Is social enterprise the cure for all charity ills? Guest blog from Andrea Westall

Is social enterprise the cure for all charity ills?

The answer to this question is obviously ‘no’. However, it’s worth thinking for a while beyond the current (but understandable) debates about trading levels and access to different funding and finance streams.

These kinds of discussions often miss some equally fundamental issues. For example, ‘governance’ is not just about accountability but how best to achieve your mission, or engage different people or stakeholders in the most appropriate way. Social enterprises don’t just address ‘market failures’ (a term the Government uses to categorise and justify the role of, as well as their support for, wider civil society) but may change the way that we think about, do, and could set the framework and incentives for, sustainable and resilient economies.

Process matters

Ultimately people who are motivated primarily by social action want to find the best way to achieve their aims. Legal forms, as well as charitable status, or badges such as the Social Enterprise Mark, can help act as markers to others of mission and credibility. They also enable or disable different ways of working − whether that is accessing appropriate finance or funding, how people are able to work together and control activities, or how any surpluses are shared or reinvested.

The key point here is that ‘process’ matters. The focus for the last few years has been primarily on ‘outcomes’. But ‘processes’, and how we work with and treat each other, are not only about improving outcomes but are ends in themselves.

The governance question

So what does all this mean for questions about social enterprise and charity? One issue is to recognise that some people set up social enterprises and do not seek charitable status, even if it is possible, because they do not want to have trustees. Now you could see this as a desire just to get on with things and not be held back by formalities. But of course, this approach can also miss the useful distance and strategic view of a wider board, or reduce accountability. The trade-offs between speed of action, and appropriate governance and scrutiny, is a difficult issue for all kinds of organisation or business.

But another point is perhaps more philosophical or ideological. Think about the difference between employee cooperatives (equal democratic decision-making and rights to productive surplus) and a trustee-led charity or company (e.g. Arup – An “independent firm of designers, planners, engineers, consultants and technical specialists” which is “owned in trust for the benefit of its employees and their dependents”) with more ‘disinterested’ stewardship.

Industrial and provident societies (IPSs) for the benefit of the community (bencoms) adopt a ‘self-help’ philosophy with membership by stakeholders (either single eg members of a community or multiple – local government, employees, users say). The latter operate for community benefit and have an asset lock, as do Community Interest Companies (CICs) with their community interest test and limited returns to finance providers (if applicable). However, CICs seem to have focused little on the effectiveness or otherwise of their governance.

In reality, IPS bencoms, CICs, charities and other forms are not always particularly distinct in practice. Some IPS bencoms are, in fact, exempt charities, for example, Greenwich Leisure. But recently there have been discussions about whether or not such models can have employees on the board. Here you can see that two views of the world collide – one that says only disinterested Nolan-principled people can best be accountable and honourable for the public good (simplifying and stereotyping to make the point), and the other that says that all those engaged or benefiting from an activity could or should be involved equally in respectful and collaborative self-help for the greater good. Both models clearly have pros and cons, challenges and possibilities.

Stakeholder involvement in governance

And this isn’t just about cooperatives versus charities. The 1996 Deakin Report showed that the voluntary sector has always stretched from self-help to ‘doing good for others’. Disabled people’s organisations have been vociferous in challenging the murky situation of whether or not users should be on the board and, like others across different sectors, have created much wider governance models that engage stakeholders (employees, users, customers, wider community, finance providers, local government) through panels, secondary boards or supervisory boards. Effective governance therefore is not just about who is or is not on a single board.

Form follows function

So we all need to think a lot more about how we work, and the appropriate governance models for what we want to do. Models of organisations that mix legal models, and have overarching governance for their mission, are tough examples that highlight many issues and challenges from accountability, to conflict resolution, to equating power and control, to effectiveness and improved information flows.

Ultimately, it’s not enough to take on, for example, Codes of Governance designed for Public Limited Companies or historical models when social enterprise and voluntary sector activities can themselves change, challenge, and improve how we do things.

Andrea Westall

• Read online Q&A with COSMIC CEO Julie Harris for info on the Social Enterprise Mark and business planning

• Read online Q&A with Mind CEO Paul Farmer for more on charity branding and trading arms

• Introduction to trading
• – the online guide

• All you need to know about governance
• – the online guide