Tagged: social enterprise

Why bother with social enterprise?

Earlier this month I was invited to take part in a debate organised by the team behind Ethos; a new magazine focused on “Ethical entrepreneurs, innovation and responsible business”. Tasked with defending the motion ‘Why bother with social enterprise?” I was up against Ronnie Hughes (whose blog A Sense Of Place is a must-read) in what turned out to be a thoroughly enjoyable and good natured debate. Carry on reading to find out how I went about defending the motion…

Why bother with social enterprise? A good question! And one that deserves answering given the fervour with which social enterprise and ethical business in general is promoted these days. Indeed, one can’t even go to the toilet in certain department stores without being confronted with a poster informing you about the store’s ecological commitment to the survival of the Borneo Pygmy Elephant. You can’t sit in many cafes without being told that their organic coffee has been sourced from the mouth of a FairTrade yak in deepest Colombia.

Given then, that businesses of all hues are attempting to be more ethical and socially aware, why bother with social enterprise?

But before I can delve into this question further it is necessary to make a few clarifications. Unfortunately our lords and masters in the current government have seized upon the term ‘social enterprise’ with quite some relish and have bastardized it to the extent that it is applied by the media to virtually any business (even Tesco is a social enterprise according to one backbench Conservative MP!)

But for our purposes a social enterprise has traditionally been defined along the following lines…

It is a business that trades in order to tackle a particular social or environmental problem, to improve a community or people’s life chances. Social enterprises make their money from selling goods or services in the open marketplace and then reinvest their profits back into achieving their social or environmental purpose. They feature open and democratic governance that is at least in part drawn from the social or environmental community that they are trying to assist and all assets are ‘locked-in’ to the community.

Sounds great doesn’t it?!?! So let me elaborate on why we should indeed bother with social enterprise… (and vice versa why we should avoid pinning our hopes on ‘ethical’ private businesses to do the right thing).

Setting up a social enterprise is a statement of intent and sets a standard for others to judge you by; particularly if you have strong and transparent governance and a constitution that ensures that your social or environmental purpose is enshrined into the unalterable DNA of your enterprise.

Fallor Ergo Sum- I err therefore I am. Saint Augustine hit the nail on the head here. We’re human. Making mistakes and being tempted to do the wrong thing are a part of human nature. When you put this insight into the context of business and entrepreneurship then you begin to see another strength of social enterprise emerge. Let’s look at how this insight plays out in real life. A4E is an ‘ethical’ private business that is a workfare provider pushing the long-term unemployed back into work. A4E has been guilty of bullying and penalizing some of the most vulnerable members of society to pursue increasing profit margins. Equally, it was revealed that senior directors had taken millions of pounds in dividends out of the organisation. Despite labelling themselves as an ethical enterprise A4E have been guilty of engaging in ruthless businesses practices; despite the perhaps initial good intentions of its founder. Social enterprises on the other hand do not tend to fall into such a trap as their legal structure and governance ensures that they cannot issue huge dividends or engage in business practices that are against their enshrined social/environmental mission. Yes, this means that social enterprises do not make good investment propositions compared to their private ‘ethical’ counterparts; but surely that’s the fault of the investor, not the social enterprise?

An organisation may start off with the best of intentions, but if it is not established as a social enterprise then it is much easier for ‘corporate capture’ to take place and for the less pleasing aspects of human nature to come to the fore and allow greed, usury and unethical practices to flourish.

In other words sometimes the velvet glove of good intentions and social platitudes needs to be backed up by the iron fist of regulation, legislation and a social enterprise structure to stop things going awry…

Now let us take a quick look at some of the technocratic reasons why we should bother with social enterprise.

Setting yourself up as a social enterprise allows you to put your social/environmental purpose at the very forefront of your business endeavours. With many private businesses that purport to be ethical they must first and foremost concentrate on profit margins. That is, their directors have a fiduciary duty to maximise financial returns to shareholders over and above any perceived social or environmental mission. If they fail to maximise financial returns then they risk prosecution. Clearly this can develop into a major handicap. Social enterprises on the other hand are the perfect vehicle for those who want to ensure that social/environmental concerns will be the key and foremost aim of the organisation.

And then there’s the issue of the distribution of capital. As Karl Marx didn’t quite say “follow the money!” Social enterprises enshrine controls on the flow of capital within the organisation. And should, in theory, prevent excesses like those we heard about earlier with A4E. Profits, instead, have to be invested back into achieving your social/environmental mission. Not reinvested into your wallet. To illustrate this concept with a real-life example, there are those (usually rock stars, actors or high-profile left-wing journalists) who argue that we should pay more taxes. But when informed that they can already donate extra revenue voluntarily to the Treasury, cavil and prevaricate and find an excuse not to. This is very much like those private businesses that talk of donating profits to good causes. How often is it that this results in any meaningful amount being donated? And what is to guarantee that this donation will continue? Nothing. Whereas with social enterprises? It’s in the rulebook! There’s no quibbling. You HAVE to reinvest your profits…

So to conclude; I certainly think that it’s worth bothering with social enterprise! Particularly when you want to create an entity that has social justice at its core, can avoid corporate capture and holds to its ideals ad-finitum.

Yes, social enterprise is certainly not for everyone. When done properly it’s a truly altruistic endeavour- and it’s certainly not the panacea for all of societies ills. (I have become increasingly of the opinion that social enterprises should not be running key public services, but that’s perhaps for another debate sometime!). But there is certainly a place for social enterprises within a radical political tradition that isn’t going to go away any time soon.

Social Investment: The Saviour of Social Enterprise in 2013?

This was a short piece that I was commissioned to write in 2013 to provide a critical analysis of the social investment marketplace; casting a light on the contradictions between the bold claims being made by social investors and the reality for frontline social enterprises. As social entrepreneur Robbie Davison has recently outlined, it seems little has changed in the intervening time since 2013…

Clearly 2012 has failed to be the ‘breakthrough year’ that the self-appointed coterie of social investment analysts in the south-east of England predicted. But, with traditional grant funding, soft loans and patient capital  in short-supply, will 2013 herald the maturation of what has been dubbed the social investment marketplace and ergo, the flourishing of the social enterprise sector on Merseyside and beyond?

A recent report commissioned by Big Society Capital has outlined some frankly astonishing ambitions- from a meagre £165m worth of social investment deals completed in 2011, Big Society Capital aims to be completing £1bn worth of deals by 2016! Frankly, given the lacklustre demand from genuine social and community enterprises for this type finance the brakes should be applied to this wanton enthusiasm and unrealistic forecasting.

Looking closer, many of the claims made in the report are couched in caveats, and rightly so. We continue to see a major disparity between the reality of investment demand on the ground and the rhetoric emanating from this nascent social investment marketplace.

As has been widely observed in other discussions about the growth of a bullish social investment marketplace, there is a mismatch between the social finance products on offer and types and terms of finance requested by the social enterprises. Research commissioned by Big Society Capital reveals that social enterprises typically want unsecured risk capital on sub-commercial terms of between £10,000 and £100,000. This same research however indicates that what is on offer from social investors is larger, secured, asset-backed capital on near commercial terms.

This may sound unreasonable from a purely commercial perspective; as though social enterprises are ungratefully carping about investment opportunities that it can’t or is unable to handle. To view the situation from this perspective however is fundamentally wrong and demonstrates a misunderstanding of the role, governance, and business models of social enterprises (which are themselves dictated by the conditions in which they operate- tackling social need).

My work with social enterprises on Merseyside reveals a picture of a social enterprise sector that works in areas of acute market failure, using atypical business models, assisting some of the most hard-to-reach groups with what are often costly, but effective, interventions.

If the social investment marketplace is to reach the predicted £1bn mark and provide the injection of capital that social enterprises desperately need, social investors need to both take the financial products they currently offer back to the drawing board and garner a clearer understanding of social need.