Key Elements of a social enterprise

Separating us from the private and third sector

Some charities call themselves a social enterprise, and some corporates call themselves a social enterprise. Then social enterprises call themselves social enterprises.

Confused already? That’s the problem, many people can’t really differentiate what is really a social enterprise which can then lead to a lack of trust in the sector. There are standards such as B Corp certification, and legal structures such as CIC that can demonstrate who is and who isn’t, however these aren’t necessarily available or accessible all over the world.

Here I discuss the key elements of social enterprise, based on legal structures, certification and strategies from around the world. When deciding if a company/charity/social enterprise is or isn’t what they say, ask yourself these questions.

Who is/are their priority/priorities?

Stakeholders should be the number one priority for a social enterprise. These stakeholders are often defined by the mission or goals of the social enterprise, and can be a group of people or part of the environment. These stakeholders will have some sort of say on how the social enterprise is run. Obviously, the Amazon Rainforest can’t fill in a questionnaire or attend an AGM, but it is still able to tell us its needs.

After that priority, which can be multidimensional, it’s profit, which we will look at later on.

If you answered that SHAREholders were their priority, then I’m doubtful that they’re a social enterprise. To maximise shareholder satisfaction, you normally need to increase profits and are willing to sacrifice certain social or environmental responsibilities to do so. Could Shell, Google or Nestle really claim they were a social enterprise, when ultimately it’s about profit?

How do they make and spend their profit?

Profit isn’t a dirty word, it’s a positive word when used in the right way, and the majority social enterprises around the world commit to investing a percentage of their profit into their goals. It varies from state to state, and country to country. A rough guide would say at least 50% should be spent in such a way. The rest can be paid out to shareholders or co-operative members, but maximising that profit hasn’t negatively effected your stakeholders. If they’re not making any money on the market, often defined as at least 50% of income, and therefore any profit, they’re not a social enterprise.

What does their social impact report look like?

Transparency and accountability are important for charities and social enterprises. If they’re doing something good in a right way, they will be able to open up their books for everyone to see. Their director won’t get ridiculous bonuses and people shouldn’t be kept on zero-hour contracts. They won’t need to greenwash what they do, and can demonstrate their services and products have their goals running through them. The most organised and developed social enterprises have great social impact reports with social return of investment numbers, social SMEs often do something less impressive, but still take time to report (we’re working on being more impressive in the future!).

Are the board, on board, or is it just one section?

A social enterprise is named that way for a reason. It’s not an enterprise with a socially responsible department. Whoever started it, did so because they believed in a better more equitable and less harmful way of doing business. If the whole organisation is leading by example and dedicated to a cause, you’re onto a winner.

Four questions and you should be able to differentiate between a social enterprise, a charity and a traditional company. If the lines seemed blurred before, then they shouldn’t with the 50% income from sales, 50% profit to a good cause general rule.

Are you a social enterprise and want to argue with the questions and points made above? Send us a message or comment, we’d love to debate this a bit more, and create the much needed clarity.

Leave a Reply