Social enterprise

Social enterprises are social mission driven organizations which trade in goods or services for a social purpose. The need to deliver on financial, social and environmental performance targets is often referred to as having a triple bottom line.

It could be that the profit (or surplus) from the business is used to support related or unrelated social aims (as in a charity shop), or that the business itself accomplishes the social aim through its operation, say through the employment of people from a disadvantaged community including individuals and existing business who have difficulty in securing investment from banks and mainstream lenders.

Social enterprise is a relatively new term for a type of business that has existed for at least a century. The term social enterprise relates to social entrepreneur, the name originally given to 19th century philanthropic businessmen and industrialists, who had genuine concern for the welfare of their employees. Today, its use varies in different regions. In Britain, the focus is on the use of the surplus as the defining characteristic. In North America, there is less emphasis on generating a surplus and more on the double bottom line nature of the enterprise. European usage tends to add the criterion of social rather than individual ownership.

Social enterprises are generally held to comprise the more businesslike end of the spectrum of organisations that make up the third sector or social economy). A commonly-cited rule of thumb is that at least half their income is derived from trading rather than from subsidy or donations.

Social enterprise in the British context

The original use of the term social enterprise was first developed by Freer Spreckley 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:

"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 personal, environmental and social benefit." (For a copy of the original pamphlet that first described social enterprise please go to http://www.locallivelihoods.com Publications and download a PDF copy of the Social Audit 1981 copy.)

Whereas conventional businesses distribute their profit among shareholders, in social enterprises the surplus goes towards one or more social aims which the business has - for example fair trade, vocational training for disabled people, or environmental issues.

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.

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.

In 2002, the British government launched a unified Social Enterprise Strategy, and established a Social Enterprise Unit (SEnU) to co-ordinate its implementation in England and Wales. This was 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. In Scotland, social enterprise is a devolved function and is part of the remit of the Scottish Executive.

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. The government later 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.

Examples

Some well known social enterprises include Welsh Water (Glas Cymru), Cafédirect, The Big Issue and the Co-operative Group.

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) - http://www.cicregulator.gov.uk/. 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.

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. Social enterprise in the UK is represented by a national network (the Social Enterprise Coalition), by similar groups in each region of England, and in Northern Ireland, Scotland & Wales.

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.

Social enterprise in the North American context

The Social Enterprise Alliance, based in the USA with a membership that is mainly from the USA and Canada, just (March 2006) broadened its definition of Social Enterprise to

An organization or venture that advances its social mission through entrepreneurial earned income strategies.

from the prior definition

Any earned-income business or strategy undertaken by a nonprofit to generate revenue in support of its charitable mission.

This definition change specifically encompasses for-profit entities with a social mission, since some social mission organizations are choosing to incorporate as for-profit corporations (and some nonprofits are creating for-profit subsidiaries). The focus here is on the enterprise being carried out by an organization, and generating revenue, but not necessarily a surplus. Many social enterprises in North America are considered successful if they break even, or even if they operate at a loss if the effectiveness in social mission is achieved. For example, a social enterprise that employs formerly homeless people at a slight loss might be a big success if the amount of the loss is much less than the amount of the social supports that would otherwise be provided in lieu of employment.

Leading North American examples of social enterprise include Greyston Bakery (produces ingredients for Ben & Jerry's ice cream) and Housing Works in New York, Rubicon Programs in California and Kidslink in Ontario.

Much of the field in North America was driven by thinking from the REDF Foundation, which pioneered Social Return on Investment Analysis in connection with funding numerous social enterprises in the San Francisco region, such as Rubicon Programs. Working Assets, the 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. To date, Working Assets has raised over $50 million to organizations like Amnesty International, Doctors Without Borders and Planned Parenthood.

The Social Enterprise Reporter covers news for and about nonprofit entrepreneurs in North America.

See also: social entrepreneurship

Social enterprise from a European perspective

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:

• 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 passed a law in 2005 on imprese sociali, to which the government will in due time give form and definition by decree.

Social enterprise in Australia

Cumberland Industries Ltd Australia considers itself a social enterprise, which it defines as: an organisation which operates on a commercial basis but to achieve social outcomes. The company employs over 500 with a disability and those from disadvantaged backgrounds. In July 2008 the first Social Enterprise Centre will be opened for business in Auburn, NSW (near the Sydney Olympic's 2000 site). The Social Enterprise Centre is the result of a funding contribution from the Federal Department of Transport and Regional Services (DOTARS)and a contribution of land and money from Cumberland Industries Ltd. The NSW State Government is also providing funding support by way of providing management consulting advice to organisations involved in the support, care and accommodation of people with a disability, as well as the aged (known as DADHC). The Social Enterprise Centre will provide serviced-office type facilities for a number of independent disability organisations. The Centre is modelled on a similar centre operating in London. The difference within the Australian model is that it will also operate a training and conference facility on a commercial basis with, for most part, staffing provided by people with a disability who are trained in hospitality and event management skills. These 'trainees' then have the opportunity to move into mainstream open employment equpped with the skills and training necessary to be a success.

Social enterprise in India

The Madras Medical Mission (MMM) is a voluntary organization established by the members of the Syrian christian community in Chennai, India inspired by the missionary zeal of Bishop Zachariah Mar Dionysius, Metropolitan of the Madras Diocese of the Orthodox Church of India. Strengthened by the devotion and commitment of the members of this Community at Chennai (erstwhile Madras city of TamilNadu ) who promoted the registered charitable society in 1982, it strives to participate in the healing ministry by seeking to foster an environment of caring, compassion and love that enables it to respond to patient needs in enviable ways.

From modest beginnings two decades ago, the synergy of proficient practitioners, prudential management and providential guidance has metamorphosed this ISO 9001:2000 certified Madras Medical Mission into an organization of excellence that promotes some of the finest super-speciality tertiary care medical institutions in India , with superlative infrastructure, leading edge technology and accomplished professionals.

The George Foundation (TGF) is a non-governmental organization established in 1995 by Dr. Abraham M. George in Bangalore, India. TGF's Baldev Farms funnels profits from the sale of crops to finance the foundation's other charitable projects (school for financially impoverished children, women’s empowerment, basic medical care, and other relevant initiatives).

Social enterprise in Hong Kong

Social enterprise also begins to develop in Hong Kong. Just established by the Hong Kong Council of Social Service in early 2006, the Social Enterprise Resource Centre aims to provide one-stop service for social enterprises and NGOs in Hong Kong to nurture the growth of social businesses. It offers training programme, consultancy service, marketing and promotional opportunities for social ventures. It also organize public education programmes and publish social enterprise directory and leaflet to advocate the social values of these newly-developed enterprises to the public.

Social Enterprise Awards

There are several awards that recognise and reward social enterprises.

The Enterprising Solutions Awards 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 recognise the work undertaken by many organisations within the social enterprise movement.

Previous winners include: the Divine Chocolate Company, Greenwich Leisure Limited, and Hackney Community Transport.

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

See also

• Social business enterprise
• Impact maximization
• Social entrepreneurship
• Social responsibility
• Public Social Private Partnership
• Grameen family of organizations