Alex Hannant - October 2018
How we define the practice of social enterprise is becoming an increasingly fraught topic. Not least because the stakes are rising, as the profile of our work grows, and policy makers, investors, certifiers, and consumers all seek clarity and objective parameters.
And while colleagues in the field will often state how much they hate talking about definition and structures, they usually do so before offering some very strong and considered views on the subject. It’s the topic we love to hate, and the itch which is hard to scratch – and that’s because it surfaces contradictions and conflict, involves identity as well as logic, and is probably not resolvable without changing the way we think.
However, it remains too much of an important issue to avoid, especially as benefits and goodwill continue to accrue to certain organisations based on how they’re structured rather than on what they materially achieve or impact.
At the heart of this debate remains the old dichotomy of ‘not-for-profit’ and ‘for-profit’ – an outdated and defensive way of thinking about our work, that focusses on the wrong thing. Instead, we should be reframing the debate around organisations that are ‘for purpose’ and those that are not, and then determining the most effective ways to evidence and distinguish between them.
This is not to say that definitions and rigour don’t matter; they do. But at the moment we are being too prescriptive in respect to what we deem a ‘true’ social enterprise to be, and also being too universal in that prescription. And this is where we make a categorical mistake – between the essential and the contextual, between that which needs to be fixed, and that which should be flexible.
Some aspects of the received definition of social enterprise are critical and non-negotiable – primary purpose should be purpose. This is our compass, our defining characteristic, and it should be immutable. Explicit mission, mission-first, mission-lock, no debate. Add to this accountability. If you say you exist for social change – for the environment, for impact, for the community – show us how, and what you’re achieving. These are the essentials of our work – an explicit intent to achieve positive change and evidence of impact.
However, after these essentials are assured, other aspects of definition, and resulting structures, such as asset locks and prescriptions on reinvestment percentages, should be flexible and reflect context.
An asset lock is entirely appropriate if the asset needs to be held in trust for a community, but less so if an entrepreneur has slogged her guts out for five years, invested savings, and forgone salary to build an enterprise that creates a better life for others.
Reinvestment of profits is entirely appropriate when a social enterprise is delivering services purchased by the taxpayer but not so to a cooperative whose impact is economic empowerment and increasing household income through the fair distribution of hard-earned profits, or when an enterprise is forgoing revenue to increase access to goods or services to underserved populations.
No doubt, the received definitions and sanctioned structures for social enterprise are appropriate for many situations, but to insist they should be universally applied to all is either lazy or ideological.
A set definition, or defining structure, should be one that is uncompromising on the things that matter the most, while limiting other rules - enabling a diversity of responses to match the many challenges and opportunities in front of us. If we don’t do this, we create distorting incentives, expensive work-arounds, and perverse outcomes. If we don't do this, we disincentivise risk-taking, serial entrepreneurship, and opportunities for scale (where appropriate). If we don’t do this, we alienate a diverse and growing group of organisations, who are purposefully, and genuinely, using business for the common good but being told they’re not part of the pack. We’re fragmenting our own, and undermining a bigger alliance for change.
Put simply, we need to ask ourselves whether we are a members club, or a movement for transformation. Do we define ourselves by specific rules and structures, or by an ambition for economic reform and impact.
The world is messy and dynamic, and we need to be responsive and accepting of that. If we stick to narrow definitions and rigid structures we’re mistaking integrity for identity, and are trading innovation and transformation for convenience and false assurance.
Purpose matters, transparency matters, accountability matters, values matter. Let’s double down and be unrelenting on these aspects of practice. Rules around the management of assets and capital flows do matter, but only in context, and are second order questions – to be determined by the governance and strategy of individual organisations.
Persistence with a strict definition is tantamount to arrogance, and if we hold too closely to these antiquated principles, ‘social enterprise’ risks being left behind and relegated to a niche role in the new economy. Or worse, we will scupper the best vehicle we have to realise a safe and humane future, because we’re too busy fighting over the wheel and not focussed on the horizon.