Apr 30, 2012
Category: Local Livelihoods
Posted by: freer
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Social Enterprise - A Counterbalance to Inequality

Freer Spreckley

November 2011


1. Introduction

Social Enterprise is commercial enterprise based on the values of equity in ownership and wealth distribution, equality of involvement, solidarity with people from all over the world, honesty in pursuit of objectives, openness about operations, and a balance between commercial trading, social responsibility and environmental care.

Social disquiet is being driven by the perception of unfairness, a lack of democracy, and ownership and power in too few hands.  Consequently civil society worldwide is adopting the values of fairness, equality and inclusiveness, not only in parliaments but also in workplaces, where viability is now being broadened to include not only commercial independence, but also social wealth creation and environmental responsibility; a more generous approach that will lead to a more inclusive and fair society.

As Social Enterprise has grown over the years some agencies and government departments have been attracted to it as a way of furthering partly their own agendas and partly the social enterprise agenda.  This has resulted in different definitions being drawn up by those who support social enterprise; and differing interpretations of those definitions leading to confusion as to what it is.  In addition ‘social entrepreneurship’ and ‘social enterprise’ are often used in ways that give the impression that they are the same; whereas they are very different.  Social entrepreneurship describes people doing good work and being philanthropic; whereas social enterprise is a legally registered trading enterprise that is owned by its members.

Growing inequality is driving the need for more than philanthropy; there is need for structural adjustments that tackle the root cause of the inequality not just the symptoms. If social enterprise is going to be one of the counterbalances to the inequality in civil society then it needs a clear, legally binding and progressive definition that means what it says and that can be verified.  For many of us who work in a social enterprise the definition is important, not only to know what you are, but also to safe guard the reasons why we work in them. 


2.  Social Enterprise Definition

From the late 1970s this definition for social enterprise has been used:

“A social enterprise is a legally registered organisation owned and controlled by its members based on the values of equity in ownership.  It trades commercially, creates social wealth and reduces its environmental impact. Social wealth and environmental benefit can be created as an integral part of a social enterprise’s operations or can be delivered through its profit distribution.”

Ownership is one of the oldest societal institutions. Ownership is at the heart of social organisation and social relations; ownership is universally respected, understood and is used to define personal, group, national and regional relationships and identity.  Too much private ownership has resulted in extreme inequality, common ownership, however, creates equality and self-esteem.

Democracy only works if there is a right to enforce the outcome of a decision; democracy based on one person one vote underpins human rights and engenders a sense of being part of something, belonging.  It also, more often than not, creates the best outcome.  If anyone is at all serious about creating social wealth the most straightforward way is through shared ownership and democracy, it is the easiest, most efficient and effective way it can be achieved.

Financial independence creates permanency and security and also underpins innovation and risk taking, essential to sustain an enterprise’s position in the market place.

Social wealth creation enables people to come together for mutual benefit and considerate decision making.

“Social wealth refers to the benefit gained through groups of people being able to network, share information, organise themselves for specific tasks and experience the thrill of doing things together than cannot be done by a single person.”

How a social enterprise supports this will depend on what type it is and what commercial actions it carries out.  It can be by providing support to staff in building their capacity, purchasing from Fairtrade suppliers, offering financial grants to local groups, donating a percentage of profits to charity, or Pro Bono work.

Environmental responsibility is the responsibility of all societies and of all peoples.  Social enterprise has been a pioneer in environmental responsibility and continues leading the way. Sometime this is as part of the enterprise’s operations, the way it generates and uses energy, is carbon neutral, and recycles and reuses waste, or minimises the use of non-renewable resources.

Social enterprise is based on the following principles:

•      owned by members equally on the basis of non-equity shares

•      membership is determined by the organisation in its constitution; for example options, open to
       employees, community residents, customers and users

•      democratic decision making on the basis of one member one vote

•      profits are reinvested in the organisation and/or for social or environmental purposes

•      mixed receipt organisations which can receive earned income and grant funding

•      both commercial trading and social actions are undertaken (sometimes combined into one   activity)

•      commercial, social and environmental performance are measured using financial and social                
        accounting and audit

•      committed to creating social wealth not private capital


3.  Social Enterprise Types

Social Enterprise is an umbrella term for a range of different types of trading and social provision organisations and companies that meet the social enterprise definition.  In the UK we have many thousands of social enterprises; from large department stores and supermarkets employing tens of thousands of staff to very small specialist support agencies employing 2 or 3 staff.  Some social enterprises are very old and were established long before the term was developed and everyday new social enterprises are being established: it is a fast and growing sector.  Across the world, in Europe, Asia, Africa and the Americas social enterprise is on the agenda and they are starting to be set up.

There are four Main Types of Social Enterprise:

Trading Enterprises

Worker/employee owned trading enterprises, co-operatives and collectives.  These are sometimes very large enterprises such as John Lewis Partnership in the UK and the Mondragon Co-operatives in Spain, to medium sized enterprises owned by their staff with traditional management hierarchies and pay differentials to quite small worker co-operatives with only a few director/employees who work in less hierarchical ways and practice wage parity.  Within the Trading Enterprises there are employee own enterprises and membership owned enterprises.

Co-operatives Societies, first established in the UK in the 1830s, are trading organisations that usually have large memberships from their customer base who receive dividends on the amount spent over a year.  Many have strong commitments to social and environmental good practices.

Social Enterprises work in all sectors although there are certain sectors such as health care and in environmental technology where there is a concentration.

Financial Institutions

Saving and Loans organisations such as credit unions, micro credit organisations, co-operative banks and revolving loan funds are membership owned social enterprises.  Credit Unions were first established in the 1850s in Germany and spread internationally.  Co-operative Banks have likewise been around since the 1870s, owned as a subsidiary of a membership co-operative.  In recent times Microcredit organisations have sprung up in many developing countries to great effect.   Local currency exchanges and social value exchanges are also being established.

Community Organisations

Many community organisations are registered social enterprises; community enterprises, housing co-operatives and community interest companies with asset locks, community centres, pubs and shops, Associations, Housing Associations and Football Clubs.

These are membership organisations that usually exist for a specific purpose and trade commercially. All operate to re-invest profits into the community. They have large memberships who are customers or supporters of the organisation’s key purpose.  There are examples of village co-operative in India and Bangladesh that were established as far back as 1904.

In the UK there are many multifunctional community based organisations with a geographical membership of local residents, usually holding assets such as community buildings, which use these to provide social care support to local residents.

Non-Government Organisation (NGOs) and Charities

There are many NGOs and charities that operate a commercial consultancy and training enterprise, or subsidiary trading enterprises, such as Oxfam. The profits are used to provide salaries for people who provide free services to specific groups of people or to further the social or environmental aims of the organisation.

The charity or NGO acts as a holding company owning trading companies which carry out trading activities and invest all surpluses as a donation to the holding company; in some countries tax free.

A social enterprise seeks to be commercially profitable, to be environmentally sensitive and to deliver social wealth: social enterprises are measured by their success in achieving this “triple bottom line”.  Financial independence; social wealth creation; and, environmental responsibility should guide the planning, operations, and be the criteria for measuring performance. 

Social Enterprise is attractive to employees because they part own and democratically control the enterprise and know that the use of any profits, from their labour, is under their control.  Social Enterprise is also attractive to customers because the value added a customer gets from buying from a social enterprise is in knowing that some of the profits are used for social and environmental purposes.


4.  Social Accounting and Audit

Social enterprises are often constrained in the way they describe their purpose and how they plan for their operations if they only use a financial accounting and audit model.  Social Accounting and Audit as an organisational system is used by social enterprises to plan and measure their overall Triple Bottom Line performance. It gives equal weighting to the three key objectives: commercial viability; social wealth creation; and, environmental responsibility.

“A Social Accounting and Audit is a systematic, regular and objective accounting procedure that enables social enterprises to establish social and environmental values, plans and criteria against which they can measure performance alongside their financial measurement.”   

Financial auditing is required by law; social auditing it is undertaken voluntary and should be done, primarily, to assist social enterprises in achieving their stated objectives and values.  It is sometimes considered burdensome to have to measure non- financial performance, but in reality nearly all organisations do so to some extent and it is more efficient to conduct a social audit than try to be accountable in other ways.  

Social Audit enables organisations to explore, and generate, their own values which form the basis for setting criteria for measuring performance.  It provides a coherent and clear image of an organisation, and the planning and execution of social and environmental objectives in a transparent and fair way and verifies and accounts for the triple bottom line. 

Here is a brief account of how the Social Accounting and Audit works:

Element One - Governance Statement and Triple Bottom Line
This element of the Social Audit is used to establish clarity about the organisation: the principles and values, its objectives and commercial operations. 

Element Two - External View and Stakeholders
The External View is used to analyse the position of the organisation in relation to its interaction on a local, regional, national and international level, and its more immediate relationship with its stakeholders and customers.

Element Three - Internal View and Organisation
The Internal Review is used to examine the organisation’s structure and relations with its staff, board members and volunteers, and how it delivers its operations.

Element Four - Social Accounting and Verification
This is when the information that has been gathered and the results from the elements are brought together, the social plans for the next year are set and the Social Audit is reported on formally to stakeholders in the Social Audit Report. 


5.  It’s History

Social enterprise was created to provide an alternative approach to the private sector’s narrow value of profit maximisation: the bottom line.  Social enterprise is the modern enterprise method for the 21st century, but one which basically maintains the good parts of market economics where anyone can freely trade based on supply and demand and open competition and market driven prices.  

However, the origins of social enterprises and co-operative forms of activity are founded in the early social struggles of the 17th century.  In the UK, groups styled the Diggers took over land and cultivated it in common, organised themselves around the idea of one person one vote and equal distribution of wealth.  This first experiment in co-operative forms of organisation established the idea of integrating social and commercial activities.  What the Diggers lacked was ownership of the land they had taken over and thus they were eventually driven off.

Much later on Co-operative forms of organisation began to appear; in 1830 a number of unemployed millers took over the operation of an old mill in Hull to provide flour for their families and other members of the community who were in need.  As with the Diggers two centuries earlier their aims were more social than profit orientated, and like the Diggers they did not own the mill and were finally moved out.

As capitalism gained ascendancy pioneers such as Robert Owen (1771-1858) influenced the newly formed trade unions to favour the establishment of an alternative means of organising society.  Owen urged the working classes to set up groups of producers with common ownership of the means of production.  He advocated the idea of co-operatives not solely for commercial purposes but as social organisations reaching out to the community and integrating community and commercial values.  Owen’s ideas were extremely popular.  As a result many co-operative societies and shops were founded, “Labour exchanges” were set up, and the concept of socialism was developed.

The Rochdale Society of Equitable Pioneers (1844) extended their influence beyond the immediate consumer to the wider interests of the community, the ideas on democratic management and equal voting rights were part of their doctrine; and many of the areas of the welfare state in the UK today were originally inspired from the co-operative societies and promoted through their free meeting halls.  Co-operatives around the world owe their success to their common ownership legal system; one member one ownership right.

The first major principle of the traditional co-operative movement was open membership to all on a voluntary basis.  Over time, however, this created a large unwieldy consumer membership which lost sight of its principles.  In co-operative enterprises based on collective forms of ownership by the workforces, a participatory principle was adopted which restricted membership to workers only. 

In 1978 at Beechwood College in Yorkshire, UK, the Industrial Common Ownership Movement’s (ICOM) training college the concept, term and structure of Social Enterprise was firmly established.  Social Enterprise was defined as having the basic rules of co-operative and common ownership businesses, each member owning one share and each share giving each member one vote in the general governance of the enterprise, but the Triple Bottom Line was added whereby the enterprise took on responsibility for not only being financially viable but for creating social wealth and being environmentally responsible, both in the way it operated and from where it sourced its supplies.

At this time, along with the triple bottom line, the ideas of social accounting and audit as an organisation system was born to complement social enterprise and provide a management system to help guide the social enterprise in being true to its principles.

Social Enterprise today represents equal rights for people, society and the environment in a viable and sustainable way.  It has become a global force where social enterprise organisations and networks are springing up as people come together to form realistic and permanent fair organisations.  The rights of each person are of equal value in terms of ownership, having a voice and a vote, and contributing to social and environmental wellbeing.  


6.  Reasons Why

If corporate society (the dominant very large multinational corporations) continues on its path of monopolism, automation and fixation on the single bottom line civil society will perish.  National governments, WTO, trade unions, consumers and even protest and agitation will not prevail against, or offer any counterbalance to, the combined might of corporate society.  In the long term this unhealthy and unequal state of affairs will damage everyone and everything.  There is clearly a need for a realistic and sustainable force in countering inequality, anti-social and environmentally degrading behaviour. 

Social enterprise is a counterbalance to corporate society and can provide a fairer and more just society that fulfils our human rights.  In an increasingly overpopulated world with increasingly scarce resources we need new ways of organising business, our environment and ourselves and our societies.

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