 | There's a lot of confusion and mis-understanding about what social enterprise 'is' – this feature is not an attempt to definitively 'nail the jelly', but answers some of the key questions about social enterprise and (hopefully) dispels some of the myths and mis-understandings that people may be being exposed to.
It’s intended as a ‘primer’, from which people can better explore and learn from other sources.
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A social enterprise is any organisation that trades to achieve a social good, with the clear majority of its profits being dedicated to this (so limited opportunities for private individuals to personally profit from it); its mission is 'protected' from future members/directors subverting it for personal and private gain.
Traditionally, peoples' and societies' needs were met by 1 of 3 methods -
1) private business who saw an opportunity to make money for individual benefit;
2) charities (including faith bodies) who recognised that societies' needs could not be entirely met by private business;
3) the state – who 'picked up the slack' left over.
However, it is increasingly recognised that some needs are not and cannot be met by these methods – private businesses will not trade where then cannot make what they deem 'sufficient' profits; there are less grants for charities; and the state only has so much money it can spend...
A hybrid approach is therefore becoming increasingly attractive – social enterprises, which combine the purposes of charities with the sustainable trading practices of business.
'Doing good', or ‘Corporate Social Responsibility’ is a response by the private business community to changing market forces and interests and demands of their customers for them to be more ‘ethical’ and ‘fair’ in their trading practices.
But as this response is based on customer preferences only, what will happen to them when they are no longer in fashion in the market place?
Social Enterprises are founded on these principles of ‘doing good’ and enshrine them so they cannot be forgotten or lost.
Descriptions of social enterprise may sound very similar to those of charities, especially as there are ways in which charities can trade in the marketplace.
However, the key difference is to be found in their origins – charities are formed on philanthropic motivations: the desire to 'do good to/for others'; as such their governance also makes it difficult to actively involve beneficiaries in formal decision making processes. Charity Trustees are also not generally able to be employed by them.
Social enterprises are formed by people who are experiencing, or seeing, a need, and want to pursue ways to address them using methods that are more flexible and responsive than traditional charity forms may allow. Also, they do not wish to rely on the continuing goodwill and philanthropy of others in financing their efforts, looking instead to market opportunities to generate money than can be used more flexibly and freely than those offered through grants and gifts.
In some instances yes – but then there are grants and subsidies available to some private businesses too. But in the main, there are no great pots of free money for 'social enterprise only' applications in the same way that there are for charities.
But this should be of little concern – if they are going to be sustainable enterprises in the marketplace, they should not be modeling themselves to rely on being 'propped up'.
In keeping with their defining characteristics and purposes, the clear majority of all profits should be directly used to further achieve its social purpose – through re-investment or gifts.
However, depending on how they are structured, social enterprises should also have the opportunity of rewarding the risks taken by investors (within limitations) – after all, if it is using established practices from private businesses, it may choose to raise equity or share capital as a means to finance itself.
Principally an assurance over your intent and purpose, and that these are 'protected' into the future.
There may be additional factors, subject to your marketplace and 'audiences' – these may include credibility with certain public sector procurement officers; and ability to apply for finance on more favourable terms from sector-specific investment groups.
Generally, there's a lack of widespread understanding and appreciation of what social enterprise is.
However, if it’s focused on delivering a sustainable quality service to its customers in the open marketplace, this should be of little concern.
There is no single legal model for social enterprises - they can adopt a wide variety of structures and formats within the definition of them.
As such, many agencies and bodies have created a 3-point ‘check-list’ in deciding if an organisation qualifies as a social enterprise:
the principle purpose of the enterprise is to create or effect a socially beneficial purpose;
it achieves this through commercial trading activities;
the profits generated are ‘locked in’ to the company for re-investment through an asset lock and restrictions on how it is able to distribute annual profits to private individuals (shareholders)
Some argue that within its legal membership, a social enterprise should have representation from the wider local community that it serves.
However, this is not endorsed by the state through its definitions, by the Social Enterprise Coalition, or by the European Social Enterprise Research Network (EMES).
And even those bodies advocating this characteristic recognise that it will not apply to all social enterprises, especially where their trading area is not limited to a specific community or geographical area or owing to their relative stage in their maturity or development as an organisation.
Conclusion
Adrian is recognised by many to hold an expert knowledge in social enterprise fields; he works within national programmes, directly supports local groups and is a commentator and lobbyist on this sector.
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