Terminology Torture: What the Heck Qualifies as a Social Enterprise?

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May 21, 2014; Pro Bono Australia

NPQ has written quite a bit lately about the notion of social enterprise, and much of it reflects a combination of excitement about alternate economic arrangements and concern about a sort of vagueness in definitions and accountability schemes and an overselling or fetishization of some boutique forms.

Here, in Pro Bono Australia, Daniel Flynn of the Thankyou group, an Australian social enterprise, lodges a complaint about the vagueness embedded in the way some enthusiasts discuss social enterprise. In particular, he had quite a bit to say about a recent experience he had at the Skoll World Forum on Social Entrepreneurship: For the last five years, I’ve thought a social enterprise is a business that exists for the sole purpose of a social outcome.” Apparently his view was not fully shared at that convocation and he came away concerned about the inclusiveness of the term.

“Of course, there are creative ways to structure the business to ensure the right funding model for growth,” writes Flynn, “but all of that is done for one purpose only: maximization of social impact. The label ‘social enterprise’ has always been very inclusive and some might say too broad. Organizations like Social Enterprise UK and Social Traders in Australia have solid definitions that frame what a social enterprise should be…But unlike the charity sector, there is no regulating body to ensure these definitions are adhered to. My concern is that because there is little, if any, regulation in the social enterprise sector, there is too much room for abuse—abuse that I believe could have a serious negative impact on the sector as a whole. Let me explain. A couple of weeks back, I was sitting in a workshop room with 150 conference delegates at Skoll World Forum and I heard someone say: ‘It’s great to have Coca Cola in the room today. They are doing great work in the social enterprise space.’ I literally had to pinch myself. Did I just hear that? And it didn’t stop there. Many more major corporations were present at the event to share about their work in the area of social impact.”

By the end of the conference, writes Flynn, he was left with more questions than answers.

“After three days of hearing keynote presentations and watching awards being handed out to ‘social enterprises’, I came to the following conclusions: looking through the Skoll World Forum view of the world, if you’re an entrepreneur and your business has some slight link to social good, you’re a social entrepreneur; if you’ve succeeded in business and now have a foundation on the side, you’re a social entrepreneur; if you have a business that employs people (like every business in the world), your business is a social enterprise and if you do any form of business in the developing world, you can call your company a social enterprise. You’re probably thinking, ‘Well, what isn’t a social enterprise and who isn’t a social entrepreneur?’ Funny, because that’s the exact thought I had after the conference.”

Flynn pleads for a stricter interpretation and some standards, lest the field fuel righteous skepticism with the waftiness of its definitional and accountability frameworks. He says, “We are at a point where the term social enterprise could be captured by enthusiastic audiences doing good-on-the-side rather than businesses born out of social purpose that exist solely to provide community benefit. The term social enterprise needs to be protected through a legal form or accreditation process to ensure clear delineation between social enterprise, charities and CSR.”

In the U.S., social enterprises have struggled with definition and certification. The state certifications of low-profit limited liability corporations have been so loose that qualifying as an L3C seems to be little more than copying standard charitable purpose legislation. On benefit corporations, states have their own definitions that do not look all that difficult to meet. Governmental oversight and verification of whether L3Cs and benefit corporations are living up to their social impact missions is kind of spotty, to put it mildly. Some benefit corporations have turned to the B-Lab for a nongovernmental certification and verification process, but B-Lab is hardly a disinterested party in the results.

Given the free market predispositions of many American promoters of social enterprise, it is difficult to imagine that too many of the U.S. counterparts to Flynn and his Thankyou Group would opt for governmental oversight. As an alternative, self-regulation in the U.S., regardless of the sector, has been fraught with all kinds of disappointments.

We feel Flynn’s definitional pain, but unlike him, we aren’t quite as certain of the necessary definitional and the regulatory solutions.—Rick Cohen and Ruth McCambridge

  • Chris Hanson

    As co-founder and CEO of a Certified B-Corp., and someone who has worked in and researched the social enterprise space for 2 decades, the lack of clarity about what is a social enterprise is just a natural part of the maturation of the sector. I would be very cautious about looking to narrow the definition. We’re past the notion that “social enterprise” is defined by legal structure or by the founder’s orientation as a social entrepreneur. I also believe it is and will be difficult to define by what product or service an organization provides. As mentioned above, what differentiates a social enterprise is social impact. And, much like the for-profit sector uses financial returns to determine success, we should look to social impact assessment to determine what is a successful social enterprise. This requires the development of more assessment tools like B-Labs.

    If someone asks me how thedatabank, inc. is a social enterprise, I can talk about mission, vision, what we do, ect., but what really matters is being to show the real, tangible social benefit our work has generated. This is not limited to what our product or service is, but also how we conduct business. It includes how we treat our employees and how we participate in our community. Social enterprise should not be a confined business niche, it should be a way we all conduct business and a way for us, as consumers, to make purchasing decisions. That will change the world.

    Chris Hanson
    CEO & Co-founder
    thedatabank, inc.

  • Pamela Davis

    Thank you Flynn, for speaking out, and Ruth and Rick for elevating the issue. I am embarrassed to say that rather than speaking out, I have just given up on going to these “social enterprise” events. Having started an organization with a PRI of $1.3 million and helped it create bonafied community value of nearly $200 million in 25 years, I just can’t stomach listening to folks crowing about the sort of fluff that Flynn writes about. To me, creating social value means that the entire benefit of the social enterprise accrues to make the “commons” stronger. Anything else is just window dressing.