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
including individuals and existing business who have diffuculy 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. (see also entredonneur). 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, 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 a 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 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.
