It could be that the profit (or surplus) from the business is used to support related or unrelated social aims (as in a charity shop), or that the business itself accomplishes the social aim through its operation, say through the employment of people from a disadvantaged community including individuals and existing business who have difficulty in securing investment from banks and mainstream lenders.
Social enterprise is a relatively new term for a type of business that has existed for at least a century. The term social enterprise relates to social entrepreneur, the name originally given to 19th century philanthropic businessmen and industrialists, who had genuine concern for the welfare of their employees. Today, its use varies in different regions. 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 at least half their income is derived from trading rather than from subsidy or donations.
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 fair trade, vocational training for disabled people, or environmental issues. There continues to be a debate amongst both practitioners and academics regarding the role of individuals in the ownership and funding of social enterprise. While advocates in the non-profit sector continue to prioritise wholly social ownership, advocates from the employee-ownership movement and co-operative sector advocate majority social ownership and minority individual ownership, or forms of individual ownership permitted under the Industrial and Provident Societies Act.
One view is that 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 pluralism and partnership 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), a number of co-operative development agencies (CDAs), and infrastructure bodies supporting co-operative enterprise development (Co-operative Training London, 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 Executive.. 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 .
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 defintion 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.
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.
The Social Enterprise Alliance, based in the USA with a membership that is mainly from the USA and Canada, just (March 2006) broadened its definition of Social Enterprise 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 Community Wealth Ventures, 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). REDF, 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 Social Enterprise Reporter covers news for and about nonprofit entrepreneurs in North America.
See also: social entrepreneurship
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.
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:
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.
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:
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.
From modest beginnings two decades 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 jewelery to bread and use the profits to better the lives of children to produce a sense of independence.
http://www.unltdindia.org/ Unltd is modeled on the lines of Unltd in the UK.
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.