Two sides of the argument for a clear definition of social enterprise

Two sides of the argument for a clear definition of social enterprise.

Extracts from two pieces on the Guardian Social Enterprise Network

Richar Patey from Profit is Good Ltd has created a social enterprise brand which doesn`t require any asset lock.


“The official Social Enterprise Mark Company says that my business is not a social enterprise because it does not have profit distribution and dissolution of asset clauses, even though it has an integral social purpose.


The Mark’s strict interpretation of what constitutes a social enterprise means that it fails to encompass businesses which most reasonable people would say were social enterprises. One example is a fast-growing digital marketing consultancy called whose business model generates income for charities but whose legal structure would not qualify it as a social enterprise.


Duncan Johnson, who heads it, asks: "We are not backed by any public funding. We are a bona-fide business doing b2b and we give away 70% of our net profits to charity – how is this enterprise not social?"


Another high-profile example is One. Despite its business, Global Ethics, giving all profits to The One Foundation and winning Social Enterprise UK’s Best Large Social Enterprise in the UK award in 2009, it may not qualify for the Mark as it is a regular limited-by-shares company with no constitutional tweaks or asset lock.


In America, there are no such rigid criteria for social enterprises, yet social purpose shows more signs of going mainstream. COMMON is a creative community for the rapid prototyping of social ventures under a unified and collaborative brand. Launched in Boulder and co-founded by Alex Bogusky, who used to head the CP+B advertising agency, COMMON is attempting to build a new brand of capitalism by promoting to young people that "you can make a great living and [have] a positive impact with what you do with your business career". Great American social enterprises such as Tom’s Shoes and the new Sir Richard’s Condoms,  which both donate one product to the developing world for every one sold, would not be classed as social enterprises in the UK because of profit distribution requirements, even though their margins are reduced by the social good they do.


It was these great businesses and initiatives such as COMMON that inspired me to create a collaborative, open-source social enterprise brand under the Creative Commons licence, to be used by and for the promotion of any for-profit business with an integral social purpose that creates shared value for all. The brand can be used by owner/manager ethical businesses right up to multinationals such as Nestlé, which has embedded the concept of creating shared value into its business model


The UK needs to recognise that narrow definitions of social enterprise do nothing to embed social purpose as an integral part of mainstream business.”


Here is a response to Richard Patey`s piece from Lucy Findlay – Managing Director of the Social Enterprise Mark Company


“The Social Enterprise Mark is the certification authority for social enterprises. The certification process does not attempt to prescribe business, organisation, or any legal structures that they may adopt, such as charities, community interest companies, limited by share or by guarantee.


The Mark was originally developed with the sector, for the sector. It took the widely recognised and accepted definition of social enterprise and conducted extensive consultation and research, which led to the development of the certification criteria. These are rigorously applied and overseen by an independent certification panel to assure credibility and consistency.


If you agree that social enterprises, with any legal structure from CLG, CIC to charities, can develop along a spectrum from start-up, emerging, to established and mature, there will always be a debate around which point on the spectrum any criteria or assessment can be applied. This will inevitably lead to extensive debate around definitions and application of any criteria. As Malcolm Sutton, explains "I would argue that all social enterprises have an element of ‘charity’ in them – how different is the ‘social purpose’ from the ‘charitable objective’? And equally that the majority of charities have to have an element of ‘business’ to what they do."


The criteria are not set in stone and continue to respond to the needs of social enterprises. We are independent of any public funding and just 18 months old, but with rigorous assessment process, the number of Mark holders is progressing steadily.


Social enterprises are looking for accreditation to prove they operate as genuine social enterprises, and we give them the tools to differentiate themselves. In the light of the increasing demand for shareholder transparency, the Mark provides the only credible indicator that shareholder profit is not the motivation for operation.


Social purpose contributions or corporate social responsibility are good in their own way, but do not address the core principle that social enterprises exist to benefit people and planet. “


As Chris Bailey of Westway Development Trust puts it:


"What matters in social enterprise is that we do not have people setting up things and calling them social enterprises when they are not, or when those organisations work in a way which is at odds with what the general public expects of a social enterprise."