Social enterprise

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see also: social entrepreneurship

A social enterprise is essentially an organisation that trades in the market, but aims to do more than make a financial profit; instead, it devotes the profit it makes towards a social objective.

Contents

The search for an "original" definition

As the term 'social enterprise' has become fashionable, a number of claims as to its origin have been made. Professor Jacques Defourny of the University of Liège and the EMES network traces it to Harvard University and the Ashoka Foundation, established in 1980 to support social entrepreneurship. Others say that it was first developed by Freer Spreckley in 1978 and promoted in a publication called Social Audit – A Management Tool for Co-operative Working published in 1981 by Beechwood College in Leeds, UK. In the original publication the term social enterprise was developed as a general description to cover a range of democratically owned and run organisations that use Social Audit as a way of measuring their non-commercial actions in conjunction with a financial audit to measure their financial actions. 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 - A Management Tool for Co-operative Working 1981 copy.)

This definition combines those of the workers' co-operative and neighbourhood co-operative, at that time promoted by ICOM, the Industrial Common Ownership Movement (now merged into Co-operatives UK).

European definition

Definitions still vary, and if anything the term is being interpreted more and more broadly. The best established European research network in the field, EMES http://www.emes.net, gives the following general definition:

Social enterprises can be defined as organisations with an explicit aim to benefit the community, initiated by a group of citizens and in which the material interest of capital investors is subject to limits. They place a high value on their independence and on economic risk-taking related to ongoing socio-economic activity.

This is an encapsulsation of its more complex Weberian 'ideal type', which sets out nine fuzzy criteria:

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.

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.

Activities

Ongoing research work characterises social enterprises as often having multiple objectives, multiple stakeholders and multiple sources of funding.

See presentation by Marthe Nyssens, lead author of the most recent EMES study, Social Enterprise - At the crossroads of market, public policies and civil society (Routledge, 2006): http://katarsis.ncl.ac.uk/ws/ws3/Presentations/WP1-1-socialenterprise-nyssens.pdf

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

Finnish definition

  • In Finland a law was passed in 2004 that defines a social enterprise (sosiaalinen yritys) 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 April 2008, some 160 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);

Finland used the EQUAL initiative to explore broader conceptions of social enterprise (see 2005 conference report). In 2009 the Ministry of Employment and the Economy (TEM) launched the two-year Hyvä (‘Good’) project to improve the productivity of health and care service, including by introducing a purchaser-provider split. Wishing to learn from the British experience, the project commissioned a report from Jonathan Bland, former CEO of the Social Enterprise Coalition in the UK. The report, Social Enterprise Solutions for 21st Century Challenges – the UK Model of Social Enterprise and Experience[1], clarifies the role of social enterprise in the delivery of services other than work integration:

There is already some social enterprise activity in Finland; the associations that have set up new companies to deliver care services, a wave of new co-operatives established over the past 20 years and according to a survey there are businesses that have social aims….
The Finnish government is committed to finding new models to renew the production of public services, particularly in the field of health and care. There is agreement at national level, from then municipalities, private business and the NGO sector that the system must be renewed. Social enterprises offer a model that can achieve consensus support across the political spectrum and from wider society to reform service delivery.

As a result, we may see the growth of a sizeable sector of social enterprises in the health and care sector. To avoid ambiguity, the term yhteiskunallisten yritysten has now been invented to refer to this broader conception of social enterprise.

Italian definition

  • Italy passed a law in 2005 on imprese sociali, which the government gave form and definition by decree in 2008.

UK definition

Government

  • In the UK, the government has adopted a very loose definition, focusing on non-proft distribution rather than ownership or participation: social enterprises are “businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or community, rather than being driven by the need to maximise profit for shareholders and owners” [1].
However organisations of social enterprises themselves often use more elaborated definitions.

Social Enterprise London

The UK's first substantial promoting body in the 1990s used three criteria:

  • 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 Coalition

The UK's national apex organisation for social enterprises describes social enterprise as follows:

Social enterprises are profit-making businesses set up to tackle a social or environmental need.
Many commercial businesses would consider themselves to have social objectives, but social enterprises are distinctive because their social or environmental purpose is central to what they do. Rather than maximising shareholder value their main aim is to generate profit to further their social and environmental goals.
Well-known examples of social enterprises include Jamie Oliver's restaurant Fifteen, The Big Issue, the Eden Project, the Co-op Bank and fair-trade coffee company Cafédirect.
Recent government data suggest that there are more than 55,000 social enterprises in the UK with a combined turnover of £27bn. Social enterprises account for 5% of all businesses with employees, and contribute £8.4 billion per year to the UK economy.
The social enterprise movement is inclusive and extremely diverse, encompassing organisations such as development trusts, community enterprises, co-operatives, housing associations, 'social firms' and leisure trusts, among others. These businesses are operating across an incredibly wide range of industries and sectors from health and social care, to renewable energy, recycling and fair trade.
Social enterprise is a business model which offers the prospect of a greater equity of economic power and a more sustainable society - by combining market efficiency with social and environmental justice.
We believe social enterprise is the business model for the 21st century.

References

Carlo Borzaga and Jacques Defourny (eds), The Emergence of Social Enterprise, Routledge, London and New York, 2001. ISBN 0 415 33921 9
Marthe Nyssens (ed), Social Enterprise - At the Crossroads of market, public policies and civil society, Routledge, Abingdon and New York, 2001. ISBN 0 415 37878 8

  1. http://www.tem.fi/files/26787/TEM_22_2010_netti.pdf. English language version available but not online