A Voluntary Code of Practice for Social Enterprises – Draft 5
In 2002, the UK Govt published an ‘official’ definition of social enterprise (SE) which was also adopted in Scotland; 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 government definition 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 clarify our shared vision and hope to deter bogus imitators.
The Code distinguishes between the Basics and Values/Behaviours.
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 always 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 SEs are distinguished from the private sector by virtue of the asset lock.
1.6 SEs are differentiated from those charities and voluntary organisations in the third sector 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.
* This Code does not exclude that certain types of Social Enterprise (some CICs, Co-ops, Community share societies etc) could be ‘honourable exemptions’ to the zero dividend norm. But this number is small.
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. These are some of the Values/Behaviours we have come to expect from each other.
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 Co-ops and Mutual’s, SEs have learned about common ownership and democratic governance.
2.4 Empowerment: From Development Trusts and the community business movement, SEs have learned about bottom up responses to social problems and how they empower local communities.
2.5 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. Our Operating Landscape
Based on shared values and the desire to build their businesses – SEs are increasingly finding ways to collaborate. 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 it is our community itself which best understands what is needed. These are some of the lessons of the past decade.
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.
Bespoke investment: It is not appropriate for SEs to strive to be bankable in the normal sense; we need investment from sources which support social aims and our own ‘mutual’ investment funds – based on SE values.
Public procurement: Our landscape should reflect the potential for the growth of SE into the area of public contracts – bringing wider benefits to society.
Unity: Vibrant communities like ours, accommodate and are strengthened by a wide range of disparate views – and yet speak with a united voice.
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.