SOCIAL ENTERPRISE: Watch out for the elephant in the room…..

Is social enterprise ‘the solution?’

Social enterprise is often described as the solution to the problems facing our communities. It certainly might be part of the solution and I applaud the numerous, absolutely fantastic social enterprises across the UK that are driven by a social or environmental purpose. I love the whole ethos of social entrepreneurship. And as we all know, social enterprise is politically sexy and there is cross-party support for the movement. But what about the elephant in the room…………??

The big problem with social enterprise in its current format is the propensity for “greenwashing.” Social enterprises have access to considerable levels of funding and support that “normal” businesses just don’t have, and they are also often favoured in public sector commissioning.  But it’s pretty easy to register a company as a social enterprise and there lies the problem. How a business is constituted or labelled does not necessarily reflect that it is a responsible business, which we define as follows:

A responsible business operates efficiently and ethically; meets and exceeds legislation; and always considers its impact on people (the workforce, the community, and society at large); and the environment.

Sadly, many of us have witnessed social enterprises (and charities) that are pretty good at delivering their core services but are absolutely terrible at looking after their people and / or considering environmental impacts. And yet there are numerous “normal” businesses that adopt responsible business practices on a holistic basis right across their company’s operations.

Why emphasise social enterprise rather than responsible business?

There are nearly 5 million small businesses (small business being defined as 0 – 49 employees) in the UK that operate at the heart of the local communities. These organisations form 99% of private businesses in the UK and it is this small business sector that could provide an abundance of social value if only gently incentivised to do so. And let us not forget that many of these small businesses already do a great deal to support their local community, look after their staff, and reduce their environmental impacts. So why is there such an emphasis on social enterprise and not responsible business?

How is social enterprise monitored?

So, let’s look at social enterprise. What exactly is it? Social Enterprise UK (SE UK) says:

The term ‘social enterprise’ came about from recognition that in the UK and across the world, there were organisations using the power of business to bring about social and environmental change without a single term to unite them.”

Additionally, the organisation admits that:

There has been a lot of discussion (and sometimes confusion) about what social enterprise is, and whether the social enterprise label could be ‘hijacked’ by businesses that aren’t social enterprises but are keen to pretend they are.”

The asset lock

SE UK acknowledges the potential problem with the definition of social enterprise and generally takes a very pragmatic approach. For example, many funding bodies and / or other social enterprise bodies insist a social enterprise has an asset lock. If public assets are being transferred to social enterprise and / or a considerable amount of grant funding is provided, then such an asset lock is totally a reasonable expectation. However, many social enterprises have been built on the back of the directors’ sweat equity which quite rightly should be reclaimable, so an asset lock would be totally inappropriate. This is fully acknowledged by SE UK.

What is meant by ‘not-for-profit’?

Yet another issue is that many social enterprises continually refer to themselves as “not-for-profit” which gives them a very unfair and misleading advantage. Social enterprises are businesses with a social mission. If they don’t make a profit they will fail. Even the CIC regulator states:

The phrase ‘not for profit’ is frequently used when discussing social enterprises. This can be misleading and should only be used in the context of the company not having as its primary purpose the generation of profits for its owners. If a CIC fails to make profits from its activities (or in some way generate sufficient income to cover its running costs) it will eventually fail altogether. Therefore, rather than thinking in terms of CICs being non-profit making they should be thought of as making profits for their community purposes.”

Considering salaries

And “profit” is rather a mute point. We mostly think of profit in the context of PLCs making huge profits to pay big dividends and excessive bonuses to directors.  But profit in its simplest form is what is left over from income after expenses have been paid, and those expenses include directors’ salaries. For the majority of small business owners, their salaries are rarely excessive. Indeed, many small business owners earn less than the minimum wage if the hours they work are taken in to account! And it is standard business practice for any additional profit not drawn as salary to be ploughed back in to the business to ensure its sustainability. No business can survive if this doesn’t happen. Naturally, directors of social enterprises should also receive a decent salary, and yet there is an assumption that owners of “normal” small businesses earn far more than their socent counterparts.

Social Enterprise badges

So, let’s look at some of the ‘badges’ companies use in order to be identified as a social enterprise, remembering the problem isn’t the concept of social enterprise per se, but the unfair advantages socent has.

Members of SE UK using the “We are a social enterprise” badge self-certify via a very short statement. I don’t have a problem with this in principle as it is a similar concept to our basic responsible business membership, albeit we do have a more in-depth questionnaire. The problem is the perception of what the badge means.

A Community Interest Company (C.I.C) is a special legal entity for social enterprises, either limited by shares or guarantee, with a social mission statement and an asset lock.  Although a specific legal entity, it is nonetheless very east to attain CIC status.

The Social Enterprise Mark CIC is the UK certification authority for social enterprise. To obtain the certification, a business has to evidence:

  • It has social or environmental aims
  • Has its own constitution and governance
  • Earns at least 50% income from trading (new starts have an extended time to reach this requirement)
  • Spend at least 50% profits fulfilling social or environmental aims
  • Distribute residual assets to social or environmental aims if dissolved
  • Demonstrate social value



Just Good Business

Isn’t it time to consider how businesses actually operate rather than artificially giving precedence to a label that’s politically sexy, but not necessarily as picture perfect as it is painted?  Isn’t it time social enterprise and the “normal” SME business sector started working together to create real social change rather than treating each other with suspicion? Isn’t it time that delivering social value by considering people and the environment was accepted as Just Good Business rather than an exclusive club that not all businesses could belong to?