This article discusses what we actually mean by the term "Social Enterprise" and how it is defined and described in other jurisdictions as well as in New Zealand. 11 Mar 2017 Post by:
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One of the interesting things about being involved in a relatively new sector like social enterprise is that there are often assumptions about what is being talked about. This article deconstructs one of the most commonly misunderstood points – what actually is a “social enterprise”? In doing this there are a lot of concepts and ideas that will be thrown on to the table – some of them contradictory – but it is hoped that by doing this there will be a clearer understanding about the issues involved and that will foster better discussion and understanding.
The term "social enterprise" will likely have different meanings for different people, depending on the background and experience of the person hearing that term for the first time. As one objective reference point outside of New Zealand, it is useful to see how the European Social Enterprise Law Association defined it in their paper, “Developing legal systems which support social enterprise growth”. They said there were three key elements:
- entrepreneurial dimension: engagement in continuous economic activity;
- social dimension: primary and explicitly social purpose; and
- governance dimension: mechanisms to ensure priority of social purpose.
They conclude that a good definition is: "an autonomous organisation that combines a social purpose with entrepreneurial activity". It is interesting in this definition that there is no mention of the organisation being exclusively not for profit or for profit.
Canada has many similarities to New Zealand, so it is good to look at some of the thinking going on in that jurisdiction. The Canadian Community Economic Development Network includes a description on their website (https://ccednet-rcdec.ca). It gives a slightly different angle with more of an emphasis on the non-profit nature: “The term "social enterprise" is used to refer to business ventures operated by non-profits, whether they are societies, charities, or co-operatives. These businesses sell goods or provide services in the market for the purpose of creating a blended return on investment, both financial and social. Their profits are returned to the business or to a social purpose, rather than maximizing profits to shareholders.” It goes on to say: “Others use a broader definition that includes privately owned ventures that have a very strong blended financial and socially responsible return on investment.”
Closer to home, Akina (www.akina.org.nz) has been doing a great job and worked for years to promote social enterprises in New Zealand. The definition they put forward on their website seems to focus more on a distinction between an entity which is “for profit” and one which is “for purpose”. They summarise this down to: “Social enterprises are purpose-driven organisations that trade to deliver social and environmental impact”.
All these definitions are helpful and, focussing on the point of difference, it comes down to some part of the entity being involved in an aspect that is more than just the traditional goal of making money for shareholders. But there is clearly a spectrum ranging from "self focussed" to "other focussed" and it is worth asking at what point an organisation crosses over and can be given the label of a social enterprise. For example, is there a certain percentage of “good” that they need to be involved in – and how is that defined? How do you reconcile this focus on a “purpose” with the fact that simply providing employment for people is very important as that helps individuals provide for their families and communities to thrive. Where is the cut-off point?
Turning to that idea of a spectrum on which different legal forms of entity sit, it can perhaps be described like this – with some overly broad characterisations thrown in as headings to make the point.
Not for profit – these are usually traditional charities and do not exist to create a profit but instead help disadvantaged or others.
Social enterprises – these have community purposes at their heart but operate as businesses and do make profits that support their purpose.
Businesses which donate – these are companies focus on profits but do set aside a proportion of their profits for some community purpose as well.
Not as 'good'
Profit focussed companies – these have no charitable or community purpose (except perhaps a token gift to disaster relief from time to time).
Is such an analysis really fair? It seems to overly weight the “goodness” of some organisations over others. There is a danger of going too far either way. Obviously the above is a really crude analysis, but it has been done through certain lenses. As mentioned above, the fact that an organisation offers employment to staff and contributes some product surely has immense positive value. So the challenging point is perhaps to take these lenses off and not to think in these sorts of terms at all. Instead, work out how to encourage all organisations to begin to take on board some of the concepts underlying social enterprise motivations. Even a “for profit” company could switch its sourcing of products and services in order to help some social enterprises become economically viable. How do you increase engagement with such companies, so it is not just left to “social enterprises” to be the ones who are seen to have some responsibility in this area?
One example of a label which some companies are applying for to show where they fit on the spectrum is “B Corporations”. It is worth describing them in some detail as it is another dimension to consider. The B stands for “Benefit” and it involves a certification system for companies which meet certain criteria that show they have a focus on more than just profits. B Corporations are certified by B Lab which is a not for profit organisation. Probably the most famous example of a company which has done this is Ben & Jerry’s ice cream. The B Corporation website says: “B Corps meet the highest standards of verified social and environmental performance, public transparency, and legal accountability, and aspire to use the power of markets to solve social and environmental problems”. To learn more about this have a look here: http://www.bcorporation.net/
When I first became involved in this sector I was confused by the terms and concepts so I hope this article will help to explain some of the things to consider regarding what a “social enterprise” actually is. The great part is that this is a growing and evolving area so it is actually possible to be part of the debate and even shape what happens next. In a New Zealand context it will be important to look at all the different definitions and discussions overseas and use that as a basis for constructive dialogue. This article has provided an overview of some of the key issues with the purpose of enabling a more informed discussion.