Would a social enterprise by any other name smell as sweet?

Would a social enterprise by any other name smell as sweet?

Andrew Hind, Civil Society Finance
14.10.11

 

The nascent social investment market must not allow itself be misappropriated by companies masquerading as social enterprises, says Andrew Hind.

 

There is a growing sense of anticipation in many parts of the sector about the future role that might be played by social finance.

 

This is a term which is now commonly used to describe investment made for social as well as financial returns.

 

The idea is very attractive from government’s perspective. Unlocking a new source of investment in civil society at a time when public expenditure is being severely cut has an obvious appeal.

 

As we reported recently, the launch of Big Society Capital (BSC) in the summer, with an expected £600m of committed funds over four years, is being followed by the Office for Civil Society planning to work with four local authorities to issue social impact bonds to fund help for ‘problem’ families. It is hoped up to £40m will be raised from investors.

 

Nick Hurd, minister for civil society, even thinks that banks might soon see commercial potential in developing social investment products if enough customers want them.

 

So far, so good. But we shouldn’t get swept away by unbridled enthusiasm for what appears to be a potential solution to many of the sector’s funding problems.

 

There is a rather large obstacle standing in the way of a successful roll-out of an idea that it is hoped might eventually attract hundreds of millions, or even billions, of pounds of new investment for the sector.

 

Nick O’Donohoe, the new chief executive of BSC, told civilsociety.co.uk last month that applications for the first tranche of funding sourced from the new bank had come mainly from social enterprises. What might be called ‘traditional charities’ appear, so far, to have been slower to react to these new opportunities. Perhaps this is because organisations which have largely been grant-funded in the past are finding the emerging new funding environment requires a change of mindset that many have not yet mastered.

 

Does that matter?

 

Well, yes, hugely actually – because there is no agreed definition of ‘social enterprise’. No definition Social enterprises are not required to adopt a particular legal structure; there are no rules relating to their accountability; and they are not specifically regulated. A new CIPFA publication, Social enterprise and public service delivery, concludes that any organisation is “free to use the label social enterprise”.

 

This flexibility and lack of rigid rules is what many believe enables social enterprises to be beacons of innovation, finding new ways to tackle intractable social problems.

 

But it also means that for-profit businesses can appropriate the social enterprise brand.

 

We would all applaud BSC if, through its intermediaries, it invested in a stakeholder-owned social enterprise with a strong asset lock which was creating new employment opportunities in deprived inner-city areas. But what if the social enterprise was a for-profit franchise of an international pizza chain focused on providing employment for the long-term unemployed? Would we feel as positive about that?

 

In the continued absence of a universally-agreed definition of social enterprise, an early priority for BSC has to be defining where the boundaries of its lending are going to be drawn. Public confidence in the nascent social investment market depends on ensuring that this is not going to be a ‘get-rich-quick scheme’ for Domino’s and Pizza Express.

 

Andrew Hind is editor of Charity Finance magazine