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 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 (pretty much based on the definition of The Guild which has been operating since 2000):

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)

Published by Richard Patey

Internet marketer, author, publisher, snowboarder and editor of this blog.