A social enterprise is an organization that applies business strategies to achieving philanthropic goals. Social enterprises can be structured as a for-profit or non-profit.
Many commercial enterprises would consider themselves to have social objectives, but commitment to these objectives is fundamentally motivated by the perception that such commitment will ultimately make the enterprise more financially valuable. Social enterprises differ in that, inversely, they do not aim to offer any benefit to their investors, except where they believe that doing so will ultimately further their capacity to realise their philanthropic goals.
Many entrepreneurs, whilst running a profit focussed enterprise that they own, will make charitable gestures through the enterprise, expecting to make a loss in the process. However unless the social aim is the primary purpose of the company this is not considered to be social enterprise. The term is more specific, meaning 'doing charity by doing trade', rather than 'doing charity while doing trade'. Another example is an uncorporation, which may pursue social responsibility goals that conflict with traditional corporate shareholder primacy, or may donate most of its profits to charity.
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The idea of social enterprise has a long history around the world, though under different names and with different tendencies.[1] Whilst many social enterprises will today accept finance and other forms of support from the state, they are essentially private sector operations with a goal that is philanthropic.
Social enterprises are often - but not exclusively - a type of non-profit organisation. There are many non-profit organisations that are meant to be self-serving. Only where a non-profit enterprise has goals widely considered to be philanthropic, can it safely be considered a social enterprise. That said, defining a goal as philanthropic is, of course, subjective. For example, an organisation devoted to religious evangelism might be considered philanthropic by some and self-serving by others.
Relevant publications on the subject include the Social Enterprise Journal and the Annals of Co-operative Study. The European Social Enterprise Research network (EMES), and the Co-operative Research Unit (CRU) at the Open University have published research into social enterprise, as well as network organizations such as Co-ops UK, Development Trusts Association and Social Enterprise UK. An organisation called The Social Enterprise World Forum was established in 2008, aiming to provide an opportunity for people interested in social enterprise to communicate and collaborate globally.
The forms social enterprises can take and the industries they operate in are so many and various that it has always been a challenge to define, find and count social enterprises. In 2009 Social Traders partnered with the Australian Centre for Philanthropy and Nonprofit Studies (ACPNS) at Queensland University of Technology to define social enterprise and, for the first time in Australia, to identify and map the social enterprise sector: its scope, its variety of forms, its reasons for trading, its financial dimensions, and the individuals and communities social enterprises aim to benefit.
This Finding Australia’s Social Enterprise Sector project produced its final report in June 2010. The project was led by Associate Professor Jo Barraket, Australia’s leading social enterprise academic.
One of the key features of this Australian research is its intention to define social enterprise in a way that was informed by and made sense to those working in or with social enterprises.
The research design therefore included workshops to explore and test what social enterprise managers, researchers, and relevant policy makers meant by the term ‘social enterprise’. This was the resulting definition:
Social enterprises are organisations that:
a. Are led by an economic, social, cultural, or environmental mission consistent with a public or community benefit;
b. Trade to fulfil their mission;
c. Derive a substantial portion of their income from trade; and
d. Reinvest the majority of their profit/surplus in the fulfilment of their mission.
The Social Enterprise Alliance (SEA) of the United States defines a “social enterprise” as “an organization or venture that advances its primary social or environmental mission using business methods.”[2]
In the U.S, two distinct characteristics differentiate social enterprises from other types of businesses, nonprofits, and government agencies:
In the United States, “social enterprise” is also distinct from “social entrepreneurship,” which broadly encompasses such diverse players as B Corp companies, socially responsible investors, “for-benefit” ventures, Fourth Sector organizations, CSR efforts by major corporations, “social innovators” and others. All these types of entities grapple with social needs in a variety of ways, but unless they directly address social needs through their products or services or the numbers of disadvantaged people they employ, they do not qualify as social enterprises.
In India, a social enterprise may be a non-profit Non-governmental organization (NGO), often registered as a Society under Indian Societies Registration Act, 1860, a Trust registered under various Indian State Trust Acts or a Section 25 Company registered under Indian Companies Act, 1956.[3] India has around 1-2 million NGOs, including number of religious organizations, religious trust, like Temples, Mosque and Gurudwara associations etc., who are not deemed as social enterprises.
A social enterprise in India is primarily NGOs, who raise funds through some services (often fund raising events and community activities) and occasionally products. Despite this, in India the term, Social Enterprise is not widely used, instead terms like NGOs and NPOs (Non-profit organizations) are used, where these kind of organizations are legally allowed to raise fund for non-business activities. Child Rights and You and Youth United, are such examples of social enterprise, who raise funds through their services, fund raising activities (organizing events, donations, and grants) or sometimes products, to further their social and environmental goals.
In the agriculture sector, International Development Enterprises has helped pull millions of small farmers out of poverty in India [1] Paul Polak [2], details the story in his book, "Out of Poverty"
Another area of social enterprise in India and the developing world is bottom of the pyramid (BOP) Bottom of the pyramid businesses which was identified and analyzed by CK Prahahalad C. K. Prahalad in "Fortune at the Base of the Pyramid" This seminal work has been a springboard for a robust area of both innovation and academic research.
The Malaysian Social Enterprise Alliance (SEA) defines social enterprises as "organizations created to address social problems that use business models to sustain themselves financially. Social enterprises seek to create not only financial returns but also social returns to their beneficiaries." [3] The Alliance regards social enterprises as businesses with a social focus, distinct from non-profit organisations. [4]
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:
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 the Czech Republic a working party stemming from the development partnerships in the EQUAL programme agreed on the following distinctions (April 2008):
Social economy
Social entrepreneurship
Social enterprise
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 has given form and definition by Legislative Decree, 24 March 2006, no. 155 Under Italian law a social enterprise is a private entity that provides social utility goods and services, acting for the common interest and not for profit. The first general aspect that has to be highlighted is that a social enterprise is neither a new legal form, nor a new type of organization, but a legal category in which all eligible organizations may be included, regardless of their internal organizational structure. Therefore, the eligible organizations could in theory be cooperatives (i.e. employee-, producer-, or customer-owned firms), investor-owned firms (i.e. business corporations), or traditional nonprofit organizations (i.e. associations and foundations). This is the so-called principle of “neutrality of the legal forms” adopted by the Italian law. Hence, social enterprise is like a legal “brand” that all eligible organizations can obtain and use in the marketplace. The requirements are: - being a private organization; - performing an entrepreneurial activity of production of social utility goods and services (The Law prescribes that this must be the main activity, that is, it has to account for at least 70% of the total income of the organization); - acting for the common interest and not for profit. In order to be defined as a social enterprise, an organization needs to simultaneously possess all these attributes.
In an effort to develop social enterprises and measure social impact, the Italian governmental work placement agency - Italia Lavoro - has developed a method to calculate the social efficiency of their project, from an economic point of view. For example, they measure the economic value to the society of providing a job to a disabled person. Since 1997, Italia Lavoro provides work placements to people with mental, social, physical or health disadvantages. To this aim, they help people who have fallen out of the general work system to reintegrate society through the creation of small and medium non-profit enterprises.[4]
Also intended to generate more social enterprises is the non-profit cooperative Make a Change. Make a Change provides financial, operational and management support to social start-ups. In 2010 they organized the first edition of a contest to elect the "Social entrepreneur of the year", as well as another contest entitled "The World's Most Beautiful Job". This year winner of the former was the social cooperative "Cauto", which manages the whole trash life-cycle in the province of Brescia. Cauto's workforce is composed by 1/3 of disabled and disadvantaged individuals.
Winner of the "World's Most Beautiful Job" prize was the project "Tavern of the Good and Bad" by the group Domus de luna from Cagliari. The tavern employs mums and children who just exited rehabilitation programs. The prize consisted of a financial aid of 30.000 euro and 12 months of professional consulting and support. The prize-giving ceremony was included in the program of the Global Entrepreneurship Week.[5]
In the UK the accepted Government-backed definition of social enterprise used by the UK social enterprise sector bodies such as Social Enterprise UK comes from the 2002 Department for Trade and Industry's 'Social Enterprise: a strategy for success' report as:[6]
A business with primarily social objectives whose surpluses are principally reinvested for that purpose.
The original use of the term social enterprise was first developed by Freer Spreckley in 1978, and later included 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:[7]
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 social, environmental and financial benefit.
Later on the three areas of social, environmental and financial benefits used for measuring social enterprise became known as the Triple Bottom Line.
Twenty years later Freer Spreckley and Cliff Southcombe established the first[8] specialist support organisation in the UK Social Enterprise Partnership Ltd. in March 1997.
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.
Whereas conventional businesses distribute their profit among shareholders, in social enterprises the surplus tends to go towards one or more social aims which the business has – for example education for the poor, vocational training for disabled people, environmental issues or for animal rights.
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. An emerging view, however, is that social enterprise is a particular type of trading activity that sometimes gives rise to distinct organisation forms reflecting a commitment to social cause working with stakeholders from more than one sector of the economy
The first agency in the UK - Social Enterprise London (SEL) - was established in 1998[9] after collaboration between co-operative businesses (Poptel, Computercraft Ltd, Calverts Press, Artzone), a number of co-operative development agencies (CDAs), and infrastructure bodies supporting co-operative enterprise development (Co-operative Training London, Co-operative Party, London ICOM, Co-operatives UK). SEL's first chief executive, Jonathan Bland, brought experience from Valencia where a business support infrastructure for co-operative enterprise was established using learning from the Mondragon region of Spain.[10] SEL did more than provide support to emerging businesses. It created a community of interest by working with the London Development Agency (LDA) to establish both an undergraduate degree in social enterprise at the University of East London (led by Jon Griffith) and a Social Enterprise Journal (now managed by Liverpool John Moores University and published by Emerald Publishing). Allison Ogden-Newton took over from Jonathan Bland as Chief Executive of Social Enterprise London in 2004. Under her leadership the organisation built a network of over 2,000 social enterprises and social entrepreneurs, directly brokered over 500 social enterprise jobs under the DWP's Future Jobs Fund and delivers consultancy and business support across the world in countries including Vietnam, Korea and Croatia.
Two years later, The National Council for Voluntary Organisations (NCVO) established the Sustainable Funding Project. Using funds from FutureBuilders, Centrica and Charity Bank, this project promoted the concept of sustainability through trading to voluntary groups and charities.[11]
In 2002, the British government launched a unified Social Enterprise Strategy,[12] and established a Social Enterprise Unit (SEnU) to co-ordinate its implementation in England and Wales.
After a consultation on a new type of company (see CIC below), policy development was increasingly influenced by organisations in the conventional "non-profit" sector rather than those with their origins in employee-ownership and co-operative sectors. The 2003 DTI report on the consultation shows the disproportion influence of charitable trusts and umbrella organisations in the voluntary sector, and evidence now exists that the voice of progressive employee-owned organisations were marginalised in the course of producing the report.[13][14]
The Social Enterprise Unit was initially 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.
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. In 2006, the government 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.[15] The most up to date estimates suggest that there are approximately 62,000 social enterprises in the UK, contributing £24 billion to the UK economy.[16]
Branding In February 2010 the new Social Enterprise Mark was launched. Like the Fair Trade brand, the Social Enterprise Mark aims to increase the visibility of socially motivated businesses. More than this, the mark represents the growing commercial identity of social enterprises and a deliberate attempt to carve out a recognisable niche for such organisations in the business community. Qualification for the mark requires that a business conform to set criteria, e.g. companies must earn at least 50% of their income from trade and spend at least 50% of their profits on socially beneficial purposes.[17] The mark has been received with mixed responses in some corners with suggestions that the qualifying criteria is not strict enough.[18]
In Scotland, social enterprise is a devolved function and is part of the remit of the Scottish Government.[19] Activities are co-ordinated by the Scottish Social Enterprise Coalition, and intellectual leadership is provided by the Social Enterprise Institute at Herriot-Watt University (Edinburgh), established under the directorship of Declan Jones. Senscot based in Edinburgh supports social entrepreneurs through a variety of activities including a weekly email bulletin by co-founder Lawrence Demarco.[20] The Social Enterprise Academy "deliver leadership, enterprise, and social impact programmes" throughout Scotland[21] and further support is provided by Development Trusts Association Scotland and Co-operative Development Scotland.[22][23]
Some well known social enterprises in the UK include John Lewis, Welsh Water, Cafédirect, The Eden Project, Divine Chocolate (Kuapa Kokoo), The Big Issue, the Co-operative Group, HCT Group, Duchy Originals, and the London Symphony Orchestra.
Three common characteristics of social enterprises as defined by Social Enterprise London are:
The UK has also developed a new legal form called the community interest company (CIC). 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. Legislation caps the level of dividends payable at 35% of profits and returns to individuals are capped at 4% above the bank base rate.
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 (SEC) and this liaises with similar groups in each region of England, and in Northern Ireland, Scotland & Wales. The definition of social enterprise propagated by the SEC is slightly broader than the original DTI definition and acknowledged that the social purpose of an organisation can be "embedded in its structure and governance".[24] As such, social businesses that adopt inclusive governance structures and employee-ownership are brought fully into the fold of the movement.[25]
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.
Rodney Schwartz of ClearlySo listed a number of advantages of the social enterprise as a business[26]:
Schwartz described social entrepreneurs as extraordinarily innovative, deploying models that seem to derive results out of thin air.[26]
The registered non-profit Trashy Bags was launched in 2007 in order to increase public awareness of Ghana's solid plastic waste problem and clean up sachets from the streets of Accra. This company buys waste from collectors. After washing and drying the sachets, it sews them into fashionable bags and other products which are then sold in Accra and exported to eight other countries around the world. The Trashy Bags Company has collected 20 million plastic sachets since its founding, and employs 60 machinists.
In Kenya many NGOs, use business models to improve lives of people mainly in rural Kenya. An example of this is KOMAZA a non-profit social enterprise that plants trees with small holder farmers and uses economies of scale to enable them to access high value markets for processed trees. Another example of this is RISE Kenya [5] that runs projects to mitigate climate change in the semi arid Eastern Province of Kenya. They also run weaving projects where by women who would traditionally engage in weaving make products that are marketed in the capital city Nairobi and in overseas markets of Europe and America.
Other development oriented social enterprises in Kenya include the One Acre Fund [6], Nuru International [7] and Alive & Kicking, that operates a sport ball factory in Nairobi.[27] Kenya's social enterprises include M-Pesa, which facilitated economic transactions via mobile phone.
Social enterprise in Kenya has grown to include spaces with IT infrastructure such as internet connectivity and computer hardware. Two of these, the iHub and NaiLab, are centers for technological enterprise, with ventures such as Tandaa in coopperation with the ICT Board of Kenya and Akirachix. [8]
There are several awards that recognize and reward social enterprises.
The Enterprising Solutions Award 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 recognize the work undertaken by many organizations within the social enterprise movement.
The Edge Upstarts Awards are run annually by the New Statesman in the UK.
The Hong Kong Social Enterprise Challenge is the first and the only inter-collegiate social ventures business competition in Hong Kong.
Fast Company has a yearly ranking of top 15 to 25 noteworthy social enterprises called the Social Capitalist Awards which highlights noteworthy organizations in social innovation (2004 to 2010).
There are several business schools which offer social entrepreneurship business plants.
In addition, several organizations offer fellowships like Ashoka [9], Acumen Fund [10], and Echoing Green [11] all three of which are quite competitive. Still other organizations offer accelerator and mentorship programs like the Unreasonable Institute [12].