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Social enterprise
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Social enterprises are social mission driven organizations which trade in goods or services for a social purpose. Their aim to accomplish targets that are social and environmental as well as financial is often referred to as having a triple bottom line. 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.
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Social enterprises are social mission driven organizations which trade in goods or services for a social purpose. Their aim to accomplish targets that are social and environmental as well as financial is often referred to as having a triple bottom line. 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. Therefore some commentators describe them as 'not-for-profit' as their profits are not (at least primarily) distributed to financial investors. Others dislike the term as it suggests they have an unbusinesslike attitude. An ingenious solution to this quandary is to call them for 'more-than-profit' (a term used at the Social Enterprise Institute Conference, Herriot-Watt University, in 2003).
It could be that the profit (or surplus) from the business is used to support social aims (whether or not related to the activity of the business, as in a charity shop), or that the business itself accomplishes the social aim through its operation, for instance by employing disadvantaged people (social firms) or lending to businesses that have difficulty in securing investment from mainstream lenders.
In Britain and 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 their income is derived from the business trading rather than from subsidy or donations.
The term 'social traders' can be used to describe the people who establish and manage social enterprise organisations. One recent example was the reference to social traders used by the Daily Express 28th May 2008 to describe entrants to a competition with prizes run by Enterprising Solutions for people managing social enterprises.
Social enterprise in the British context
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:
"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."
Later on Freer Spreckley and Cliff Southcombe established the first 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 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. 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).
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..
In 2002, the British government launched a unified Social Enterprise Strategy, 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.
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. In Scotland, social enterprise is a devolved function and is part of the remit of the Scottish Government.. Intellectual leadership is provided by the Social Enterprise Institute at Herriot-Watt University (Edinburgh), established under the directorship of Declan Jones.
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. The government later 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.
Examples
Some well known social enterprises include John Lewis, Welsh Water (Glas Cymru), Cafédirect, The Eden Project, Divine Chocolate (Kuapa Kokoo), The Big Issue, the Co-operative Group, Duchy Originals, the London Symphony Orchestra and Jamie Oliver's Restaurant - 15.
Three 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.
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". As such, social businesses that adopt inclusive governance structures and employee-ownership are brought fully into the fold of the movement.
Social Firms
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.
Social enterprise in the North American context
The , based in the USA with a membership that is mainly from the USA and Canada, broadened its definition of Social Enterprise in March 2006 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 an 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.
Another leading organization in the social enterprise field is , which is the largest social enterprise consulting firm in the country.
Much of the field in North America was driven by thinking from REDF (formerly the Roberts Enterprise Development Fund). , which pioneered Social Return on Investment Analysis in connection with funding numerous social enterprises in the San Francisco region, such as Rubicon Programs. Working Assets, the San Francisco-based company, created a model of social enterprise through its mobile, credit card and long distance services that automatically generate donations to progressive organizations when customers use its services. To date, Working Assets has raised over $50 million to organizations like Amnesty International, Doctors Without Borders and Planned Parenthood.
The covers news for and about nonprofit entrepreneurs in North America.
Another root of social enterprise came from People-Centered Economic Development which began with a white paper delivered to the Committee to re-elect the President in 1996 describing a profit-for-purpose business model for the (then) dawning information age. In this model, surplus is created to invest in social or community purpose, with the aim of leveraging both conventional and social purpose business by means of microfinance investment providing access to information through affordable broadband internet access. The model has been available free to use without copyright on the web since 1997.
It was first deployed in Russia to leverage the Tomsk Regional Initiative and Microfinance Bank 2001-2004, which became the template for the Russian Microfinance Center in 2002. P-CED incorporated as a UK based guarantee company in 2004 to continue advocacy work for social enterprise in Ukraine.
Social Enterprise, Grudging Progress in Non-Profits and Schools
There is another meaning for Social Enterprise that is not developed here, and probably now should have a distinguishing label. It addresses the growing need for non-profits and educational institutions to create self-sustainable streams of commercial income that ideally reduce over-burdensome taxation and multiple year debt on college students. This too has been an occasional idea and practice for over a century. However, it has largely been confined to Research and Development in the hard sciences. Bill Shore wrote convincingly of the need and course of development of such income-producing aspects of social service agencies in The Cathedral Within (1999) – now available online for pennies. He also founded a related non-profit, Share Our Strength. Shortly after, a textbook on literacy and learning for educators contained an entire final chapter dedicated to splicing Social Enterprise Literacy into multiple literacies with particulars for Social Science faculties (Content Area Literacy: Interactive Teaching for Inactive Learning, 3rd ed. – Manzo, Manzo and Estes, 2001) – it now sells for less than five dollars online. This chapter was nixed from the next edition of this text for lack of any response, and despite wide circulation of a related refereed article in the Journal of the National Association of Secondary School Principals – Unbelling the Cat: Unleashing the E-Commerce Solution (2001; 85, no.622, 79-83).
Fortunately, progress continues in creating mission compatible income within non-profit structures that also carefully avoid unfair competition with private enterprise that does not have state and/or foundation funding; although this is rarely a problem since non-profits and universities most often create unique services that open entrepreneurial doors more so than close them. Schools and Social Service agencies also are voracious consumers of books, IT services and furnishings, and as employers of millions stabilize the economies of developed nations even as their professional staffs earn far less than their private sector counterparts. Progress while slow and not without complications is evident in splicing this Sustainable Social Service branch into educational and goodwill institutions by the growing success of organizations such as the Social Enterprise Institute that now actively assists non-profits, schools and social service agencies by mentoring them through the cultural quivers that they often face in drawing up and pitching their nascent, mission enhancing business plans to angel investors. The Social Enterprise Institute does this in a way that could well become wider practices. It invites such agencies and schools to meet and be counseled by a volunteer group from about 600 possibly collaborating TechCoastAngel investors.
Social enterprise from a European perspective
The best established European research network in the field, , 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:
- 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
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:
Finland
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
Italy passed a law in 2005 on imprese sociali, to which the government has given form and definition by decree.
Czech Republic
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
- It is a complex of autonomous private activities realized by different types of organizations that have the aim to serve their members or local community first of all by doing business. The social economy is oriented on solving issues of unemployment, social coherence and local development. It is created and developed on the base of concept of triple bottom line – economic, social and environmental benefits. Social economy enables citizens to get involved actively in the regional development. Making profit/surplus is desirable, however is not a primary goal. Contingent profit is used in preference for development of activities of organization and for the needs of local community. Internal relations in the social enterprises are headed to the maximum involvement of members/employees in decision-making and self-management while external relations strengthen social capital. Legal form of social economy entities is not decisive – what is crucial is observing public benefit aims as listed in the articles. Subjects of the social economy are social enterprises and organizations supporting their work in the areas of education, consulting and financing.
Social entrepreneurship
- Social entrepreneurship develops independent business activities and is active on the market in order to solve issues of employment, social coherence and local development. Its activities support solidarity, social inclusion and growth of social capital mainly on local level with the maximum respect of sustainable development.
Social enterprise
- Social enterprise means "a subject of social entrepreneurship", i.e. legal entity or its part or a natural person which fulfils principles of the social enterprise; social enterprise must have appropriate trade license.
- The above mentioned definitions stem from the four basic principles which should be followed by all social enterprises. Standards with a commentary were settled for each principle. These standards were settled as the minimum so that they should be observed by all legal entities and all types of social enterprises. Specific types of enterprises, that are undergoing pilot verification within CIP EQUAL projects and that are already functioning in the Czech Republic, are social firms employing seriously disadvantaged target groups, and municipal social cooperatives as a suitable form of entrepreneurship with the view of development of local communities and microregions.
- The legal form a social enterprise takes is not important, however they must be subject of private law. According to the existing legal system, they can function in a form of cooperatives, civic associations, public benefit associations, church legal entities, Ltd., stock companies and sole traders. Budgetary organizations and municipalities should not be social enterprises as they are not autonomous - they are parts of public administration.
- Social entrepreneurship is defined very broadly. Beside employment of the people disadvantaged at the labour market it also includes organizations providing public benefit services in the area of social inclusion and local development including environmental activities, individuals from the disadvantaged groups active in business and also complementary activities of NGOs destined to reinvest profit into the main public benefit activity of an organization. Social entrepreneurship defined in such a wide way should not be directly bound to legal benefits and financial support because the concept of social entrepreneurship might be then threatened by misuse and disintegration. Conditions of eventual legal and financial support should be discussed by experts.
Regional Examples
Social enterprise in Australia
Cumberland Industries Ltd Australia considers itself a social enterprise, which it defines as: an organisation which operates on a commercial basis but to achieve social outcomes. The company employs over 500 with a disability and those from disadvantaged backgrounds. In July 2008 the first Social Enterprise Centre will be opened for business in Auburn, NSW (near the Sydney Olympic's 2000 site). The Social Enterprise Centre is the result of a funding contribution from the Federal Department of Transport and Regional Services (DOTARS)and a contribution of land and money from Cumberland Industries Ltd. The NSW State Government is also providing funding support by way of providing management consulting advice to organisations involved in the support, care and accommodation of people with a disability, as well as the aged (known as DADHC). The Social Enterprise Centre will provide serviced-office type facilities for a number of independent disability organisations. The Centre is modelled on a similar centre operating in London. The difference within the Australian model is that it will also operate a training and conference facility on a commercial basis with, for most part, staffing provided by people with a disability who are trained in hospitality and event management skills. These 'trainees' then have the opportunity to move into mainstream open employment equpped with the skills and training necessary to be a success.
Our Community is an Australian social enterprise set up to support Australia's 700,000 community groups. It offers a wide range of free and low-cost resources, services and training to the not-for-profit sector. It has published a series of books and newsletters on such issues as board management and fundraising, has organised annual policy conferences for the Australian community sector, and offers an extensive library of thousands of free online helpsheets on a range of not-for-profit topics.
Social Enterprise Australia (SEA) is the peak body for social enterprises in Australia, it operates out of the Social Enterprise Centre, in Auburn NSW Australia.
Social Enterprises in India
Dayodaya Ethical Group (DEG) is a co-operative organisation, works for the animal rights and provide education to the slum children.
They have opend 63 gaushallas across the country and provide shelter to more than 30,000 old aged cows. They generate their revenue by selling milk, and through production of biogas.
The Madras Medical Mission (MMM) is a voluntary organization established by the members of the Syrian Christian community in Chennai, India inspired by the missionary zeal of Bishop Zachariah Mar Dionysius, Metropolitan of the Madras Diocese of the Orthodox Church of India. Strengthened by the devotion and commitment of the members of this Community at Chennai (erstwhile Madras city of Tamilnadu) who promoted the registered charitable society in 1982, it strives to participate in the healing ministry by seeking to foster an environment of caring, compassion and love that enables it to respond to patient needs in enviable ways.
From modest beginnings over twenty-five years ago, the synergy of proficient practitioners, prudential management and providential guidance has metamorphosed this ISO 9001:2000 certified Madras Medical Mission into an organization of excellence that promotes some of the finest super-specialty tertiary care medical institutions in India , with superlative infrastructure, leading edge technology and accomplished professionals.
The George Foundation (TGF) is a non-governmental organization established in 1995 by Dr. Abraham M. George in Bangalore, India. TGF's Baldev Farms funnels profits from the sale of crops to finance the foundation's other charitable projects (school for financially impoverished children, women's empowerment, basic medical care, and other relevant initiatives).
Pathway India is a non-profit children's organization established in 1975 by Dr. ADSN Prasad in Chennai, India. Children with mental and learning disabilities create a wide range of products from jewellery to bread and use the profits to better the lives of children to produce a sense of independence.
is modeled on the lines of Unltd in the UK.
Social enterprise in Hong Kong
Social enterprise also begins to develop in Hong Kong. Just established by the Hong Kong Council of Social Service in early 2006, the Social Enterprise Resource Centre aims to provide one-stop service for social enterprises and NGOs in Hong Kong to nurture the growth of social businesses. It offers training programme, consultancy service, marketing and promotional opportunities for social ventures. It also organize public education programmes and publish social enterprise directory and leaflet to advocate the social values of these newly-developed enterprises to the public.
Social enterprise in Russia
The Tomsk Regional Initiative
derived from a study by Terry Hallman of People-Centered Economic Development in 1999 following the collapse of Russia's economy in August 1998 and was recommended as a development location to President Clinton. From 2001 the project pioneered Grameen style moral colatteral microcredit in Russia and was replicated in Novosibirsk, then Severak prior to the creation of the Russian Microfinance Center in 2002.
Social enterprise in Ukraine
In October 2006, People-Centered Economic Development, a UK based social enterprise delivered a strategy paper for social enterprise and microeconomic development to the government of Ukraine. It was copied to the US Senate Foreign Relations Committee. A synopsis was published on a web journal, a year later.
Activism to raise awareness of conditions in orphanages for the disabled in particular, brought the issue to the attention of Ukraine's Minister for Family Youth and Sport.
At the World Economic Forum in Davos in 2008, USAID announced the launch of the East Europe Foundation to "empower citizens to build their own futures by mobilizing resources, strengthening communities, and fostering public-private cooperation".
The 'Marshall Plan' paper as it was described has since prompted Ukraine's government to adopt 3 recommendations in the area of institutional childcare, to date. These are the creation of 400+ rehab centres for the disabled, doubling adoption allowance to increase the domestic adoptions and the pilot for the "homes for all children" concept in Kharkiv oblast by the Feldman Foundation.
Social Enterprise Awards
There are several awards that recognise 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 recognise the work undertaken by many organisations within the social enterprise movement.
Previous winners include: the Divine Chocolate Company, Greenwich Leisure Limited, and Hackney Community Transport.
The Edge Upstarts Awards are run annually by the New Statesman in the UK.
See also
External links
Media and Publications
- A Developed World : An online social publication featuring the stories of social entrepreneurs from around the world.
- Social Enterprise: A Financial Perspective : An alternative view on social enterprise which incorporate the agency theory and other analysis.
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