Social enterprises are everywhere right now. But what are they? And how do we make sure they are not just businesses exploiting a trendy term? Lawyer Steven Moe outlines how social enterprise can become a legitimate force for good.
When the poet Robert Frost published his most famous poem ‘The Road Not Taken’ in 1916, he certainly did not have the New Zealand social enterprise sector in mind. Yet the words that end the poem seem particularly apt in the post Social Enterprise World Forum environment that we find ourselves in:
“Two roads diverged in a wood, and I —
I took the one less travelled by,
And that has made all the difference.”
Social enterprises seek to make a change in the world by combining both profit and purpose. Anecdotally there is definitely a move towards this new way of thinking being applicable for both existing businesses and new startups.
But what does the social enterprise road actually look like and how do we know if we are even on it? What shape will the social enterprise sector now take here in New Zealand, after having its profile raised by the 1600 participants who journeyed to Christchurch from all around the world?
I think there are five critical questions we need to be asking to find the answers we need – whether we are participants, advisors, regulators or just curious (or cynical) about social enterprise.
What does it actually mean to be a social enterprise?
It’s one thing to raise your hand and say you want to be a social enterprise but quite another to take active steps towards becoming one. Because there is currently no special purpose legal structure for social enterprises (see below) there is no clearly marked out road, and no criteria that have to be met before you can start using that label. Yet surely we can agree it is more than just saying you are one that is needed – something more than mere spoken words.
I think we need to empower people who do want to make a proactive decision to set up (or transform into) a social enterprise by educating them about what that might involve. In my view there are three key elements that should be present:
- First, an identifiable and explainable purpose beyond profit (it can be diverse – social, environmental or economic);
- Second, a mission lock of some kind (the organisation has demonstrably committed to that purpose and communicates it clearly to others); and
- Third, reporting on the actual tangible benefit to that mission/purpose (through distribution of profits, engagement with a particular disadvantaged group, fulfilment of purpose).
If you have those three elements in place then it is more likely that you are on the social enterprise road. Empowering people to take active steps to understand what being a social enterprise is will involve education. Australia is further down the road and has an excellent resource here.
What we really need is to develop our own resources in New Zealand, personalised to our situation. My own small attempts to kick-start the process have been a podcast (more details at the end) where I interview social entrepreneurs about what they do and why they do it, and a legal handbook and more tools for social enterprises here .
How do we ensure people don’t misuse the label ‘social enterprise’ to simply sell more stuff?
This fits with the answer to the last question like a puzzle piece. It’s all about education so that people can understand what the road less travelled looks like to ensure they are on it. There is a real danger that social enterprise becomes the latest trendy phrase used to sell more things which will damage the credibility of the sector. The world forum was excellent for shining a light on the individuals and organisations who are trying to do things a bit differently. We don’t want the ship to be hijacked by opportunists who add the phrase social enterprise to their existing business without having any of the three key elements described above. We also need to ensure that consumers learn to both ask questions and ask for accountability from those who are telling their Social Enterprise story.
How do we attract and educate investors about social enterprise?
The most critical factor for most new businesses is capital investment and social enterprises are no exception to that rule. As we move towards a world where companies combine purpose and profit, investors will increasingly take notice of the impact their investment can have. They even have a special term; “impact investors”. Yet there are differences to a traditional investment which is focussed on more than just returns on capital. What should they expect to see in terms of reporting and information about non-financial returns?
Helping investors to understand the right questions to be asking is yet another example of the education that is needed in this sector. One recent initiative announced at the Social Enterprise World Forum was the Impact Investment Network. It is intended as a way for people to learn more, connect with others, share news and events and provide tools and resources on the website here (free to join).
How do we advocate for new legal structures?
I think we need a tailored legal structure that takes the best of a company structure and the best of a charity structure and looks at other jurisdictions and we mix it all up to create something new. Rather than expand on that in detail here have a read of this earlier article to find out why, what and how this might be done.
I hope the new Government will exercise some real thought leadership in this area by seriously looking into this option, as it is a way to promote real change and would transform the scene for Social Enterprises.
Why is any of this important?
The world forum was akin to a mountain top view and now we get back to life back in the valleys where the wind doesn’t blow as strong to clear our thoughts and give us focus. Every kite felt like it would fly up there on the mountain. Why ask these sort of hard questions and not just stay living on the memory of the mountain top instead? Because this is the time where the hard work needs to kick in and we see if those kites will fly when we come down from the high places.
It is vitally important to answer each of the question above well, so that we can ensure that the Social Enterprise sector is constructed in a way that has strong foundations. If we fail to consider and work out what the answers are, then there will be lack of clarity from the beginning over what we are even talking about. Those of us involved in the Social Enterprise sector want to take that road less travelled, but we need to be clear about what being on that road actually involves in order to ensure we are traveling on it. Robert Frost ended his poem with the reflection, “that has made all the difference” – asking these questions and discovering the answers will ensure that in coming years we can offer the same conclusion.
Steven Moe is a lawyer in Christchurch who has a podcast interviewing social entrepreneurs called “Seeds: Talking Purpose” and a legal handbook that is available for free if you email him at email@example.com.
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