Bill Jamieson: Social enterprise? Check the label

It’s a sharp contrast to the traditional picture of young volunteers with facial jewellery selling organic nuts from a rickety stall. And it’s a change that I believe has a long way to go. Many private companies are anxious to be seen as social enterprises rather than hard-nosed and heartless profit maximisers.

Not only are many social enterprises growing into large and successful businesses, but many businesses we have long regarded as conventional profit-making companies with shareholders are projecting themselves as “social enterprises at heart”.

Now, I have no problem with voluntary groups eager to generate a surplus of revenue over costs in order to finance some worthy end purpose. Nor do I have any problems with companies ploughing all their profits back into the business.

But I tend to be sceptical when I see the word “social” used as verbal pebbledash to disguise the nature of all sorts of phenomena such as “social” (“social” justice, for example: something is either justice, or it isn’t) just as I quail at the near universal application of the word “sustainable” to every new business planning application. In truth, very few businesses are “sustainable” for long without change and adaptation.

Is fundraising activity designed to raise money for some local good cause a charity or a social enterprise? Is a group mainly or wholly supported by a parent organisation, be it in the private or public realm, a social enterprise?

What of large successful companies that have profit-sharing structures? Is John Lewis, which takes in the Waitrose supermarket chain, a social enterprise, given its partnership structure and staff profit-sharing? It pays no dividends to outside shareholders and reinvests heavily in the business.

Might the Royal Mail be regarded as a social enterprise? It provides a vital social function and 10 per cent of the shares – and the distributable profits – will go to staff. Instead, it is struggling under that satanic, demon word “privatisation”. For years, the US ice cream business Ben and Jerry’s sported all the iconography and thrived under the aura of being a “social enterprise”. But it sold out to food giant Unilever in 2000.

And the very paper you are reading – Scotland on Sunday – could fairly claim to be a social enterprise. There are no distributable profits. Outside shareholders get nothing. It pursues a vital social function – the dissemination of news – and employs people who might otherwise be long term unemployed. Should it not, at least, be exempt from rates and taxes?

So broad and vague are the definitions of what defines a social enterprise that the overall numbers are hotly disputed. The Conservative peer Baroness Byford told the House of Lords in June last year that “there are some 62,000 [social enterprises] in Britain today, contributing more than £24 billion to the economy and employing more than one million people”.

This figure was an estimate based on the Annual Small Business Survey (ASBS) – and represented a dramatic uplift from the 2003 estimate of 5,300 published by the Department of Trade and Industry. Since then the figure has been updated further, with the ASBS now estimating from “best government data” that there are approximately 68,000 social enterprises.

The ASBS research uses a far looser definition of social enterprise. For businesses to be classified as a social enterprise they should (1) think of themselves as a “social enterprise”; (2) not pay more than 50 per cent of profits to owners/share-holders; (3) generate more than 25 per cent of income from traded goods/services, and (4) “think that they are a very good fit with the DTI definition”.

So loose and self-serving is this broad definition it is perhaps little wonder that Simon Teasdale and colleagues at the University of Birmingham entitled a recent research paper on the social enterprise phenomenon as The politically motivated modification of ‘truth’: A methodological critique of the social enterprise growth myth.

It notes that “closer analysis of the 2006-7 survey data yields the interesting finding that the overwhelming majority (89 per cent) of the 151 social enterprises have a legal form that places no constraints on the distribution of profits to external shareholders”.

As entrepreneur David Floyd, managing director of Social Spider CIC tartly pointed out in The Guardian earlier this year, “so 89 per cent of the 62,000 (now 68,000) ‘social enterprises’ in the UK can be entirely owned by private individuals and can, at any given point, decide to pay 100 per cent of their profits to their owners … that isn’t what social enterprise support bodies or politicians are talking about when they talk about social enterprises … The danger is that, as a result, ‘social enterprise’ may end up meaning nothing at all.”

There is currently no legal definition of “social enterprise”. But Social Enterprise Scotland makes a fair stab. Criteria include having social and/or environmental objectives and an ability to demonstrate social mission; earning 50 per cent or more of its income from trading, and having an “asset lock” on both trading surplus and residual assets. Where the business has shareholding investment no more than 35 per cent of profit may be distributed in dividends. And a social enterprise cannot be the subsidiary of a public sector body.

Cited examples include The Big Issue, Link Group, Kibble and The Wise Group. It is not enough, of course, that an organisation pursuing ethical ends should be classified as a “social enterprise”. And just because an organisation describes itself as a social enterprise does not mean that its affairs are managed in a responsible or, dare I say, “sustainable” manner.

But I suspect the tag “social enterprise” is increasingly sought after in a private sector viewed with public mistrust and anxious to establish worthy credentials. Is it a phoney, or the real thing? The more the label is used, the more we need to check its authenticity.

Twitter: @Bill_Jamieson