Social enterprises are social mission driven organizations which apply market-based strategies to achieve a social purpose. The movement includes both non-profits that use business models to pursue their mission and for-profits whose primary purposes are social. Their aim – to accomplish targets that are social and or environmental as well as financial – is often referred to as the triple bottom line. Many commercial businesses would consider themselves to have social objectives, but social enterprises are distinctive because their social or environmental purpose remains central to their operation.
Rather than maximizing shareholder value, the main aim of social enterprises is to generate profit to further their social and or environmental goals. This can be accomplished through a variety of ways and depends on the structure of the social enterprise. The profit from a business could be used to support a social aim, such as funding the programming of a non-profit organization. Moreover, a business could accomplish its social aim through its operation by employing individuals from disadvantaged backgrounds or lending to micro-businesses that have difficulty in securing investment from mainstream lenders.
Many non-profit organizations see social enterprise as a way to reduce their dependence on charitable donations and grants while others view the business itself as the vehicle for social change. Whether structured as nonprofits or for-profits, social enterprises are simply launched by social entrepreneurs who want to improve the common good and solve a social problem in a new, more lasting and effective way than traditional approaches. They are conceived and operated by visionary entrepreneurs who recognize potential where others may not see it and who apply discipline, pragmatism, courage and creativity to pursue their solution in spite of all obstacles, toward a world that is more abundant, secure and inclusive for all.
- 1 Examples of legal definitions
- 2 Examples of operational definitions by researchers
- 3 Source
- 4 In other languages
Examples of legal definitions
Source: Fici, A. (2006): The New Italian Law on Social Enterprise. Conference paper. Zagreb: OECD LEED Trento Centre and ISSAN University of Trento
“With the 155/2006 Law a definition of social enterprise has been introduced to the Italian legal system... The first general aspect that has to be highlighted is that social enterprise is neither a new legal form, nor a new type of organisation, but a legal category in which all eligible organisations may be included, regardless of their internal organisational structure... The requirements ... are: - being a ‘ private organisation’
- performing an entrepreneurial activity of ‘production or exchange of goods and services of social utility’
- acting ‘for the common interest’ and not for profit.”
United Kingdom: Social Enterprise Strategy
Source: Department of Trade and Industry (2002): Social Enterprise: A strategy for success; London
“A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.”
Recently the UK government has introduced a legal structure for a Community Interest Company (CIC) which is specifically been tailored for social enterprises. This new legal structure is popular in England.
Examples of operational definitions by researchers
The EMES (Emergence of Social Enterprise) Network
Source: Nyssens, M. (2006): Social Enterprise. London: Routledge
The EMES definition distinguishes between, on the one hand, criteria that are more economic and, on the other, indicators that are predominantly social. These indicators, such as they can be found in the works published by the Network, are presented below.
To reflect the economic and entrepreneurial dimensions of initiatives, four criteria have been put forward:
· A continuous activity, producing and selling goods and/or services: Social enterprises, unlike some traditional non-profit organizations, do not normally have advocacy activities or the redistribution of financial flows (as do, for example, grant-giving foundations) as their major activity, but they are directly involved in the production of goods or the provision of services to people on a continuous basis. The productive activity thus represents the reason, or one of the main reasons, for the existence of social enterprises.
· A high degree of autonomy: Social enterprises are created by a group of people on the basis of an autonomous project and they are governed by these people. They may depend on public subsidies but they are not managed, directly or indirectly, by public authorities or other organizations (federations, for-profit private firms, etc.). They have the right to take up their own position ('voice') as well as to terminate their activity ('exit').
· A significant level of economic risk: Those who establish a social enterprise assume - totally or partly - the risk of the initiative. Unlike most public institutions, their financial viability depends on the efforts of their members and workers to secure adequate resources.
· A minimum amount of paid work: As in the case of most traditional non-profit organizations, social enterprises may combine monetary and non-monetary resources, volunteering and paid workers. However, the activity carried out in social enterprises requires a minimum level of paid work.
To encapsulate the social dimensions of the initiative, five criteria have been proposed:
· An explicit aim to benefit the community: One of the principal aims of social enterprises is to serve the community or a specific group of people. In the same perspective, a feature of social enterprises is their desire to promote a sense of social responsibility at local level. · An initiative launched by a group of citizens: Social enterprises are the result of collective dynamics involving people belonging to a community or to a group that shares a well-defined need or aim; this collective dimension must be maintained over time in one way or another, even though the importance of leadership - often embodied in an individual or a small group of leaders - must not be neglected.
· Decision-making power not based on capital ownership: This generally refers to the principle of 'one member, one vote' or at least to a decision-making process in which the voting power in the governing body with the ultimate decision-making rights are not distributed according to capital shares. Moreover, although the owners of the capital are important, decision-making rights are generally shared with the other stakeholders.
· A participatory nature, which involves the various parties affected by the activity: Representation and participation of users or customers, stakeholder influence on decision-making and participative management are often important characteristics of social enterprises. In many cases, one of the aims of social enterprises is to further democracy at local level through economic activity.
· Limited profit distribution: Social enterprises not only include organizations that are characterized by a total non-distribution constraint, but also organizations which - like co-operatives in some countries - may distribute profits, but only to a limited extent, thus avoiding profit-maximizing behaviour
European Network for Economic Self-Help and Local Development
Source: European Network for Economic Self-Help and Local Development (1997): Community Economic Development and Social Enterprises. Berlin: Technologie-Netzwerk Berlin
"Working definition of social enterprises:
The following are the key characteristics which can be identified as common to all social enterprises:
· They seek to tackle specific social aims by engaging in economic and trading activities.
· They are not-for-profit-organizations, in the sense that all surplus profits generated are either re-invested in the economic activities of the enterprise or are used in other ways to tackle the stated social aims of the enterprise.
· Their legal structures are such that all the assets and accumulated wealth of the enterprise do not belong to any individuals but are held in trust to be used for the benefit of these persons or areas who are the intended beneficiaries of the enterprise's social aims.
· Their organisational structures are such that the full participation of members is encouraged on a co-operative basis with equal rights accorded to all members.
· It is a further characteristic of the social enterprise sector that it encourages mutual co-operation between social enterprises and with other organizations in the wider social and local economy.”
Birkhölzer, K. (2008): Local Economic Development and its Potential. Berlin: www.technet-berlin.de
See also Social entrepreneurship