So often in online discussions we hear the line ‘I don’t want to start / engage in the social enterprise definition debate’ yet we believe it is imperative to have this debate. As is so often the case, Tim Ferris in his phenomenal Four Hour Work Week (you can purchase FHWW on our store – a must for any serious entrepreneur) puts this best when he says ‘If you can’t define it or act upon it, forget it.’
For us, as we’ve said many times before, the Department of Trade & Industry definition in 2002 nailed it:
A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.
However there are competing vested interests that have since tried to fit this description (i.e. the charity lobby arguing that primary purpose trade makes them a business) and those such as the Social Enterprise Mark that try to add an unwanted layer of screening to meet their definition in a way that does not auto-qualify Community Interest Companies and the soon to be created Social Enterprise Limited Liability Partnership by Bates Wells & Braithwaite.
We have recently been engaging in this debate on Civil Society, the Guardian Social Enterprise Network and on the CIC forum.
Civil Society
In a news story on Civil Society we were pitted against the view of Peter Holbrook, CEO of Social Enterprise UK who, in responding to a BBC newsnight programme, warned that ‘the social enterprise term would be hijacked by businesses that aren’t social enterprises’. Ironically we too feel the same with these ‘businesses’ being charities. He goes on to say:
The story blurred the lines between the private sector and social enterprise, which is an important concern for our sector. Private companies exist to make a profit for their owners and shareholders, whereas social enterprises exist to make a profit in order to tackle social issues. The social purpose is enshrined in a social enterprise’s governing documents and takes precedence.
We argue that all social enterprises are private organisations owned by shareholders or (without share capital) controlled by their members and that there is no conflict for social enterpreneurs to do good, make profit and reward themselves from that profit. We also do not believe that writing resolutions into a governing document is necessary to embed social purpose within a business nor does it protect against immoral behaviour.
Peter goes on to state that ‘A private company simply reinvesting 50 per cent of its profits back into the business does not make it a social enterprise’. This again is ironic as we argue that a charity that trades 50% does not make it a business. Indeed we were quoted as saying:
Charity and business are completely different vehicles for creating social value and a charity cannot somehow evolve into a social enterprise when it hits an arbitrary percentage of its income from trade. We see the real danger being charities hijacking the movement.
Peter finishes with:
We need to be very clear about the difference between the private sector and social enterprise. Many charities and not-for-profits are now badging themselves as social enterprises and our sector is growing. It is a real asset to the UK. It would be dangerous for our sector if social enterprise was adopted by the private sector as a convenient badge to take advantage of current trends.
We believe that it is continually damaging for the social enterprise movement that charities and not-for-profits pass off as businesses. We commented:
For us social enterprise is not a separate sector, it is part of the private sector and needs to view itself as such to fully integrate social purpose and social value into mainstream business. For example, are Community Interest Companies Ltd by Shares not private organisations?
There was a great comment to the story by Peter Dodd on the need to clarify what we are talking about:
Why on earth are we using a term which nobody understands. If we can’t work out and agree what a ‘social enterprise’ is actually supposed to be, why use the term at all. It’s all just male bovine foeces so just get real. Charity is charity, profit is profit, and profit used to good purpose is great but nothing new.
Guardian Social Enterprise Network Q&A
There was a really great debate on the most recent Guardian Q&A about legal structures for social entrepreneurs which, by definition, leads into what is and what isn’t a social enterprise. Some panelists were arguing that only a set number of legal structures would qualify for social enterprise but this is only based on opinion and historical baggage. For us social enterprise is not about legal structures it’s about social purpose – our top tips to end the Q&A were:
1) if someone / organisation says that a business isn’t a social enterprise due to its legal structure there is little value in engaging with them
2) don’t get hung up about profit distribution – as Geof says it’s easy to eliminate it all together.
3) in my experience the cheap and simple company ltd by shares structure is the best option for scaling social impact
CIC Association Forum
There is currently an interesting discussion on the CIC forum started by Geof Cox about how CICs share more than just a legal structure. Geof states, ‘The structure for most of us reflects an underlying set of values around enterprise for community benefit. But we haven’t yet got a simple shared way of communicating this identity’ and that social enterprises such as CICs ‘have made a real commitment to a set of shared values, and not just to a convenient legal structure.’
John Mulkerrin, self-proclaimed ‘chief protagonist’ of the CIC Association adds that ‘The ‘only under my banner’ culture and differing definitions of SE may well have held SE back, I dont think we as CICs should be want on waiting for that issue to be solved before moving ahead with our own efforts to raise awareness.’ We completely agree.
Do you agree with our views on the definition of social enterprise and the ‘sector’?
How do you define social enterprise – is it to do with purpose, values, impact or all three?
(ps the pic was taken in Death Valley, the sign says ‘elevation 200ft below sea level’ – we feel a sea change is happening in accepting that social enterprises can use any legal structure)
About Richard Patey
Search, social and content marketer and editor of the Profit Is Good Blog.
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You know this is a really interesting debate. Not because of the points raised, but the tensions it creates.
For me, social entrepreneurship is a philosophy and attitude. It often leads to the creation of a business with an overt social purpose. That is good. That business might call itself a social enterprise and might seek to assert that by acquiring the ‘social enterprise mark’.
But what matters is what it does. I don’t think we need to argue about what is or is not a social enterprise; we need to get on and change the way business is done by all enterprises.
hi！ i am a college student from china.i heard social enterprise from my friend .what confused me is not the definition ，it is how it appear and does it a right way for social environment. infact i have a lot questions such as ,i my view it is developed form business and ngos,however policies and markets work together to improve social benifits ,sometimes they cannot work well so ngos is appear ,but the social enterprise seams make a backward.it push the questions back to the market.does it a right way ？ if it is approprise,it will have a similiar desitination with goverment (because they all want to eliminate poverty and make a better society) thus ,the goverment may engaged in ,and makes social enterprise become differ from ngos.
ps. i’m really want to know more about social enterprise to solve my questions.could you give me somekind of helping such as books or websites.i will be really appreciate
I’m trying to start a social enterprise, but am not sure as to what percentage I will put into social causes. The company will only employ young offenders and homeless young people, which is a social goal in itself, however, to qualify for the social enterprise mark I would be required to give 50% away of profit.
I’ve been working in the NGO sector for 15 years, so I’m hardly a rampant capitalist in it to make excessive profit, however I’m not sure I could run the business, attract investment and make a living for myself if I gave away 50%, so I probably won’t register for the mark. However, as a self appointed watchdog, I don’t feel the social enterprise mark has much authority at present, particularly given the lack of definition at UK government or EU level, which contrasts with the Mark’s very tight definition.
I’m a little annoyed that although I intend to use around a third of the profit for social causes, employ only vulnerable people, and locate the business in a socially deprived area of East London, that I would be outside the Mark’s definition. I could just as easily set up another watchdog org and set a lower limit.
Hi, thanks for your comment – my advice would be not to get hung up on a set amount of profit to be reinvested / donated and to focus on running a business that has the greatest positive social impact. Also there is no need to get annoyed at something that is irrelevant
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