Criteria for a Scottish Social Enterprise Badge
Senscot got involved with RISE – the originator of the Social Enterprise Mark (SEM) early in 2008 and immediately started promoting it in Scotland. Scottish Govt. declined development funding but encouraged us to sound out the appetite in the sector which we have been doing over the last two years. In England, the RISE initiative attracted the support of Whitehall and the English Social Enterprise Coalition – who gradually exercised increasing influence. Late in 2009, a joint venture company was established under the control of the Coalition.
From its outset, through the adoption of an ambitious business plan, the new SEM Company came under external pressure to go for maximum growth. This led to the late relaxation of criteria (relating to profit distribution) – in our judgement a serious mistake, sending the wrong message. Consequently, in January 2010, Senscot declined the offer to be the Scottish partner. Our concern since then has been to consult with our Scottish sector about the best way forward. From various soundings (including a poll of our Networks), we believe that a clear majority of social enterprises in Scotland (75% in our poll) would support an independent Scottish Identifier with our own criteria.
To distinguish it from SEM, the working name for the Scottish identifier is the Social Enterprise Badge (SEB). Like its London equivalent, it is not intended as a mark of quality but rather of values. The shared values of holders, embodied in the criteria of membership, are the true force of our social enterprise movement.
Rather than any particular agency, SEB should be the property of the Scottish social enterprise community – operating as a members co-operative (SEBCO). It should be a self regulating collective of front line businesses – setting its own criteria, guidelines – fees etc.
The business plan should aim at self sufficiency within 3 years – but particularly in year 1, adequate time needs to be spent assessing applicants so that the initial core group establishes the right culture – setting the bar at the right level. Social enterprise sits at the intersection of the Public, Private and Voluntary sectors – yet remains distinct. One of the purposes of adopting these criteria is to define our boundaries in relation to these other sectors.
These 5 proposed criteria are our understanding of how the social enterprise community in Scotland wishes to define itself. They based on those of the London SEM, which Senscot played a part in drafting. We have affirmed the original asset lock, re-arranged, streamlined and added a few clauses from our Scottish consultations. Asteriks (*) denote that a supplementary note is available in the appendix `notes to the SEB Criteria`. It is expected that the criteria will evolve through annual review.
The FIVE Criteria
Criterion 1 – Social Enterprises have social and/or environmental objectives.
As one of its defining characteristics, a social enterprise must be able to demonstrate its social mission. This will be evidenced in its constitutional documents but the production of other (externally verified) evidence is encouraged – to provide transparency of purpose and accountability to stakeholders. Tools and techniques to measure social and environmental impact are becoming more effective and user friendly.
Criterion 2 – Social Enterprises are trading businesses aspiring to financial independence.
This second defining characteristic is demonstrated by an enterprise earning 50% or more of its income from trading. This will be evidenced by the accounts of the business over a reasonable period. A high level of income from the public sector is acceptable in the form of contracts – but not grants (*). Criterion 2 is intended to mark the boundary between social enterprise and much of the voluntary sector. (Many Voluntary orgs trade over 50% without calling themselves social enterprises)
Criterion 3 – Social Enterprises have an ‘asset lock’ on both trading surplus and residual assets.
Whether or not it’s a charity, a social enterprise re-invests all its distributable profit for the purpose of its social mission. Where the business has shareholding investment (very few in Scotland) no more than 35% of profit may be distributed in dividends (*) In addition, the constitutional documents of a social enterprise must contain a clause to ensure that, on dissolution of the business, all residual assets go to social/environmental purposes.
Criterion 3 is intended to mark the boundary between social enterprise and the private sector.
Criterion 4 – A Social Enterprise cannot be the subsidiary of a public sector body.
A social enterprise must have a constitution recognised by SEB (*). Whilst it can be the trading subsidiary of a charity, it must be constitutionally independent from the governance of any public body. Additional evidence of this may be required from Public Sector externalisations.
Criterion 4 is intended to mark the boundary between social enterprise and the public sector.
Criterion 5 – Social Enterprises are driven by values – both in their mission and business practices.
Social enterprises are serious businesses – often in fierce markets – but there is an expectation that their dealings will be ethical and that they will offer their people satisfactory wages, terms and conditions. Enterprises of a reasonable size are expected to have clear human relations and environmental policies (*). There is a case to be made for the voluntary adoption in the sector of a maximum ratio between highest and lowest paid – of say 1:5 – a culture of equality.