Defined benefits

“While I can’t contest the social enterprise legal definition, I will say now why I think enterprises like mine should be allowed Guest Passes to the fold.” 

So says former Social Enterprise Ambassador, Craig Dearden-Phillips, in a recent blog about the need for the social enterprise movement to ‘throw open its doors’ to socially conscious businesses. With electoral reform temporarily on the back-burner, lovers of nerdy but passionate debate may now have more time to concentrate on issues of social enterprise structure.

Dearden-Phillips’ argument is a fairly simple one. In order to get his new business, Stepping Out, up and running, he had to put a significant chunk of his own money on the line and it wouldn’t be worth the risk without the prospect of a decent return on his investment. In order to (have the potential to) get that return he has set the company up as a ‘for profit’.

The stipulation that the company will put up 20% of net profits to  ‘invest in early stage social entrepreneurs working at community level’ does not alter the fact that, based on current definitions, it is not a social enterprise.

Dearden-Phillips calls on the social enterprise movement to find a place for companies likes his explaining: “I have said this before – there are thousands, possibly tens of thousands of firms in the UK just like ours which are, in essence, privately held but which subscribe to a broader view of their existence and indeed have the track-record to demonstrate this… At the moment, these companies have nowhere to go.”

There is a widely held view, cogently explained here by Ben Metz, that the use of the term ‘social enterprise’ to describe a type of organisation is on the way out and that, given the wide range of organisational structures under which socially enterprise activity takes place, social enterprise is best understood as what we do rather than what we are.

This is a neat conceptual shift that I broadly sympathise with but it does leave plenty of problems unsolved. One is that, while it’s not as important as what we do, organisational set-up does matter – even to people who object to the current definitions. If it didn’t matter then Dearden-Phillips would argue ‘I’m a good bloke with a great track record of achieving positive social change, clearly I’m not in this just for personal profit’ rather than actively stating that “20% – of both the company and the net profit will go to invest in early stage social entrepreneurs working at community level“.

People who know Dearden-Phillips would mostly accept the former statement but customers and the wider public – if they’re interested in the wider social value that a company provides beyond delivering a good service – need more than that.

In a recent interview with this blog, Social Enterprise Coalition chief executive, Peter Holbrook, cited the examples of The Body Shop and Ben & Jerry’s to illustrate some fundamental difficulties with straight for-profit structures – in terms of both of financing growth and embedding social ideals once the founders of the business are no longer in charge: “We shouldn’t get hung up on it but I think protecting against the dissolution of your social commitment is quite important to get right at the outset. It’s important that leaders recognise that at some point, whether they die or change jobs, they will move on and the values that they set up the organisation with, may or may not be lost. Is that a risk people are willing to take?”

This is an issue that supporters of ‘social enterprise as a verb’ cannot ignore. There is a risk that a for-profit social business could continue to benefit from its past social commitment long after that social commitment has ceased to be a reality. There’s also a connected risk – particularly in the current climate – that companies that deliver services in social sectors but have no wider connection or responsibility to communities could be mislabelled as social enterprises.

I don’t think, though, that these risks should prevent the social enterprise movement from attempting to bring together a wide range of people and organisations to deliver a more socially sustainable economy. On a practical level, finance is not currently available to deliver enough scalable social enterprises to make a major impact on the mainstream economy. On a more philosophical level, it would be counter-productive to actively exclude millions of people – such as Craig Dearden-Phillips – with a mixture of social commitment and desire for a financial return from the movement.

The question of social enterprise definition isn’t one that’s likely to be answered soon – and the issues of profit distribution and the asset lock are only two of many areas where there’s currently a wide range of views – but that’s not necessarily a big problem if we can accept that it doesn’t need to be. The challenge is to become more comfortable with our diversity – accepting that for the foreseeable future there will be both organisations that describe themselves as social enterprises and socially enterprising activity carried out by a wide range of different organisations and individuals. And get on with creating positive social change.


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4 responses to “Defined benefits

  1. Well David, It’s something that’s discussed in the paper which launched P-CED in 1996, suggesting that it’s a way in which any business might contribute to society:

    “If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object. But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund.”

    What we advocated as the P-CED model was ‘at least 50%’ invested in the community with the remainder retained by the company without distribution as dividend.

    In an interview for Axiom news last year, founder Terry Hallman warned of the risks of commercial predation and of the need to constrain dividend distribution. Peter Holbrook has said much the same recently.

    In more recent times, in support of the ‘pure’ approach to social enterprise advocated by Muhammad Yunus in social business, I’ve asked more than once whether the term is understood. Nobody answers, but it appears in all kinds of articles about social enterprise and now social media. I noted recently for instance that Linkedin uses the Yunus definition of a non-loss , non dividend distributing business with a primary social objective, to define social business in their skills directory, yet among those using it there’s not a social business in sight.

    If Dearden-Phiilips wants to do this, then why not? Does it have to be called social enterprise if it helps develop the social economy?

    I put a lot of my own money on the line to set out a business plan for 50% of profit to be re-invested in social enterprise start ups via local CDFIs. That was 2004 and I’ve invested a lot more since in subsequent development. Should I be asking for a guarantee of something back?

    He may even be using our business model, which was originally published free to use.


  2. beanbagsandbullsh1t


    I don’t think it’s a question of a guarantee of getting something back.

    For me, the question is whether we can expect significant numbers of people to put all their savings, potential earnings elsewhere and possibly their house on the line to start a social enterprise/social business if the best result they can hope for – even if they succeed beyond expectations – is to not lose money.

    I agree, though, that whether businesses are described as social enterprises is not the key issue, it’s whether different types of organisations can work together to create more socially responsible economy.


  3. And inside the social enterprise definition are businesses with asset locks and ‘profits’ distributed to the community where principals take out large salaries while no profits are made and in practice nothing is invested back into the community. Yet some of them are amongst the stars of the social enterprise firmament. What matters is not what is done with surplus assets, but what is done by the business for and with the community, and if they are taking public money how they use that to bring about progress for those who most need it, rather than feathering the already well feathered nests of the principals.

    So lets have much more openness and accountability about what is actually being done and worry much less about legal definitions…


  4. The point that Mike makes about nest feathering is well illustrated by the Forest of Dean healthcare CIC which without trading, paid out around £250k in consultancy fees from public money. A part of this coming from local taxpayers, who’d had the wool pulled over their eyes about the SET status. It had failed to gain approval from the PCT and was therefore ineligible for further funding from the Social Enterprise Investment Fund.

    Arguably it is in circumstances such as the proposal to make social enterprises of NHS trusts where definitions are required and public accountability implemented to ensure that the principles are adhered to.

    What any organisation contributes to the community may also include the employee hours and intellectual property which are invested for social outcomes i.e. “how local citizens can have food, shelter, health care, and a basic sustaining human standard of existence” . This was demonstrated in Russia for example, where such investment sourced a poverty alleviation initiative and helped 10,000 individual set up micro enterprises to support their families to lift themselves out of destitute circumstances.

    It remains for us a moral and strategic imperative, to tackle poverty and in retrospect, when I’d related this to Baroness Thornton of the SEC in 2005, I can see now the embarrassment it would have caused. This wider vision was out there free to use in the public domain and the CIC then being developed in private, didn’t go anywhere near as far in its social objectives. These included conformance with the International Covenant on Economic Social and Cultural Rights, which our founder had fasted for in 2003 and led to his senator John Edwards opening the Center for Poverty Work and Opportunity, in Chapel Hill NC where the fast had taken place.

    Returning to focus on Eastern Europe we’d made the following point in a major strategy plan which when published online drew around 400 hits an hour. “The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise. ”

    As this international aspect of social enterprise has evolved, we find the same “not invented here” mentality prevails. All we may read in the SE press of international activity is of the rollout of an international SE Mark. As a social enterprise located in the South West, I’d written to Rise SW, the creators several times from 2006, suggesting participative engagement. They were to reply finally in 2009 to say they were too busy with the SE Mark, to do so.

    The primary focus, for us, has become ‘imperfect’ children, abandoned to the state where they are often ‘farmed’ for profit in conditions of neglect which have been likened to concentration camps. To effect change we’d invested all revenue, all of our time and intellectual property, which for both has meant consequences for our own health.

    This isn’t a matter of waiting for a social enterprise firmament to endorse or approve us with a label, it’s very much a matter of human life, which can easily be illustrated by trenches serving as crude graves for unknown infants.

    If we’re an embarrassment, then that’s how we’ll continue.


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