Expert eye: dangerous definition

Expert eye: dangerous definition
Social Enterprise Magazine
08.10.10

When, if ever, can an ethical business legitimately describe itself as a social enterprise?

The term ‘social enterprise’ isn’t widely understood in terms of appropriate legal structures. The diversity of the social enterprise sector is one of its strengths, but it also creates an opening for those with an eye to spot potential opportunities to move into this sector – private businesses with a focus on operating ethically and supporting their local community or the environment are beginning to describe themselves as social enterprises. But are they?

To be a social enterprise requires or may require:

trading for social and/or environmental purposes;
some form of asset-lock and restriction on distribution of profits to members – profits instead being reinvested to sustain and support future operations;
being subject to some external regulations;
some form of social ownership by stakeholders;
generating the bulk of its income from trading.
A commercial business with social or ethical objectives is not the same thing. Whilst a commercial business may support the local environment in its incidental activities, it isn’t at the core of what they do. There is also no certainty that it will still choose to carry out these incidental activities in the future and may well focus purely on commercial activities with a view to generating profit. An ethical business trying to achieve its financial goals whilst minimising any negative impact on society or the environment is not the same as a social enterprise.

Not all social enterprise legal structures are water-tight so founders could change direction overnight and start operating on a full profit-distribution basis, rather than staying true to their original social purposes.

Without getting into any discussion of the use of the social enterprise mark, it is clear that the social enterprise sector risks being tarnished by those who incorrectly describe themselves as social enterprises when they clearly are not, and also by those who deviate from their original social enterprise purpose.

The greater risk is that your funders, supporters and the public turn away from actively supporting social enterprise if it is seen to be diluted by commercial business and others jumping on the bandwagon.

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