Transforming a conventional enterprise into a social enterprise: relevant indicators
September 5, 2022
In this first week back to work, many companies are likely thinking about their objectives for the next year. Now is a perfect time to review in detail how conventional companies can transform into social enterprises.
Although these aspects vary from country to country, below are the key features of the social enterprise (SE) in Europe. With thanks to the Social Business Initiative (SBI) promoted by the European Commission.
Entrepreneurial / economic dimension
Social enterprises (SEs) are engaged in the carrying out of stable and continuous economic activities, and hence show the typical characteristics that are shared by all enterprises.
Relevant indicators
Whether the organization is or is not incorporated (it is included in specific registers);
Whether the organisation is or is not autonomous (it is or is not controlled by public authorities or other for-profit/non-profits) and the degree of such autonomy (total or partial);
Whether members/owners contribute with risk capital (how much) and whether the enterprise relies on paid workers;
Whether there is an established procedure in case of SE bankruptcy;
Incidence of income generated by private demand, public contracting and grants (incidence over total sources of income);
Whether and to what extent SEs contribute to delivering new products and/or services that are not delivered by any other provider;
Whether and to what extent SEs contribute to developing new processes for producing or delivering products and/or services.
2. Social dimension (social aim)
The social dimension is defined by the aim and/or products delivered. SEs pursue the explicit social aim of serving the community or a specific group of people that shares a specific need. "Social" is intended in a broad sense so as to include the provision of cultural, health, educational and environmental services. By promoting the general interest, SEs overcome the traditional owner-orientation that typically distinguishes traditional cooperatives.
Relevant indicators
Whether the explicit social aim is defined at statutory/legal level or voluntarily by the SE’s members;
Whether the product/activity carried out by the SE is aimed at promoting the substantial recognition of rights enshrined in the national legislation/ constitutions;
Whether SE's action has induced changes in legislation; and
Whether the product delivered—while not contributing to fulfilling fundamental rights—contributes to improving societal wellbeing.
3. Inclusive governance ownership dimension (social means)
To identify needs and involve the stakeholders concerned in designing adequate solutions, SEs require specific ownership structures and governance models that are meant to enhance to various extents the participation of stakeholders affected by the enterprise. SEs explicitly limit the distribution of profits and have an asset lock, which prevents assets, including profits or other surpluses, lands or buildings, held by the social enterprise from being distributed to owners, thus safeguarding the public benefit pursued by the social enterprise in case of its dissolution. The non-profit distribution constraint is meant to ensure that the general-interest is safeguarded. The non-profit distribution constraint can be operationalized in different ways.
Relevant indicators
Whether SEs are open to the participation and/or involvement of new stakeholders;
Whether SEs are required by law or do adopt (in practice) decision-making processes that allow for a well-balanced representation of the various interests at play (if yes, through formal membership or informal channels that give voice to users and workers in special committees);
Whether a multi-stakeholder ownership structure is imposed by law (e.g., France);
Whether SEs are required to adopt social accounting procedures by law or they do it in practice without being obliged to;
Degree of social embeddedness (awareness of the local population of the key societal role played by the SE versus isolation of the SE);
Whether the non-profit distribution constraint is applied to owners or to stakeholders other than owners (workers and users): whether it is short-term (profits cannot/are not distributed or they are capped) or long-term (asset lock); or both short and long-term;
Whether the cap is regulated externally (by law or defined by a regulator) or it is defined by the SE bylaws; and
Whether limitations to workers’ and/or managers’ remunerations are also imposed (avoid indirect distribution of profits).
