Social enterprise

Social enterprise is a relatively new term for a type of business that has been in existence for at least a century.

Briefly, social enterprises are organizations which trade in goods or services and link that trade to a social mission. The need to deliver on both financial and social performance targets is often referred to as having a double 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.

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

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. According to the UK ministry responsible, the Department of Trade and Industry (DTI), there is no single legal model for social enterprise. They include companies limited by guarantee, industrial and provident societies and companies limited by shares; some organisations are unincorporated and others are registered charities. Social enterprises are diverse.

A survey conducted for the SEnU in 2004 finds that there are 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.

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

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

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.

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.

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.

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, defines Social Enterprise as

Any earned-income business or strategy undertaken by a nonprofit to generate revenue in support of its charitable mission. "Earned income" consists of payments received in direct exchange for a product, service or privilege.

The focus here is on the enterprise being carried out by a nonprofit/charity 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.

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, has proposed a more articulated 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.

Social enterprise in Canada

Community economic development [1] efforts abound and assist the growth of the social economy. The Vancouver Social Enterprise Forum exists to support social entrepreneurs and provides information (newsletter/blog/social bookmarks) to assist with local enterprise development.

Links

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:

UK National - Social Enterprise Coalition

East of England - Social Enterprise East of England

East Midlands Social Enterprise East Midlands

London Social Enterprise London

North East North East Social Enterprise Partnership

South East South East Social Enterprise Partnership

South West RISE

(There is no website for North West, West Midlands, or Yorkshire & Humberside at present)

Scotland Senscot

Wales Community Enterprise Wales

(There is no website yet for Northern Ireland)