How to legitimise your social enterprise

This article is a summary of the interview conducted by Ben Pawsey, following Lucy Findlay’s 2 Degrees Sustainability Champion award. The article was previously published here.

Founded in 2010 in the UK, the Social Enterprise Mark Company (SEM) awards its “Social Enterprise Mark” to organisations that demonstrate their social, environmental and ethical values and behaviours, in particular with regards to profit distribution.

As the only international certification scheme for “genuine” social enterprises, the Mark helps social enterprises gain competitive advantage by highlighting their social and environmental credentials and purpose to stakeholders (much like a B Corp certification).

The Social Enterprise Mark Company was founded by Lucy Findlay, who was first inspired by the social enterprise business model when she met two female social entrepreneurs who ran successful inspirational social enterprises in tough communities in the UK. She has worked in the social enterprise world for more than 15 years running various organisations that promoted social enterprises and working with government (Prime Minister David Cameron awarded one of the first national Social Enterprise Marks). I spoke with Findlay last month at the 2 Degrees Sustainability Champions Awards, where she was recognized as Supporting Player of the Year.

Ben Pawsey: How did you come to found Social Enterprise Mark Co?

Lucy Findlay: Social enterprises identified that there was a gap in the market to differentiate themselves on the grounds of their business model – i.e. that they are trading for people and planet rather than for shareholder gain. The organisation that originally set it up consulted the social enterprise sector throughout England to develop the criteria and the branding. This was built from the learning and experiences of other leading labelling schemes, such as Fair Trade, etc. An important aspect of the Mark is the Certification Panel, who act as the ‘guardians’ of the criteria and oversee the certification process.

BP: Over 500 businesses have declared their social enterprise credentials to earn their Social Enterprise Mark since its launch. Can you describe some of the key credentials and SEM’s thinking behind them?

Lucy Findlay: There are five main criteria:

Criterion A – Must have social and/or environmental objectives in the governing documents. This is to prove and to provide transparency of purpose, which is a vital element of being a social enterprise.
Criterion B- Must be an independent business. This is to prove independence and self-governance distinguishes businesses from the public sector, from projects within larger organisations and private sector shareholder led businesses.
Criterion C – Must earn 50% or more of its income from trading (i.e. not grant funding). 50% traded income is currently accepted as a way of distinguishing a business from a grant-reliant organisation.
Criterion D – A principal proportion (50%+) of any profit made by the business is dedicated to social/environmental purposes because social enterprises are driven principally by social and environmental objectives rather than the maximising of profit for private gain or the gain of individual shareholders.
Criterion E – On dissolution of the business, all residual assets are distributed for social/environmental purposes. A commitment on residual asset distribution demonstrates a commitment to social/environmental objectives rather than financial gain on disposal of assets.
BP: SEM is based in the UK but its principles are being adopted globally. Last year we published a piece on ‘What Exactly Is Social Entrepreneurship?‘ to address the confusion around the subject. Do you feel that globally the definition is successfully being honed or is at risk of becoming further muddied? Where do the opportunities and challenges lie in either case?

LF: I agree with the definition stated in the article but I would drill down further, really interrogating what that means. For example the statement that ‘the main emphasis for a social entrepreneur is social value creation.’ We have taken this point and drilled down into the inherent tension of social business, especially around social motives versus profit motives. Mohammed Yunus, for instance, is really clear on the need for clarity of motivation and speaks about it in the context of the recent collapse of the Bangladesh garment factory here.

Being social is at the core of being a social enterprise and profit maximisation for shareholder gain can run counter to the social goal/mission of the business. Social enterprises are there to address a social problem and any investment and business motivation should address this factor. This is why we are clear that no more than 50% of profit can be distributed for shareholder gain.

I think that many people do not really understand why a profit motive is a problem when you are addressing a social issue and increasingly, CSR is being put into the same bag as social enterprise. Each approach has its own validity, but you need to understand what motivates that business to really understand its behaviours. I’ve lost count of the amount of businesses that have said that they are in fact social enterprises because they are creating local employment and might sponsor the local football team and run a CSR progamme. But this is a fundamentally different proposition from taking a wholly social/environmental approach and reinvesting all or most of the profits back into solving that problem.

BP: What does the future hold for social enterprise? Are there any trends you can see emerging from the past few years?

LF: There are a number of trends that we can see for the future in England and in the UK more widely in some cases. As the term ‘social enterprise’ gains increasing traction in the policy, business and charity worlds, there are a number of areas where the social enterprise market is expanding, for instance:

  • Start-ups that address social/environmental challenges that in the past might have been addressed in other ways – e.g. through charity or public policy, or not at all – e.g. climate change
  • Conversions of public sector activities into new social enterprises – e.g. Health and Social Care where many government departments are now outsourcing contracts to new social enterprises
  • Quasi-public organisations becoming more socially enterprising – e.g. universities, which are now required to become more customer-focused and more responsible for generating their own income rather than receiving grants from government. The social enterprise message resonates as the organisation has a strong social purpose but wants to improve its own business credentials. The social enterprise marketing message also resonates with students who are increasingly more ethics-conscious.
  • Recent research in the UK has shown interestingly that more women lead social enterprises (38%) as opposed to 19% in the mainstream business world.
  • Learn more about the Social Enterprise Mark and how it could benefit your business.

    Ben is Executive Producer of SustainableBrands.com looking to serve the Sustainable Brands community conversation online. He also coordinates the SB Innovation Open aimed at disruptive startups making a scalable positive impact on our future.

    Ben’s background is in Design having… [Read more about Ben Pawsey]

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    One response to “How to legitimise your social enterprise

    1. Pingback: Social Enterprise Day call for clarity on social value | Lucy Findlay

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