Social Enterprise Day call for clarity on social value

Social Enterprise Mark's Lucy Findlay

It’s Social Enterprise Day and there’s lots going on all around the UK. I’ve been part of a week-long Social Enterprise Festival in Plymouth where I met celebrity social entrepreneur Melody Hossaini and attended the launch of the brand new Futures Entrepreneurship Centre at Mark holder Plymouth University. The Festival has been very lively and inspiring and culminates in a Social Enterprise Trade Fair today, where Rachel Brown and the Social Enterprise Mark are taking part. I am also one of the 50 voices on the Guardian Network talking about what social enterprise means to me.

Tonight, I’m joining Alastair Campbell and the CBI for their annual dinner in Bristol to make links with business for our Mark holders. This evening in Plymouth, Julie Hawker, one of our Social Enterprise Mark Ambassadors is presenting the Social Enterprise Mark to Plymouth University and Peninsula Dental Social Enterprise. In addition Julie will be taking part in a social enterprise debate which explores how a city can become a social enterprise city. Anne Mountjoy will be linking up to the debate from the Exeter Social Enterprise Network by videolink.

For Social Enterprise Day, we’ve announced the results of our research which asks does the Social Value Act have Teeth? I urge you to share this announcement and the report widely – let’s create the momentum for the Social Value Act to start working for social enterprises.

Happy Social Enterprise Day!

 

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]

    Are you being served?

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    The recent state of social enterprise research, by SEUK, The People’s Business has reported that more than ever social enterprises are needing appropriate investment ‘Twice as many social enterprises (48%) as SMEs sought finance in the past 12 months and 39% cited access to finance as the single largest barrier to their growth and sustainability – the most common barrier experienced.’

    This mirrors the findings of our work with Social Enterprise Mark holders who cannot access the right resource level for their growth – ‘The median amount of finance sought by social enterprise was £58,000’ – below the minimum thresholds of many specialist social investment vehicles. This supports other research identifying the need for smaller-scale, patient, risky and unsecured lending for social enterprises. David Floyd in ‘That Shrinking Feeling’ provides good commentary on this issue, although he argues that what social enterprises need most is more customers, but I would say it’s chicken and egg, without investment a social enterprise can’t grow to reach its full potential and access new customers.

    At last the penny is dropping that social enterprises cannot access the finance they need through social investment channels – but where are the solutions? Indeed, small scale lending where it does exist, is so risky that it has to be backed up by very high interest rates to justify that risk, which puts social enterprises at a double disadvantage – not only do they have to demonstrate social impact, but also, this is not taken into account on the bottom line by the social investment sector, which in turn charges high interest rates to make its own business model work. The social enterprises then become financially uncompetitive with the private sector which can access cheaper equity and do not have to demonstrate social value. This unlevel playing field and to represent certified social enterprises are two of the factors that led me to volunteer for the HM Treasury Working Group on tax relief for social investment in social enterprise and the argument that I put forward for lower than commercial rate of return for investors. I urge all social enterprises to respond to the consultation and share responses with me.

    Another investment channel is the banks. The ‘Banks and social enterprise’ article by Claudia Cahalane shows how much banks are courting social enterprises for current accounts but the unsecured lending offers are very thin on the ground. Why is it not possible to look at some kind of blended product from the banks? I know that there are banking rules that have become more onerous, but why can’t banks’ CSR programmes look at working with others to develop a CSR stream that provides such patient capital which does take into account social value and mission? We seem to be looking into a very small box with everyone saying why it can’t be done. Could this be a great publicity opportunity and chance for the banks to put their house in order and demonstrate their social credentials?

    Meanwhile the social enterprises will struggle on with no investment and certainly no grants (now a dirty word). The upshot, as David Floyd says, is that we may not be shrinking in numbers, but we are shrinking in size (turnover). Isn’t it time to do some re-thinking? Who will dare to take this challenge on?

    Our NHS: Social enterprise doing it better

    I recently met with the team at South East Health – a recently certified social enterprise which is a conglomeration of doctors’ cooperatives, carrying out a variety of services including out of hours care, a roving GP, offender health and they run the NHS 111 service for the Great Yarmouth area (amongst many other things). My meeting was with the whole senior management team and I found the whole experience very inspirational. From my brief immersion, you could tell that there was a really collective effort shared in not only making services better and more joined-up for patients, but also how the reinvestment of profits and the social enterprise model can make a difference for the better.

    We shared the frustrations and challenges of the NHS currently and how the bad stories often eclipse the good ones. The social enterprise model has so much to offer in the new contract environment – seeing ourselves as businesses but not at the expense of the care. We need to highlight this more effectively and ensure that good social enterprises like South East Health are on the same podiums as the private healthcare providers who are so effective at marketing their services across Government and the wider world.

    They do have good stories too. In the face of so much bad publicity about the lack of performance of the new 111 service, their contract is getting extremely good feedback. But squeezes in budgets, which are facing everyone at the moment, are making life harder and harder as margins are cut. Commissioners need to not only understand the value of a social enterprise approach but also understand the dangers of contracting a substandard service from a purely cost-cutting basis.

    It is only by working more collectively and effectively that we can bring pressure and influence to bear. South East Health represents some of the best practice in difficult times – part of a solution to a problem that many are grappling with. We just need more people to know about it. Particularly, as the Social Value Act puts the onus on clinical commissioners to deliver value to the local community.

    Sentinel Healthcare CIC is another good example in the NHS, of spending money effectively, trying to ensure value for money and ensuring surpluses don’t go to private shareholders but back into the community, as a certified social enterprise.

    This is what commissioners should be looking out for if they’re adhering to guidelines outlined in the Social Value Act. What better way than by looking for the Social Enterprise Mark?

    Look for the Social Enterprise Mark

    Tax relief and social investment – the golden egg?

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    “Social enterprises play an important role in growing the economy, reforming public services and promoting social justice. The Government will introduce a new tax relief to encourage private investment in social enterprise. The tax relief will complement the Government’s other recent measures to help social enterprises access the capital they need, such as the launch in 2012 of Big Society Capital. The Government will consult formally on the details of the relief by summer 2013 and the relief will be introduced in Finance Bill 2014.”

    An excerpt from the HM Treasury, Budget 2013.

    Last week’s budget speech was regarded as a welcome boost to the sector, for many have been lobbying for tax breaks for a long time. As the only UK body to independently certify social enterprise, the Social Enterprise Mark Company generally welcomes anything that helps companies increase their investment potential in this exciting and innovative sector.

    However, we would also caution that social investment should not come at the expense of a degradation of social mission because this is a central plank of any genuine social enterprise. The social mission at the heart of these businesses gives import to the asset lock which limits the amount of profits and assets that shareholders (if there are any) can take out of a business (see my January blog post on definitions). The asset lock is there to protect the very values and mission which make social enterprise different from other businesses.
    The question, therefore, is not so much about how we attract individuals and organisations to invest in social enterprise (by this I mean equity), but more about how we attract the right investment into social enterprise that builds and enhances social mission. This is what will boost the real needs of the sector and most importantly its customers. Currently the debate is more focused on what the investor wants than the demand from social enterprises, hence the pressures to dilute the asset lock and open social investment up to the wider ethical business world, as outlined in Civil Society.

    Social enterprises need a whole range of products that take into account the long and difficult game that they are applying their business model to. Very often, when it comes to investment they have had to come up with a raft of different solutions and be incredibly creative in order to meet their social mission. As we know those options are becoming increasingly limited, further exacerbated by the risk aversion of the banks and the still limited breaks being given to SMEs, which by far form the largest group of businesses certified with the Social Enterprise Mark (Mark holders).

    Hence, the ideal scenario for Social Investment Tax Relief would be that the principle of social mission is at its core, rather than fixating on a prescribed investor model, which has yet to be proved. Tax relief is a good incentive and the government should let the genuine social enterprise market work out how to best apply it to increase their own social value.

    So let’s stop talking about getting investment ready and instead think about getting investors in all their shapes and forms ready for the challenge ahead – offering opportunities for social enterprises to join up the products and fill the gaps.

    Definitions again… legal this time

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    It appears that before the Christmas period, there was a move by the Government to define what is meant by the term social enterprise (albeit limited to the health context in England). See
    http://www.legislation.gov.uk/uksi/2012/3094/part/6/made

    Any move to clarify things should be welcomed in my book and I would say that we are broadly in agreement with the spirit of it. However, the danger lies behind in the lack of specifics, which does leave it open to interpretation and possible hijacking. There are a couple of areas that cause the most concern, from our experience.

    Firstly, the lack of a requirement for independence. This means that any company or organisation could potentially set up a social enterprise under this definition and they could still remain in control of it (sometimes known as the Golden Share) albeit with limited profit distribution and a lock on residual assets (if the company closes). This allows for ‘sham’ social enterprises – being used as a front for potential bidding for health contracts and will further blur the lines with regards to the privatisation of the NHS. We have seen this in other externalisations such as leisure trusts where a local authority has overall control of the company; of course these Trusts would not achieve the Social Enterprise Mark.

    Secondly the wording is vague around social purpose. The Mark specifically requires that a social enterprise has stated social/environmental purpose(s) in its constitution whereas this definition states that the body must ‘contain a statement or condition that the body is carrying on its activities for the benefit of the community in England.’ This might be linked to the way that Community Interest Companies operate, but it does not prescribe how this this will be tested and interpreted.

    Which brings me to the third concern which is how this definition will be regulated and how new social enterprises can be supported to ensure they meet the criteria in a robust way (see my last blog about the need for independent certification). The Social Enterprise Mark is a short-cut to demonstrating social enterprise criteria are real and dig into the true motivations for setting up as a social enterprise. The ultimate sanction is the removal of the Social Enterprise Mark business changes its way of operating.

    I will be writing to Jeremy Hunt to tell him this!

    Why independent certification is important for social enterprises

    Why certify in the first place?
    If it looks like a duck, quacks like a duck – is it a duck? Or does it matter if it’s a duck or a Christmas turkey disguised as a duck when it tastes nice and lays good eggs? (not that I’ve ever tried turkey eggs!)

    Social enterprise is a term that has been around for a number of years now, but there are many people who are confused partly because there is no legal definition and partly because the term seems to have been adopted by so many different people, all having their own ideas about what it is. There’s also been a culture which ignored the integrity of such businesses, as long as it got the right results and demonstrated social impact.

    Have customers really thought about the type of business that they are buying from though and if they knew, would they make different choices?

    Witness the high-street banks. We all thought they were doing a great job, until the short term shareholder profit motivation and bonus culture was exposed along with the associated behaviours. Then there are the ethics – why should a company that is set up to support some of the most vulnerable in our society, then take individual profit for doing this?

    In addition, how can you protect the integrity of something if you don’t know what it is that you are protecting?

    Certification is necessary as it places boundaries and criteria which develop common understanding of the product, what it does and what it stands for.

    So why not self-certify after all it’s quicker, cheaper and potentially more accessible?

    Easy accessibility is its key downfall. It does not protect integrity, it is inconsistent and is open to self-interpretation and in the worst cases, abuse.

    Having run the Social Enterprise Mark since the beginning, we have developed the criteria in partnership with the sector and have protected and owned these criteria fiercely. It is our experience that interpretation of the criteria is a technical job and not easily carried out by anyone. We are constantly learning about new forms of social enterprise and the way that they operate. Our Assessment Manual has taken years of work to develop and our certification panel has taken its job very seriously in developing those precedents which have been set.

    This might all sound really boring and techy but it’s important for the future of social enterprise if we are not just to be subsumed into the wider corporate responsibility camp.

    We stand for so much more and our Mark proves that this is the case.

    For a more indepth understanding, have a look at Social Enterprise Mark’s criteria