10 January 2011
Article about social enterprises and their ethical credentials

Social enterprises are all the rage. Dynamic, driven and selfless, a new cohort of social entrepreneurs are reshaping the intersection between business and philanthropy.

Or are they?

Definitions
What distinctive characteristics do social enterprises exhibit? What defines a social enterprise? Who is the arbiter of this definition?

The bottom line, according to the Social Enterprise Coalition (a national organisation representing social enterprises), is that social enterprises are not driven by the need to maximise profit for owners or shareholders but instead are driven by social or environmental objectives. They should also put their money where their mouth is; the majority of profit must be reinvested in the company to further social objectives.

So it is quite clear:

1 – Is your PRIMARY aim social?

2 – Is at least 50% of your profit reinvested into your social objectives?

If YES, you are a social enterprise.

In this sense, social enterprises can be distinguished from ethical businesses, who exist to maximise profit but at the same time strive to have a positive impact.

Company, Social Enterprise, or both?
A common source of confusion is the legal structure that underpins the ‘social enterprise’ concept. Community Interest Companies (CICs) are a special legal vehicle introduced in 2005 to encourage the social enterprise sector. However, the majority of social enterprises are not CICs. Most are normal private companies. The advantage of the CIC model is that it enshrines certain social enterprise principles into the constitution of the organisation. Standard private companies, on the other hand, are not tied to these principles. They may choose each year to reinvest half of their profits for the good of society but they can never be compelled to.

Are social enterprises the future of philanthropy?
The great power of the social enterprise model is sustainability. Unlike charities, they do not depend upon donations or grants. They survive by being better than their commercial rivals and returning a profit. The close relationship between public benefit and effective business is attractive to many.

However, since social enterprises are relatively new, it is not surprising that a common criticism levelled against them is the lack of regulation. At present anyone can claim to be a social enterprise, whether or not they fit the Social Enterprise Coalition’s definition.

Yet perhaps blurring the line between corporate and charity sectors is exactly the point? What do you think?