New Zealand Law Society - What is a Social Enterprise?

What is a Social Enterprise?

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Social enterprise illustration

The Social Enterprise World Forum will be held in Christchurch this September. More than half of the 1200 available tickets are already taken, with involvement by participants from dozens of countries. In a relatively new sector like social enterprise there are often assumptions about what is actually being talked about. For example, what exactly does the term ‘social enterprise’ really mean in a New Zealand context? Is it another term for a charity that makes money with an op shop or is there something more to it?

In seeking to understand and analyse this there are a lot of concepts and ideas that will be thrown on to the table in this article – some of them contradictory. However, it is hoped that by doing this there will be a clearer understanding about the issues involved in understanding and defining ‘social enterprise’ in a New Zealand context, and that will foster better discussion and understanding.

How is the term used overseas?

The term ‘social enterprise’ has different meanings for different people, depending on the background and experience of the person hearing it for the first time. As one objective reference point outside of New Zealand, it is useful to see how the European Social Enterprise Law Association defines it in their paper, “Developing legal systems which support social enterprise growth”. They see three key elements:

  • Entrepreneurial dimension: engagement in continuous economic activity;
  • Social dimension: primary and explicitly social purpose; and
  • Governance dimension: mechanisms to ensure priority of social purpose.

The association concludes that a good definition is: “an autonomous organisation that combines a social purpose with entrepreneurial activity”. It is interesting in this definition that there is no mention of the organisation being exclusively not for profit or for profit.

Canada has many similarities to New Zealand, so it is good to look at some of the thinking going on there. The Canadian Community Economic Development Network includes a description on its website. It gives a slightly different angle with more of an emphasis on the non-profit nature: “The term ‘social enterprise’ is used to refer to business ventures operated by non-profits, whether they are societies, charities, or co-operatives. These businesses sell goods or provide services in the market for the purpose of creating a blended return on investment, both financial and social. Their profits are returned to the business or to a social purpose, rather than maximising profits to shareholders.”

It goes on to say: “Others use a broader definition that includes privately owned ventures that have a very strong blended financial and socially responsible return on investment.”

How about in New Zealand?

Ākina Foundation has been working for years to promote social enterprise in New Zealand. The definition put forward on their website seems to focus more on a distinction between an entity which is ‘for profit’ and one which is ‘for purpose’. This is summarised down to: “Social enterprises are purpose-driven organisations that trade to deliver social and environmental impact”. Ākina doesn’t comment on whether the organization is a not-for-profit or not, which would be an assessment of structure. Instead it focuses on the ‘purpose-driven’ aspect and the main intention for the entity.

Is there a spectrum of ‘goodness’?

All these definitions are helpful but, focusing on the point of difference, it seems to come down to some part of the entity being involved in an aspect that is more than just the traditional goal of making a profit for shareholders.

But there is clearly a spectrum ranging from ‘self focused’ to ‘other focused’ and it is worth asking at what point an organisation crosses over and can be given the label of a social enterprise. For example, is there a certain percentage of ‘good’ that they need to be involved in – and how is that defined? How do you reconcile this focus on a ‘purpose’ with the fact that simply providing employment for people is very important as that helps individuals provide for their families and communities to thrive. Where are the cut-off points?

Turning to that idea of a spectrum on which different legal forms of entity sit, it can perhaps be described like this – with some overly broad characterisations thrown in to make the point:

Really ‘good’ – Not for profit

These are usually traditional charities and do not exist to create a profit but instead help disadvantaged or others.

‘Good’ – Social enterprises

These have community purposes at their heart but operate as businesses and do make profits that support their purpose.

Pretty ‘good’ – Businesses which donate

These are companies which focus on profits but do set aside a proportion of their profits for some community purpose as well.

Not as ‘good’ – Profit-focused companies

These have no charitable or community purpose (except perhaps a token gift to disaster relief from time to time).

Is such an analysis really fair? It seems to overly weight the ‘goodness’ of some organisations over others. There is a danger of going too far either way. Obviously, the above is a really crude analysis, but it has been done through certain lenses.

As mentioned above, the fact that an organisation offers employment to staff and contributes some product surely has immense positive value. So the challenging point is, perhaps, to take these lenses off and not to think in these sorts of terms at all. Instead, can we work out how to encourage all organisations to begin to take on board some of the concepts underlying social enterprise motivations. Even a ‘for profit’ company could switch its sourcing of products and services in order to help some social enterprises become economically viable. How do you increase engagement with such companies, so it is not just left to ‘social enterprises’ to be the ones who are seen to have some responsibility in this area?

How does B Corp status fit into this?

One example of a label which some companies are applying for to show where they fit on the spectrum are ‘B Corporations’. It is worth describing them in some detail as it is another dimension to consider. The B stands for ‘benefit’ and it involves a certification system for companies which meet certain criteria that show they have a focus on more than just profits. B Corporations are certified by B Lab which is a not for profit organisation. In some states in the United States there are dedicated Benefit Corporation legal structures that take the certification further. Probably the most famous example of a company which has become a B Corporate is Ben & Jerry’s ice cream. The B Corporation website says: “B Corps meet the highest standards of verified social and environmental performance, public transparency, and legal accountability, and aspire to use the power of markets to solve social and environmental problems”. In New Zealand there are around a dozen companies who have taken the step to become B Corp certified and it will be interesting to see if it takes off.

A way forward

When you first became involved in this sector the terms and concepts can be confusing, so this article has explained some of the things to consider regarding what a ‘social enterprise’ actually is. The great part is that this is a growing and evolving area so it is actually possible to be part of the debate and even shape what happens next in New Zealand and globally. In a New Zealand context it will be important to look at all the different definitions and discussions overseas and use these as a basis for constructive dialogue about defining and enabling more Social Enterprise in Aotearoa.

Next month we will turn from this discussion of what a social enterprise is and look at whether the legal framework in New Zealand that exists is enough to support their development or if a new legal structure would help.

Steven Moe is a senior associate at Parry Field Lawyers in Christchurch. He recently returned to New Zealand after 11 years overseas in London, Tokyo and Sydney.

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