Social Enterprise

Cases and Analysis for Understanding Social Business

Malcolm Harper, Nadiya Parekh

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000448788
• Edition: 1
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

This book introduces students and others to the discipline of social entrepreneurship, which encourages the creation of enterprises that are socially inclusive yet economically and ecologically sustainable.

In each chapter there is a mix of case studies about internationally well-known enterprises and other more local enterprises which are totally new. The book leads its readers to understand and appreciate entrepreneurial issues and to engage themselves in community-based activities. Social Enterprise helps readers to:

• 
  
  

• analyze and articulate the blend of social, environmental and economic values which is present in all kinds of enterprise

• 
  
  

• understand the issues involved in translating good intentions with multiple goals into focused, sustainable and practical actions

• 
  
  

• propose alternative social enterprise management strategies based on their own analysis of case studies of entrepreneurial endeavors that are perceived to be 'social'

The authors take a pragmatic yet critical approach, and this book should be core or recommended reading for Social Entrepreneurship and Social Enterprise modules at advanced undergraduate, postgraduate and MBA levels.

1
WHAT ENTERPRISES ARE REALLY SOCIAL?

DOI: 10.4324/9781003032229-1

1.1 Deconstructing the concept of ‘social enterprise’

The term ‘social enterprise’ is widely used to describe entities that are run on business lines but whose aim is to ‘do good’. Traditionally, there were ‘charities’ whose founders aimed to achieve some social goal, to ‘do good’ in some way, and which depended on donations and grants for their income, and there were ‘businesses’, which were set up to sell goods or services, in order to make a profit for their founders, staff and investors.

However, today we are moving into a new phase, where society expects entrepreneurial entities, whether they are charities or businesses, to pursue multiple goals. Many business entrepreneurs whose earlier motivation was only to make a profit feel obligated to move beyond the creation of economic value for their shareholders and customers, and to demonstrate their commitment to social value creation. And at the same time many so-called ‘charities’ or other entities which might earlier have been expected only to ‘do good’ are now under pressure to be ‘financially sustainable’ and to move beyond their role as creators of social value alone. This is a positive and promising transition, which significantly widens the possible scope of activities and options for the growth of enterprises of all kinds. People who follow this new hybrid path in their entrepreneurial ventures are coming to be known as ‘social entrepreneurs’.

We still have businesses and we still have charities, but there is a growing middle ground between those who aim to be ‘pure’ for-profit entrepreneurs, to start and to build businesses which obey the law and the usual tenets of morality but whose goal is to maximise profits for their founders and investors, and these new social entrepreneurs, who build so-called ‘social enterprises’. Their aim is ‘social’, however that is defined, to ‘do good’, but at the same time to cover their costs and to earn a living for their employees and a profit or return on their effort and on the capital, which has been contributed by their founders and investors.

One problem with ‘new’ terminologies and with trying to decide whether certain entities or people should or should not be described with them is that we tend to believe that the things our new words describe are as clear as other things for which we have generally accepted labels; there may be some uncertainties at the margins, but we are generally agreed that cats are cats and that dogs are dogs. We argue endlessly about normative terms, whether something is good or is bad, or is a virtue or a vice, but we understand that the meaning of such terms depends on our opinions and that such terms are used differently from more objective words. When we say that a particular entity is a ‘social enterprise’, we are generally not praising or criticising it; we believe that we are saying something objective about it.

It would not be possible, or useful, to try to ‘fix’ a definition of ‘social enterprise’, in the hope that users of the term would agree what is and what is not ‘social’; any undertaking which involves more than one person is after all ‘social’ in a strict dictionary sense of the word. But we must be aware of the dangers of using the term ‘social enterprise’ as if it was clear and definitive.

There are many different criteria we can use to decide whether a given enterprise is ‘social’ or is not: the sources of its funding and of its income, its founder’s or its employees’ motives, the remuneration levels of its staff, how its results are measured, the impact, actual or intended, of its activities on its ‘clients’ or on society in general, its legal form and many others.

Enterprises which might be deemed to be ‘social’ by one of these criteria can very clearly fail to qualify under another, and we must avoid stereotypes; an enterprise which pays its managers what seem to be enormous salaries or another which has made its founders into multi-millionaires may benefit large numbers of needy people. The term ‘social enterprise’ is also sometimes used as if it was a way of saying that an enterprise is run in a ‘business-like’ way, properly controlling costs and measuring results, holding staff to certain standards of performance, with the unspoken implication that traditional ‘charities’ are almost inevitably sloppily managed, without any quantitative measures, because ‘doing good’ cannot be measured in the same way as profits. This can be dangerous because it gives any for-profit business the scope to make a small or merely cosmetic change to its existing way of doing business, and to add an environmental, social or governance dimension to it so that it can qualify as a ‘sustainable’ investment.

It also gives any charity the scope to add an income-generating off-shoot to its existing donation-based model and to proclaim that it is a ‘social enterprise’ and thus to attract more commercial capital. Though this transition to sustainability may not be harmful in the short run, tensions can arise because of the lack of a clarity of the meaning of the term ‘social enterprise’. This can lead to many entities masquerading as ‘do-gooders’ when in fact there is no legitimacy to their claims in the long run, other than may be contained in their self-serving ‘impact’ reports.

Academic researchers have not thus far been successful in resolving this very practical issue, although their failure is perhaps to be expected given the wide and expanding usage of the terminology. The broad definitions given by academia, such as demarcating social enterprises as organisations with a strong social mission which offer innovative entrepreneurial solutions to existing social problems in a sustainable way (Dees 1998 ; Light 2008 ; Nicholls 2008) are actually no more than attempts to suggest what a social enterprise should be. Such definitions do not clarify what a social enterprise is or is not in practice. Because of this lack of clarity, other writers have said that the concept (Defourny and Nyssens 2010) and the practice (Kerlin 2013) of social entrepreneurship may vary across regions and institutional contexts. It can also be defined by its market orientation or by the nature of its innovations (Bacq and Janssen 2011; Dees and Anderson 2006). This leaves us with an endless definitional debate as to what the terms ‘social enterprise’ and ‘social entrepreneur’ really mean.

It can also be argued that cooperatives are social enterprises, because they are owned and managed by their staff, or by their customers or their suppliers, rather than by their investors and shareholders whose main interest, it is assumed, is financial profit rather than ‘doing good’ in any particular way. Some cooperatives are indeed highly ‘social’, and many of them have been promoted, supported and in some ways managed by external authorities or promoters who wish to avoid the exploitation which is so often associated with investor-owners who have no links to an enterprise apart from their wish to make a profit.

We prefer, however, not to broaden the definition in that way; many cooperatives are set up with highly social motives, and some although by no means all have been very successful in improving the lot of employees, customers or suppliers. Cooperation is of course necessarily social, since it requires people to work together; hence in that sense cooperatives should be called social. There is however nothing inherently social or ‘good’ about the intentions of people who have come together to start a business, nor do members of a cooperative necessarily limit their own earnings from it in the interest of achieving any particular social good; a cooperative of prostitutes or burglars is nonetheless a cooperative because the products or services which its members offer are generally deemed not to be at all social in the accepted sense of the word. ‘Social enterprise’ is no doubt a useful term or conceptualisation to describe what in some ways is a new institutional model to which many socially minded entrepreneurs may aspire. But the term must be used with caution, and we must not assume that entities which are labelled in this way are necessarily ‘good’, or ‘bad’, or, perhaps more important, that businesses which we do not call ‘social’ are for that reason not doing a great deal of good.

One approach to deciding whether or not a given enterprise is ‘social’ is to find out how it is funded. If its customers pay the full cost of whatever product or service it provides, it could be argued that it is not a ‘social enterprise’, in the most commonly accepted sense. Sometimes, however, both the users of a service and society as a whole benefit from people’s use of it. Classic examples include public toilets or rubbish collection. Mass suburban transport is similar, in that if there were no such service, the amount of road traffic would be intolerable for society as a whole. In such cases, a significant proportion or even all the costs of the service may have to be paid for from a ‘social’ source, such as charitable donations, or by government, because a large proportion of the people who are expected to need the service either cannot afford its full cost or will be unwilling to pay for it. It may seem reasonable to label this as a social enterprise.

There are two very large and well-known such enterprises, however, one in the United States and the other in the United Kingdom, both of which are probably familiar to many of our readers, and which would be called ‘social enterprises’ by that criterion. Both of them, as it happens, provide the same essential social service, one in London and the other in New York City. The London enterprise costs the pounds sterling equivalent of about $13 billion a year to operate, and the similar operation in New York costs around $17 billion a year. In both cases, the users of the services pay approximately 50 percent of the total cost, while the balance is covered by the respective city authorities.

Many of their customers might be both willing and able to pay the full cost of their services, but the social costs in terms of disadvantage to poorer people and inconvenience and environmental damage caused by people using alternatives are judged to be such that it is worthwhile for the cities to cover half their costs. The services in question are urban bus and subway transport, as many readers may realise. Transport for London, and the New York Metropolitan Transport Authority provide similar services, although the New York authority also manages and charges toll fees for the various tunnels which serve Manhattan¹

These are not social enterprises, by any commonly accepted definition, perhaps because they are owned and operated by public authorities, not by independent private social entrepreneurs, and we would not propose that they should be. These examples do demonstrate, however, the ‘fuzziness’ which surrounds the terminology, and the danger of accepting over-rigorous or simplified definitions.

If we really want to recognise social enterprises as a new and desirable form of institution, then we must come up with more analytical evidence rather than anecdotal claims as to why social enterprises are structurally and functionally better equipped to do more good than ‘ordinary’ businesses and thus can qualify to be called more ‘social’ than their for-profit or ‘pure’ non-profit counterparts. The results should speak for themselves without any bias based on labels. Until then the term ‘social enterprise’ as a type of entity which does more good than other institutional forms must be treated with caution as such entities do not necessarily do more good or less harm.

In theory, such enterprises might be viewed as institutions that can solve social problems by marrying social and business methods. In practice, social entrepreneurship as a field is still emerging and is subject to many institutional instabilities and ambiguities. This leaves social entrepreneurs and their enterprises more vulnerable to misconceptions and exaggerated expectations than other institutional forms as the field is still dominated by many funders who prioritise economic value capture over social value creation, although in theory the whole concept is based on an optimal mix of the two aims.

Commercial enterprises on the other hand have a clear business logic and measurable value propositions that makes their results verifiable. As Milton Friedman says, clarity of purpose is critical for performance and for for-profit businesses “the business of business is to do business.” He adds,

There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition. without deception or fraud.

(Friedman 1970)

In that sense, unlike social enterprises, a commercial business has no competing purposes logic. Hence, its business model and goals are convincing to those who finance it. It may itself do good, or its founders and investors may acquire far more resources than social entrepreneurs whose motives are unclear, and may therefore do more ‘good’, that is, be more ‘social’, than those who are labelled as such, although that may not have been their primary intention.

It is useful to consider what ‘social’ really means in the context of actual enterprises; every chapter in this book ends with one or more case studies. This chapter concludes with two very different case studies. The first describes the social enterprise scene in the United Kingdom, where such enterprises are probably more recognised and organised as such than in most other countries, and the second describes a very large United States–based international enterprise, whose operations benefit millions of people throughout the world, but has never to our knowledge been identified as a ‘social enterprise’ by its founder or its beneficiaries.

1.2Case studies

Case 1.2.1 Social enterprises in the United Kingdom

This first case study is not an account of an individual enterprise, social or otherwise; it is a critical review and summary of the social enterprise ‘sector’ in the United Kingdom, drawn mainly from a publication entitled “The Future of Business: State of Social Enterprise Survey, 2017.” This report was produced and published by Social Enterprise UK, a voluntary association which is funded by its members; they include social entrepreneurs, interested individuals and institutions. The characteristics of the sample of 1,581 enterprises, their legal form, the nature of their activities and so on in itself provides a good picture of what a social enterprise really is, in the context of the United Kingdom but also internationally (Social Enterprise, UK 2017).

The United Kingdom is internationally regarded as a pioneer of social enterprise and the related activity of social investment. This view may or may not be justified, but social enterprises in the UK are certainly more organised and legally recognised as such than in many other countries. British government statistics identify around 70,000 social enterprises in the UK, contributing the sterling pound equivalent of over $30 billion to the economy and employing nearly a million people. Independent research which was carried out by the National Council for Voluntary Agencies for ‘Big Society Capital’ identified a not very different total of 67.000 so-called ‘asset-locked social companies’, which means enterprises whose capital is legally committed to the undertaking of social activities. During the twelve years between 2005 and 2017, about 13,000 so-called Community Interest Companies² were founded, which is another indicator of the growth of the movement.

Given the uncertainty and increased division, inequality and lack of certainty in both national and international affairs, social enterprise can play a significant part in the creation of a more positive future. Social enterprises are not a panacea, but they can answer some of society’s challenges, by showing how it is possible to make the most efficient and at the same time the most equitable use of individual countries’ and the world’s resources, to create opportunities for everyone, and to demonstrate how business can be carried out more equitably. Social enterprises do business in different ways, and they have also shown strong commercial resilience in difficult conditions. The social enterprise ‘sector’, if it can be called a separate sector, does better than ‘ordinary’ mainstream businesses when measured by a range of business metrics, such as growth in turnover, innovation, business optimism, start-up rates, and by its racial, gender and other indicators of the diver...