Catalysing Australia’s Social Enterprise Sector

Despite strong potential to be the global social enterprise leader, the Australian social enterprise sector is undervalued and underdeveloped according to Sam Johnson, who is attending the youth delegation to China G20 and writes on how government can help change this.

Social enterprise is gaining legitimacy as an approach to better solve problems that traditional market based and government approaches have been unable to tackle effectively.

Social enterprises are commercially viable businesses with a purpose of generating social impact, that exist primarily to benefit the public rather than shareholders.

Momentum is building around the world. Canada, the United States, Senegal, the UK and others are playing a proactive role in developing a positive policy environment for social enterprise. The Australian social enterprise sector is commonly regarded to be 10 years behind the United Kingdom, the well respected international leader in the field.

The success of the UK social enterprise sector, where small and medium sized social enterprises are outperforming their mainstream for-profit counterparts in almost every area of business, can be largely related to a long established, supportive policy environment.

With a policy environment in its infancy, there are many possible recommendations that could be made to all levels of Australian government to propel the sector into further growth.

Recommendation one: Social procurement – embedding community benefit clauses into traditional contracts.

Social procurement is about improving value for money outcomes by aligning multiple strategic objectives. It is an extremely cost effective way of addressing social problems which over time will in turn reduce government spending on employment and welfare problems.

There is a vast marketplace opportunity for social enterprises to deliver goods and services, with $27 billion in goods and services being procured through government in NSW alone.

Despite this potential, social enterprises across Australia consistently cite a lack of social procurement policy implementation as one of their biggest issues to growth.

When a government department needs to procure goods or services, it should be putting clauses in the contract that specify that the service provider must provide that good or service in a way that generates social benefit to the public within the government’s area of jurisdiction.

The clauses make logical sense when looking through the lens of the large social change outcomes that government is required to deliver on, not just the immediate requirements of quality and cost.

Social benefit clauses have already been used with success by local governments in Victoria and New South Wales, but the potential of uptake by other government departments is still a very large opportunity.

Recommendation two: Introduction of Social Value Act legislation

The federal government should also seek to adopt a form of the Social Value Act which was introduced in the UK and has been widely supported by the social sector.

The Act directs public authorities procuring goods or services to have regard for how their decision might improve the economic, social and environmental wellbeing of the community.

Recommendation three: A new social enterprise legal form

It is important that Australia creates a new legal business form that suits the unique requirements of social enterprise. Social enterprises currently make the choice to either adopt a Not for Profit or for-profit legal structure, and there are advantages and disadvantages to both of these choices.

Social enterprises that take the for-profit route have a dilemma.

The structure of for-profit businesses legally require directors to seek to maximise shareholder value, which brings the problem that directors can only consider environmental and social considerations to the extent that they do not inhibit the company’s financial performance.

This legal uncertainty that directors are forced to confront is restricting the capacity of social enterprises to grow and innovate.

As a solution to this dilemma, new legal business forms were created in the United States and the UK to support the desire of companies who wish to allow trustees to consider social, environmental and economics returns on their investments as part of their legal responsibilities.

An Australian Working Group was formed in February 2016 to develop an Australian model of this successful business form.

Recommendation four: A stronger investment readiness program

The federal government took a significant step in the right direction in 2012 towards catalysing the social impact investment market when it created the Social Enterprise Development and Investment Funds (SEDIF). However despite the availability of funds, SEDIF has so far only managed to commit a small fraction of its funding to social enterprises.

The fact is that the vast majority of social enterprises are not at the level of development where this type of funding is suitable.

There is a need for a larger market of specialised intermediaries who social enterprises are able to go to for specific capacity building that they need at that point in their lifecycle.

In the same way as SEDIF catalysed a market for impact investment fund managers, a new fund is required to catalyse the investment readiness provider market.

It’s fair to say that the Australian social enterprise policy environment is moving in the right direction but there is more work to be done.

The policy recommendations outlined in this article have been advocated for by Australian social enterprise business and academic leaders and are policies that the social enterprise sector can be expected to respond to very positively.

With the support of these policies, the social enterprise sector in Australia can continue to grow and redefine the provision of social value in Australia.

About the author: Sam Johnson is a member of the Global Voices Australian Youth Delegation to the China G20 and a student at the University of New South Wales Faculty of Engineering. He is currently writing his final year thesis titled Best Practices for Scaling Social Enterprises serving base of pyramid customers: learnings from Ashoka, Schwab and Skoll awardees.