Is there such a thing as a genuine social enterprise?

In his new book Freer Spreckley, who was among the first to formulate the concept of social enterprise in the UK in the 1970s, revisits social enterprise’s short history and ideas. Here he shares the six values that he believes should define social enterprise.

Social enterprise has become a worldwide phenomenon without it being clear what it is. I would say that this is because there is an awareness of the rotten way corporations behave, how dangerous they have become in degrading the planet, and how they have created such appalling inequality. Modern corporations have become as powerful as governments without accountability or stakeholders’ opportunities to change their leadership. Don’t be fooled by the talk of “stakeholder capitalism”; stakeholders don’t have any power, voting rights, influence or a voice. Only large shareholders have such authority, who are themselves capitalist corporations. 

People want a different corporate structure. One that behaves with integrity, is environmentally regenerative by design, and whose purpose is to help facilitate an equal society. But, many variations of social enterprise avoid the structural transformation needed to create a genuine alternative. Without an agreed definition or legal structure, social enterprise cannot progress beyond the point of good intentions.              

Social enterprise is about system change. Not tinkering around with mission, impact investment, non-profit versus for-profit, entrepreneurship, social business, or any other interpretations used. Social enterprise is about changing the way business is owned, who is in control, the purpose, and responsibility for society, people, and the environment. This also means changing the way success and failure are measured – from solely profit maximisation to broader social and ecological considerations.

For social enterprise to be an alternative that works and is efficient, it needs structure, legal independence and operational integrity. Below are what I think are the key values that need to be enshrined in a social enterprise definition and constitution to affect genuine system change in commercial organisations.

Common ownership

Who owns controls and decides how commerce is run and how wealth is distributed. Spreading ownership more equally, where workers and other prominent stakeholders have an equal share and control, will ensure interests other than profit will influence how and why commercial enterprises are run. In social enterprise, common ownership by the workers and sometimes local residents has always been a fundamental part of the legal structure. To move from elite shareholders to broad-based stakeholders needs a change from private to common ownership. It influences responsibility and status for co-owners, builds self-esteem and equality, shifts control on decision-making, and is more inclusive when considering and deciding purpose, mission, and investment.    

Democratic governance

Social enterprises need organisational strategies that align with democratic principles and practices to reflect the common ownership system and co-owners’ rights. If there are co-owners, they are engaged in all tiers in some capacity, from the governance body to the individual worker on the shop floor.

A commonly owned and democratic enterprise will have three main organisational tiers, governance, management and work teams, and individual workers who are self-managed co-owners. These tiers create a circular organisation rather than a hierarchical one in a general sense, but each enterprise may have varying degrees of hierarchy. These may range from those who pay themselves equal salaries and rotate most, if not all, work tasks to those who pay deferential salaries and practice degrees of hierarchy authority.

Through the governance body, all co-owners can set the mission and long-term plans, policy formulation and salary levels. Being part of senior management makes co-owners not only part of the decision making but also fully appraised of all aspects of the enterprise. The benefits are many and lead to an open and transparent organisation.

Workers and managers are responsible for coordinating and implementing the governance body’s plans, day-to-day decision-making, and daily financial and administrative operations. With the democratic level of equality and being fully aware of what is going on, everyone is a self-managed co-owner who controls their enterprise.

Financial viability

For most of economic history, maximisation of turnover, sales, and profit have been the dominant assumption: within a balanced economic environment, this more or less works, but when we move to globalised capitalism, as we see today, profit maximisation becomes anti-social and causes untold poverty and environmental stress. No rule says you must maximise profit; it’s just the default assumption expressed and justified using the single bottom-line measurement. 

Social enterprise focuses on the triple bottom line and therefore should assume financial viability as the fundamental economic assumption, defined as “to generate sufficient income to meet operating payments and debt and invest in commercial, social and environmental benefits”. By shifting the emphasis from profit maximisation to financial viability as the driving motive for enterprise, we also change the way economics is measured from GDP to society and ecological wellbeing.  

Environmental responsibility

Because co-owners decide strategy, policy and investment and work on the shop floor, their understanding and knowledge of how any waste and pollution is generated give them a more comprehensive grasp of the problem. Consequently, they are in a good position to find practical and workable solutions to transform their enterprise into an environmental regenerative organisation.

There is no greater urgency now than to create financially viable zero-emission organisations driven by technological innovation and human behavioural change. 

Commercial and non-commercial organisations emit disproportionate amounts of pollutants compared with individuals, families and communities. While we must all reach net-zero emissions, organisations are able to achieve substantial reductions with greater impact. Social enterprises are well placed to make strategic decisions to support this: such as evaluating every investment, process and material used to eliminate waste and emissions wherever possible. Unfortunately, sustainability is no longer the mission; we cannot sustain a broken system. Organisations have now to make good. It’s about being proactive and regenerative in design and implementation.

Measuring and reducing emissions and waste is complex, and for many enterprises doing something rather than being flummoxed by the complexities can be very powerful and achieve surprising results. A small intervention is sometimes the tipping point for considerable positive change in the future.    

Social wealth

Social wealth is the ability to connect with others to do things you can’t do independently, enabling opportunities for co-owners to engage with and connect to a wide range of initiatives, both internally and externally. 

To have supportive and meaningful human connections in all spheres of life builds physical and psychological health that helps us live whole and fruitful lives in the workplace, family and community. 

Being a co-owner of your enterprise; participating in decision-making – listening and voicing opinions freely; being responsible for initiating work and being led by others rotating these tasks; and building connections with colleagues, partners, suppliers, and customers leads to connected individuals enhancing positive self-esteem and wellbeing. 

Social accounting and audit

The term social enterprise originally came about as the description of an enterprise owned and controlled by its workers and/or community stakeholders and measures its performance using the triple bottom line of financial viability, social wealth creation, and environmental responsibility. 

The social accounting and audit system is an annual, or biennial, planning and accounting system alongside the annual financial accounting. The system comprises three methods: checking against external indices for social and environmental good practices. The second uses an internal and external stakeholder question set. The third is planning and monitoring changes to achieve social and environmental impact. I don’t think they all need to apply every year. It will depend on the state of the previous audit and how the enterprise scored using the external indices.

It’s essential, though, that the process is carried out honestly and transparently and would benefit from being enshrined in law as part of a Social Enterprise Act.

Social Enterprise Act

The six values represent a new model of enterprise that combines old practices from the cooperative movement on ownership and control, new ideas about financial viability and recommendations on social and environmental responsibilities. To manage social enterprise, the assumption of profit maximisation has to be replaced with financial viability using the social accounting and audit methods of measurement and accountability. I suggest, in the book, that it is time for an agreed social enterprise definition, a legal model rule and an Act of Parliament. The Social Enterprise Act would underpin a system change to alter the responsibilities and benefits of commercial enterprises.

Essential Social Enterprise is a new book written by Freer Spreckley, who revisits social enterprise’s short history and ideas. This article is a composite of six articles Spreckley is writing for Pioneers Post in the UK, representing the six values that underpin the intentional social enterprise model described in his book.