A Voluntary Code of Practice for Social Enterprises – Draft 4

A Voluntary Code of Practice for Social Enterprises – Draft 4


In 2002, the UK Govt published an ‘official’ definition of social enterprise (SE) which was also adopted in Scotland; as far as we know the following remains part of Govt Policy:

“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”.

The ensuing 10 years has seen a dramatic rise in the popularity of SE; a tide which no-one could have anticipated and shows no sign of turning. But the definition above lacks clarity, and was never invested with sufficient authority to be effective. In England, in particular, a powerful lobby has kept definitions blurred; with the result that private businesses, masquerading as SEs are appearing in the marketplace, devaluing the SE brand.

In response to this threat, the Scottish SE community has set down the values and behaviours by which we recognise each other. We refer to this document as a voluntary code of practice – or simply the Code. Whereas a mandatory set of rules runs the risk of inviting dispute and division – it is hoped that this voluntary code can provide the basis for a self regulating community. By setting this ‘benchmark’, we hope to deter bogus imitators.

The Code falls naturally into three sections: The Basics – Our DNA – Our Landscape.

1. The Basics

This section details the essential elements of a social enterprise (SE). It would be exceptional for any business which does not meet these criteria to a considered a SE.
1.1  SEs are businesses operating in markets – usually selling goods and services –  whose primary objective is to achieve social and environmental benefit.
1.2  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/investors.
1.3 The constitution will also require that on dissolution, the assets of the SE are redirected appropriately – this could include SEs with similar aims and objectives
1.4 Taken together these two provisions are referred to as the `asset lock` – which is the defining characteristic of a SE.
1.5 The asset lock positions SE in the third rather than the private sector.
1.6 Within the third sector, SE is differentiated from charities and voluntary organisations which do not aspire to financial independence through trading.
1.7 SEs are distinct from the public sector and cannot be the subsidiary of a public body.

2. Our DNA

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 economic activity should work for the common good – rather than the unlimited private gain of a few. This locates SE within the wider objective of changing the way society operates. Various social movements have contributed their DNA to SE practice.

2.1 Values: SEs are businesses founded on fundamental 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.
2.2 Good employers: SEs are good employers – trying to offer a good workplace 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.
2.3 Democratic: From the Co-op movement, SEs have learned the value of transparent and accountable management/governance.
2.4 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.
2.5 Scale: SEs, regardless of scale, should value their relationships and responsibilities to local communities and wider communities of interest.

3. Our Landscape

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 landscape. Aspects of our landscape 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.

3.1 Unity: Vibrant communities like ours, accommodate and are strengthened by a wide range of disparate views – and yet speak with a united voice.
3.2 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.
3.3 SE Networks: So that relationships can be built, and reciprocal help flourish – frontline Networks should be encouraged in all areas that want one – and be independent and self-sufficient.
3.4 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.
3.5 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.
3.6 Public procurement: Our landscape should reflect the potential for the growth of SE into the area of public contracts – bringing wider benefits to society.