A Voluntary Code of Practice for Social Enterprises Draft 3

A Voluntary Code of Practice for Social Enterprises Draft 3

1. Context

1.1.  In 2002, the UK Govt published an `official` definition of social enterprise (SE) which was also adopted in Scotland.
1.2.  “A social enterprise (SE) is a business with primarily social objectives whose surpluses are principally re-invested for that purpose or in the community – rather than being driven by the need to maximise profit for shareholders and owners”.
1.3.  The ensuing 10 years has seen a dramatic rise in the popularity of SE, which no-one could have imagined. This tide shows no sign of turning.
1.4.  The official definition of SE (above) lacks clarity and has never carried sufficient authority to be effective.
1.5.  Private businesses, pretending to be SEs, are appearing in the marketplace – threatening the value of our brand.
1.6.  To deter imitators who are not sincere – the Scottish SE Community has set down the values and behaviours by which we recognise each other.
1.7.  We refer to this document as our `voluntary code of practice` – or simply the code.
1.8.  The code is intended to provide a focus for discussion amongst ourselves about the conduct of our community.
1.9.  The code falls naturally into three headings: Minimum Requirements; Desirable Behaviours; and Our Ecosystem.

2. Minimum Requirements

Businesses which don’t meet the following minimum criteria are not considered to be social enterprises

2.1.  SEs are businesses operating in markets – usually selling goods and services –  whose primary objective is to achieve social and environmental benefit.
2.2.  Regardless of its legal form, the constitution of a SE will include the requirement that profits are reinvested in the business or in the beneficiary community – and not distributed to owners/shareholders.
2.3.  The constitution will also require that on dissolution, the assets of the SE are redirected appropriately.
2.4.  Taken together these two provisions are referred to as the `asset lock` – which is the defining characteristic of a SE.
2.5.  The asset lock positions SE in the third rather than the private sector.
2.6.  Within the third sector, SE is differentiated from charities and voluntary organisations which do not aspire to financial independence through trading.
2.7.  SEs are distinct from the public sector and cannot be the subsidiary of a public body.
NB – Need to address the issue of CICs and Co-ops which distribute trading surpluses – numbers very small.

3. Desirable Behaviours

SE is a relatively recent term (10 years) but it comes out of values developed throughout the history of our social economy. Its core principle is that economies should work for the common good – rather than the unlimited private gain of a few. Various social movements have contributed their DNA as the `desirable behaviours` of SE practice.

3.1.  Values: SE`s are businesses founded on simple core values – that social fairness and the protection of the planet should be pre-conditions of all economic activity – with all business practices expected to be honest and fair.
3.2.  Good employers: SEs are good employers – trying to offer a good place experience; aiming to pay a `living wage`; and having flatter pay structures than the private sector. A maximum ratio of 1:5 between lowest and highest is a useful guide.
3.3.  Democratic: From the Co-op movement, SEs have learned the value of transparent and accountable management/governance.
3.4.  Empowerment: From Development Trusts and the community business movement, SEs have learned the contribution they can make to the confidence and self sufficiency of communities.
3.5.  Scale: SEs understand the benefits of small/local scale. When circumstances call for growing large organisations – safeguards are put in place to preserve human scale.

4. Our Ecosystem

Based on shared values and the desire to build their businesses – SEs are increasingly finding ways to collaborate as a community of practice. The growth of the Scottish SE community, into a fully blown `movement` – capable of `changing the way society operates` – depends on a favourable operating environment – our ecosystem. Aspects of our ecosystem will depend on the support of Govt at all levels – European, UK, Scottish, local authorities. But the culture of our community – the way we conduct our affairs – is our responsibility.

4.1  One voice: It is important that the Scottish SE community does not subdivide into competing factions and is able to unite under the umbrella of Social Enterprise Scotland (SES).
4.2  Collaboration: Within the common sense of running a business – SEs try to help and support one another – in the spirit of the Open Source IT community.
4.3  SE Networks: So that relationships can build, and reciprocal help flourish – frontline Networks should be encouraged in all areas that want one – independent and self-sufficient.
4.4  Bespoke Support: SEs need business support structures embedded in the culture of our own community. Such support should be accessible to all – from start-ups through to national contractors.
4.5  Bespoke investment: It is not appropriate for SEs to strive to be bankable in the normal sense. We need our own `mutual` investment funds – based on SE values.
4.6  Public procurement: Our eco system should reflect the potential for the growth of SE into the area of public contracts.

5. Implementation

Whereas a mandatory code of practice for SE runs the risk of inviting dispute and division – it is hoped that this voluntary code can be the focus of discussion towards consensus.

5.1.  When it’s ready, the code should be `adopted` by the Scottish SE community – at a meeting convened by Social Enterprise Scotland (SES).
5.2.  Individual SEs would then be invited to adopt `the spirit` of the code for their business – display a `certificate of support`.
5.3.  The adoption of the code is not a `one off` event – but the beginning of a process which will continue to build momentum
5.4.  Apart from administrative tasks like publicity and issuing certificates – the code will need annual revision.
5.5.  Arrangements for this task need careful consideration – responsibility for steering the culture of our community
5.6.  The question remains unanswered – what if certain SEs publicly adopt – then openly flout the code. Desirable behaviours represent a model – aspirational. But there is a case for challenging a failure to comply with minimum requirements.

Senscot – January 2012