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Social Enterprise: The Signals Not the Noise
Moderator: Bruce McAdam
Lead Presenter: Petra Kassun-Mutch
Panelists: Keddy Chandran, Acumen-Toronto
Ryan Locke .
This evening
• What is a Social Enterprise?
• Where did the idea come from?
• Why Now?
• Today’s Social Enterprise Landscape
• Why we need a new legal Social Enterprise Form
• Where to next?
What is a Social Enterprise
What is a Social Enterprise?
• Social Mission/Purpose
• Generates revenues to achieve that purpose
• Can be profit or non-profit
• Creates Stakeholder Value
• Is that it???
Approaches to Understanding SE
• Charities/NFP inherently SE’s
• Any organization that balances social and economic goals
• Develops social capital
• For profit/not for profit hybrid forms of organization
• The purpose of a project or activity
• Has potential to develop in all sectors of the economy
Where did this idea come from?
A MISSION FIRST, FINANCIALLY
SUSTAINABLE ORGANIZATION THAT
CAN EFFECTIVELY ATTRACT
CAPITAL AND HARNESS THE
POWER OF MARKET BASED
SOLUTIONS TO AFFECT POSITIVE
SOCIAL AND ENVIRONMENTAL
CHANGE
Where did this idea come from?
Social Enterprise
New Solution
CHG in Values
CRISIS
Movement
UK, US, and
now B.C......
Social
Media
“There is one and only one social
responsibility of business — to use
its resources and engage in
activities designed to increase its
profits so long as it … engages in
open and free competition, without
deception or fraud.”2
4 Pillars of Civil Society
Meanwhile....SOCIAL MEDIA
Social Enterprise
4 PHASES OF CAPITALISM
1800-1929
• Govt BAD
• Bus GOOD
1930-1985
• Govt GOOD
• Bus BAD
1986-2008
• Gov Bad
• Bus Good
2009-
Bus Good
Govt Good
Co-ops!
33
CO-OP MOVEMENT (1920’s) SOCIAL ENTERPRISE (2000’s)
New legally recognized organizational forms
New legally recognized organizational form
Born out of a movement that developed in response to concerns about control over capital and concentration of power/ownership.
Born out of a movement that developed in response corporate corruption, environmental degradation and mounting social unrest.
MOVEMENTS IN THE PRIVATE SECTOR
The Spectrum of Options
37
SPECTRUM
Grant Funded Non-Profits
(Charity)
RETURN Social
(Charitable) Financial
(Commercial)
Traditional Business Revenue
Generating NFPs
This sector looking for
access to new funds in
face of declining
Government funding
This sector looking new
license to operate
Opportunity
Another View
The Social Finance Census: Ontario Non-Profit Network and the
Social Venture Exchange, 2010
http://www.theonn.ca/social-finance-census-2010/
39
Harnessing the Power of Business to Change The World: The Spectrum
Social Enterprises: The Target Range
Grant Funded Non-Profits
(Charity)
RETURN Social
(Charitable) Financial
(Commercial)
Traditional Business
Revenue Generating NFPs
Social Purpose Business
Social Ventures
CSR
Corp
Philanthropy
B Corporations
Honey Bee
Network
WHY NEW ORGANIZATIONAL FORM? • ENGENDER PUBLIC TRUST
– Not a traditional business
• PUT IN PLACE THE RIGHT CHECKS AND BALANCES
– Surplus distribution, reporting, asset locks, capped dividends etc to curb effects of sudden greed.
– Legal protection for stakeholders/shareholders.
• COMPETE FOR/ATTRACT CAPITAL TO THIS TYPE OF ENTERPRISE
– Tax incentives
– Risk Management
– Sustainability of enterprise=sustainability of capital
More “why”
• Allows government to stimulate social enterprises specifically, through policy initiatives and incentives such as favourable tax treatment;
• Offering clarity on limits of activity for investors, consumers
• The capacity of private sector businesses now practicing ‘more than Corporate Social Responsibility’ to further distinguish themselves from competition as authentic multiple bottom line enterprises;
Characteristics? • Are led by an economic, social, cultural, or
environmental mission consistent with a public or community benefit;
• Trade to fulfil their mission;
• Derive a substantial portion of their income from trade; and
• Reinvest the majority of their profit/surplus in the fulfilment of their mission
www.SocialTraders.au.com
And what else? • Social mission/stakeholder mandate in bylaws
• Stakeholders interests count
• Distribution of income or surpluses defined
• % of net profits assigned to community
• Asset locks
• Mission preservation in sale/transfer (Bylaws)
• 3rd Party Audit
• Integrated Report (Financial/ Social Mission)
• Reporting transparency
• Tax treatment (Enterprise, investors in Enterprise)
New Organizational Forms FORM
Community Interest Company (CIC)
BENEFIT CORPORATION
L3C CCC
Country UK (2005) 7 States/USA (2008)
9 States/USA (2008)
B.C Canada (2012)
# 3572 (2010) 519 0
Key Features Investment Meet Community Interest Test Cannot be a charity Asset Lock
Investment Articles of Incorp chg to recognize Stakeholders Reporting % to charity
Eligible for PIR/Foundation Funding
Assist communities with social issues Must devote portion of profits to community Asset lock
Favorable Tax? No No No No
Private/Public Yes Yes Yes Yes
Pay Dividends Yes but capped Yes Yes Yes but capped
Certifications?
And what about New Model/Social Entrepreneurs?
Social entrepreneurs play the role of change agents in the social sector, by:
• Adopting a mission to create and sustain social value (not just private value),
• Recognizing and relentlessly pursuing new opportunities to serve that mission,
• Engaging in a process of continuous innovation, adaptation, and learning,
• Acting boldly without being limited by resources currently in hand, and
• Exhibiting a heightened sense of accountability to the constituencies served and for the outcomes created.
• But there is are also three other factors that Dr. Dees misses in his definition. And that is: 1) Higher tolerance for risk and failure and 2) Understanding that efforts will not likely generate personal wealth 3) Ability secure capital investment.
Ecology of New Business Form & Stage of Development
Govt Policy
R & D
Educators
Consumers Social
Finance
Legal
Culture
Accounting
Principles
Micro Financi
Social Entrepren
eur
Certifications
Associatioms/Advocacy
Groups
• Any Legal form (except Charity)
• Public or Private
• Key Differentiator: Articles of Incorporation. – Social Mission & Purpose in Articles of Incorporation
– Differentiated Bylaws (Governance, Dispute Resolution, Dissolution. Reporting etc)
– Surplus (Profit) Distribution Defined
– Board Composition
– Integrated Reporting (based on GAP and SE industry reporting standards)
– Mission transfer and preservation (asset lock etc)
• Tax Code Differentiated
• 3rd Party Certification or Audits
Government
Tax incentives to investors in SEs
& SE’s themselves
Basic Reporting Principles Defined
Amend Incorporations Act to
include new legal form…
Educators There are unique operational and
leadership challenges related to SEs that
need to be researched and taught.
Financial Services Industry
Special Loan categories (RBC)
SEC Reporting Requirements (if
public)
Legal/Incorporations Act-
Std SE articles of incorporation
Transition services
Case Law around mission
preservation upon sale/exit
Social Enterprise: The signals not the noise
• ITS ABOUT CHANNELING CAPTIAL AND HARNESSING THE POWER OF BUSINESS TO BETTER OUR WORLD.
• That said, ll sectors will shift values in response to the movement towards greater responsibility to enviroment and society.
• SE need to be distinct organizational form to work—and for the sector to grow—just like Co-ops have....
• Rest of Canada needs to get going....we do have 53 companies so far who have made transition without legal recognition.
“Social Benefit” Built into DNA
Questions