforce. Contrasted to this is the social enterprise where 'labour hires capital' with the emphasis on social, environmental and financial benefit.

Later on the three areas of social, environmental and financial benefits used for measuring social enterprise became known as the Triple Bottom Line.

Twenty years later Freer Spreckley and Cliff Southcombe established the first[3] specialist support organisation in the UK Social Enterprise Partnership Ltd. in March 1997.

In the British context, social enterprises include community enterprises, credit unions, trading arms of charities, employee-owned businesses, co-operatives, development trusts, housing associations, social firms, and leisure trusts.

Whereas conventional businesses distribute their profit among shareholders, in social enterprises the surplus tends to go towards one or more social aims which the business has – for example education for the poor,vocational training for disabled people, environmental issues or for animal rights.

Social enterprises are distinct from charities (although charities are also increasingly looking at ways of maximising income from trading), and from private sector companies with policies on corporate social responsibility. An emerging view, however, is that social enterprise is a particular type of trading activity that sometimes gives rise to distinct organisation forms reflecting a commitment to social cause working with stakeholders from more than one sector of the economy

The first agency in the UK - Social Enterprise London (SEL) - was established in 1998[4] after collaboration between co-operative businesses (Poptel, Computercraft Ltd, Calverts Press, Artzone), a number of co-operative development agencies (CDAs), and infrastructure bodies supporting co-operative enterprise development (Co-operative Training London, Co-operative Party, London ICOM, Co-operatives UK). SEL's first chief executive, Jonathan Bland, brought experience from Valencia where a business support infrastructure for co-operative enterprise was established using learning from the Mondragon region of Spain[5]. SEL did more than provide support to emerging businesses. It created a community of interest by working with the London Development Agency (LDA) to establish both an undergraduate degree in social enterprise at the University of East London (led by Jon Griffith) and a Social Enterprise Journal (now managed by Liverpool John Moores University and published by Emerald Publishing).

Two years later, The National Council for Voluntary Organisations (NCVO) established the Sustainable Funding Project. Using funds from FutureBuilders, Centrica and Charity Bank, this project promoted the concept of sustainability through trading to voluntary groups and charities.[6].

In 2002, the British government launched a unified Social Enterprise Strategy[7], and established a Social Enterprise Unit (SEnU) to co-ordinate its implementation in England and Wales. After a consultation on a new type of company (see CIC below), policy development was increasingly influenced by organisations in the conventional "non-profit" sector rather than those with their origins in employee-ownership and co-operative sectors. The 2003 DTI report on the consultation shows the disproportion influence of charitable trusts and umbrella organisations in the voluntary sector, and evidence now exists that the voice of progressive employee-owned organisations were marginalised in the course of producing the report.[8][9]

The Social Enterprise Unit was initially established within the Department of Trade and Industry (DTI), and in 2006 became part of the newly created Office of the Third Sector, under the wing of the Cabinet Office.

Following broad consultation, SEnU adopted a broader definition which is independent of any legal model. This latitudinarian definition could include not only companies limited by guarantee, and industrial and provident societies but also companies limited by shares, unincorporated associations, partnerships and sole traders.

A survey conducted for the SEnU in 2004 found that there were 15,000 social enterprises in the UK (counting only those that are incorporated as companies limited by guarantee or industrial and provident societies). This is 1.2% of all enterprises in the UK. They employ 450,000 people, of whom two-thirds are full-time, plus a further 300,000 volunteers. Their combined annual turnover is £18 billion, and the median turnover is £285,000. Of this, 84% is from trading. In 2006, the government revised this estimate upwards to 55,000, based on a survey of a sample of owners of businesses with employees, which found that 5% of them define themselves as social enterprises[10]. The most up to date estimates suggest that there are approximately 62,000 social enterprises in the UK, contributing £24 billion to the UK economy [11].

Branding In February 2010 the Social Enterprise Coalition launched the new Social Enterprise Mark. Like the Fair Trade brand, the Social Enterprise Mark aims to increase the visibility of socially motivated businesses. More than this, the mark represents the growing commercial identity of social enterprises and a deliberate attempt to carve out a recognisable niche for such organisations in the business community. Qualification for the mark requires that a business conform to set criteria, e.g. companies must earn at least 50% of their income from trade and spend at least 50% of their profits on socially beneficial purposes [12]. The mark has been received with mixed responses in some corners with suggestions that the qualifying criteria is not strict enough [13].

Scotland

In Scotland, social enterprise is a devolved function and is part of the remit of the Scottish Government.[14] Activities are co-ordinated by the Scottish Social Enterprise Coalition, and intellectual leadership is provided by the Social Enterprise Institute at Herriot-Watt University (Edinburgh), established under the directorship of Declan Jones. Senscot based in Edinburgh supports social entrepreneurs through a variety of activities including a weekly email bulletin by co-founder Lawrence Demarco.[15] The Social Enterprise Academy "deliver leadership, enterprise, and social impact programmes" throughout Scotland[16] and further support is provided by Development Trusts Association Scotland and Co-operative Development Scotland.[17][18]

Examples

Some well known social enterprises include John Lewis, Welsh Water (Glas Cymru), Cafédirect, The Eden Project, Divine Chocolate (Kuapa Kokoo), The Big Issue, the Co-operative Group, Duchy Originals, the London Symphony Orchestra, and Jamie Oliver's Restaurant - 15.

Three common characteristics of social enterprises as defined by Social Enterprise London are:

  1. Enterprise orientation: They are directly involved in producing goods or providing services to a market. They seek to be viable trading organisations, with an operating surplus.
  2. Social Aims: They have explicit social aims such as job creation, training or the provision of local services. They have ethical values including a commitment to local capacity building, and they are accountable to their members and the wider community for their social environmental and economic impact.
  3. Social ownership: They are autonomous organisations with governance and ownership structures based on participation by stakeholder groups (users or clients, local community groups etc.) or by trustees. Profits are distributed as profit sharing to stakeholders or used for the benefit of the community.

The UK has also developed a new legal form called the community interest company (CIC). CICs are a new type of limited company designed specifically for those wishing to operate for the benefit of the community rather than for the benefit of the owners of the company. This means that a CIC cannot be formed or used solely for the personal gain of a particular person, or group of people. Legislation caps the level of dividends payable at 35% of profits and returns to individuals are capped at 4% above the bank base rate.

CICs can be limited by shares, or by guarantee, and will have a statutory "asset lock" to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset-locked organisation, such as another CIC or charity.

A CIC cannot be formed to support political activities and a company that is a charity cannot be a CIC, unless it gives up its charitable status. However, a charity may apply to register a CIC as a subsidiary company.

The national body for the social enterprise movement in Britain is the Social Enterprise Coalition (SEC) and this liaises with similar groups in each region of England, and in Northern Ireland, Scotland & Wales. The definition of social enterprise propagated by the SEC is slightly broader than the original DTI definition and acknowledged that the social purpose of an organisation can be "embedded in its structure and governance"[19]. As such, social businesses that adopt inclusive governance structures and employee-ownership are brought fully into the fold of the movement.[20]

The Social Enterprise Mark is a symbol which tells customers that a product or service comes from a social enterprise. Enterprises wanting to use the mark must provide evidence against an agreed set of criteria that proves they are a social enterprise. The Social Enterprise Mark was launched as a pilot project in South West region in November 2007 and in 2009 it started to be used by social enterprises in other regions. Social enterprises can apply online at Social Enterprise Mark

Social firms

Another example of a type of social enterprise is the social firm, a business set up specifically to create employment for people otherwise severely disadvantaged in the labour market.

Awards

There are several awards that recognize and reward social enterprises.

The Enterprising Solutions Award is the UK's national award for social enterprise. Run by the Social Enterprise Coalition in partnership with the Office of the Third Sector in the Cabinet office and the Community Banking branch of the RBS Group, the awards recognize the work undertaken by many organizations within the social enterprise movement.

The Edge Upstarts Awards are run annually by the New Statesman in the UK.

The Hong Kong Social Enterprise Challenge is the first and the only inter-collegiate social ventures business competition in Hong Kong.

See also

References

  1. ^ http://en.wikipedia.org/wiki/Republic_of_India_non-profit_laws
  2. ^ Freer Spreckley, http://www.locallivelihoods.com/Documents/Social%20Audit%201981.pdf Social Audit – A Management Tool for Co-operative Working, Local Livelihoods, 1981.
  3. ^ http://wck2.companieshouse.gov.uk/eaac71f56a94e9edebdd4706d92f857b/companysearch?disp=1&frfsh=1226152950#result Information provided by companies house
  4. ^ http://wck2.companieshouse.gov.uk/b59f3d73d53d4991c9f33cb34a3d7f7f/compdetails Information provided by Companies House
  5. ^ Understanding Social Enterprise: Theory and Practice, 2008 Social Enterpreneurship Research Conference, www.lbsu.ac.uk.
  6. ^ Outcome Monitoring Proposal - Sustainable Funding Project, submitted to NCVO, 20th March 2005. The proposal include a short history of the Sustainable Funding Project.
  7. ^ DTI (2002), Strategy for Social Enterprise. London: HM Treasury.
  8. ^ DTI (2003), Enterprise for Communities: Report on the public consultation and the government's intentions, HM Treasury. The appendices show quotations from contributors.
  9. ^ Ridley-Duff, R. J. (2007) "Communitarian Perspectives on Social Enterprise", Corporate Governance: An International Review, 15(2), 382-392. Footnote 10 describes a meeting at the Home Office in February 2004 involving staff from the Social Enterprise Unit. The influence of charitable trusts on the outcome of the consultation was discussed at this meeting.
  10. ^ Lincoln, A. (2006) Welcome address: DTI presentation to Third Annual UK Social Enterprise Research Conference, London South Bank University (22 June)
  11. ^ Cabinet Office. (2009). Social Enterprise [Online], London: Cabinet Office http://www.cabinetoffice.gov.uk/third_sector/social_enterprise.aspx Accessed 21 December 2009
  12. ^ Social Enterprise Mark. (2010). Social enterprise; trading for people and planet [Online], London: Social Enterprise Mark Co. http://www.socialenterprisemark.org.uk/ Accessed 11 February 2010.
  13. ^ Ainsworth, D. (19 March 2010). "Survey shows support for setting up rival social enterprise mark in Scotland", Third Sector [Online]. London: Third Sector. http://www.thirdsector.co.uk/go/contactus/ Accessed 26 March 2010
  14. ^ Social Enterprise in Scotland Retrieved 30 June 2007.
  15. ^ Senscot
  16. ^ Social Enterprise Academy
  17. ^ DTAS
  18. ^ CDS
  19. ^ New Economics Foundation / Shorebank Advisory Services (2004) Unlocking the Potential, London: The Social Enterprise Coalition, page 8.
  20. ^ EAO (2008) "The voice of co-owned business"

Further reading

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