In this first unit, we will explain what a Social Business is and we will clarify several concepts that often can be confused. For example, ¿do you know the difference between a social entity and a social Enterprise? or the difference between a Social Enterprise and Social Corporate Responsibility? First, let’s start with the widest concept
which is Social Economy: Social Economy refers to public organisations that have other goals rather than profit. That is, that their main objective is not to have benefits for their owners but to provide goods and services either to the members of the organisation or to the community. They are non-profit organisations.
Social Economy is based in two basic principles: An external vision towards society; the organisation is considered a social instrument with a public interest. An internal vision towards the employees of the entity; the employees are considered the most important element of the entity. The term social economy appeared in France at the beginning of the 19th century and it quickly extended through other countries. These entities usually take the legal format of foundations, associations or mutuals, depending on the legal framework of each country. At the other extreme of the Social Entities Entities we find the Traditional for-profit companies. The objective of these companies is to maximise profits. Now that we have the two extremes defined.
Let’s turn to the definition of a Social Enterprise, which can be viewed as a hybrid of both types of companies. A social Enterprise belongs to the social economy because its main objective is to create a positive impact. However, a social enterprises can use use two elements that traditionally have belonged
to the traditional companies: legal format and financing Regarding legal format, a social enterprise, can be for example, a limited liability company, which is a legal format traditionally reserved for for-profit companies. The second one is how it is financed. A social enterprise does not rely completely on subsidies as usually social entities do, part of its financing come from benefits arising from its economic activity whether it’s selling goods or services. A common benchmark used for social enterprises is that 50% of its funding comes from market-based activities.
There is the concept of “asset lock”: it is a legal constraint that guarantees that the assets of the company will be only used for its social mission, even if the company dissolves or its sold. The asset lock constraints ensure that the value added created by the company remains at the disposal of the community where it is based. The term Social Enterprises appeared appeared in the early 80s but it was not fully accepted until the early 90s. Within the concept of Social Enterprises, there is a smaller group which can be identified as ‘social business’. Social Business is a term used by Prof. Muhammad Yunus to describe social enterprises in which all the benefits created by the company stay in the company.
No distribution of dividends is allowed. According to Mohammad Yunus,
the seven principles of a social business are: 1. Business objective will be to overcome poverty or one or more problems (such as education, health, technology access and environment) which threaten people and society and not profit maximization. 2. Financial and economic sustainability. 3. Investors get back their investment amount only. No dividend is given beyond investment money. 4. When investment amount is paid back, company profit stays with the company for expansion and improvement. 5. Gender sensitive and environmentally conscious. 6. Workforce gets market wage with better working conditions. 7. Do it with joy. In the next table, we summarise the similarities and differences between a Social Entities, Social Enterprises and Social Businesses. Another concept that sometimes brings confusion is Corporate Social Responsibility (CSR).
We talk about CSR when a for-profit company voluntary engages in actions to improve society in general. CSR can take many forms and be more or less integrated in the business model of the company. CSR can imply taking into account the aspects that its activity generates (to clients, employees, shareholder, communities, environment and society). This implies, for instance, complying with the relevant national and international legislation as well as legislation on Human Rights.
Looking now at the volumen that Social Economy represents: In the year 2013, 14,5 million people were employed in Europe is in the social economy, that represents 6,5% of the working population of the EU-27. The employment in social economy has grown 0.5% between 2003 and 2010. There are no numbers specifically on Social Enterprises, so we need to take the volume of the Social Economy as a whole.
There are many benefits of Social Enterprises (or Social Economy): The first benefit is that social economy economy is one of the most effective ways to preserve income and employment when there is a crisis. There are documented studies on the resilience of the cooperative business models during the Great Depression in the United States States and in Sweden after the price collapse in the 1930s. There is also greater employee satisfaction. In summary, a social Enterprise is set up because there is a social necessity identified. That necessity can be social, environmental or cultural. The company will use an economic activity, so it must be viable in the market.
Social Enterprises are usually created “bottom-up”, that means that a social need is identified in a community (bottom) and the mission is to grow (up) to solve that social need. Wherever there is a social need, there can be a social enterprise to solve it.